AP Paper plans Rs 554cr revamp

Modernisation programme to be funded with overall debt-equity ratio of 1.25:1

Andhra Pradesh Paper Mills (APPM) on Friday announced a major modernisation-cum-expansion plan at a cost of Rs 554 crore. The board of directors of the company, which met here on Friday, approved of the project which would be implemented by March 2007.

L N Bangur, chairman of APPM, told media persons that the revamp plan would be funded with an overall debt-equity ratio of 1.25:1. The loans, foreign as well as domestic, would be to the tune of Rs 300 crore, while equity and internal accruals would be around Rs 240 crore.

International Finance Corporation (IFC), Washington, has agreed to provide $35 million for the project and the company is also in talks with other multilateral agencies like DEG from Germany. IFC may also pick up a stake in the company. The agreement with IFC would be signed shortly, he said.

After the expansion, the stake of Bangur and associates is expected to come down to 51-55 per cent from the present 68 per cent.

The modernisation-cum-expansion programme would be taken up in two phases. Both the phases would run parallel. The first phase would see the replacement of waste paper with pulp wood completely at the Kadiam mill.

The company has two paper mills at Rajahmundry and Kadiam in Andhra Pradesh. Coastal Paper Mills, which owns Kadiam Mill, was acquired by APPM in 2001. The Kadiam Mill accounts for 55,000 tpa of the company's total capacity at 1.53 lakh tpa. The first phase would involve an expenditure of Rs 365 crore.

In the second phase, the company would focus on the paper-making process and enhance the capacity. Pulp production would be concentrated at Rajahmundry.

After the expansion, the company will see its paper and paper boards production capacity rise to 1,93,700 tonnes per annum (tpa) from the current 1,53,500 tpa. The daily capacity, which is 450 tonnes at present, would increase to 600 tonnes.

The modernisation programme would help replace the recycle paper at Kadiam Mill with virgin fibre. It would also result in high-end value-added products like pigmented paper, the lack of which was making printers import costlier coated papers.

APPM chief financial officer Sudhir Bhansali said that the company had a total outstanding debt of Rs 100 crore. It swapped high-cost debt with low-cost debt last year, thereby reducing the overall interest rates from 12.6 per cent to 8.2 per cent.

RC Mall, executive director of APPM, said that the revamp would bring about cost competitiveness through reduction in variable costs and higher productivity.

It would also help increase exports by the company. Last year, the company exported 7,800 tonnes of paper worth Rs 27 crore.

After the modernisation, the exports figure is expected to go up significantly. The company primarily exports writing and printing as well as copier paper to Southeast Asian countries, Middle East and African countries.

On self-sufficiency in raw material sourcing, he said that the company was procuring 75-80 per cent of its raw materials from its own forestry spread across 32,000 hectares in Ongole and Prakasam districts. The black cotton soil there is conducive to growing subabul and casuarina.

The company has switched over from forest-based wood and bamboo to the self-cultivated subabul and other mixed hard woods. Every year APPM distributes millions of polypot and naked seedlings of casuarina and subabul seeds virtually free of cost to the farming community.

This year, the company plans to distribute 45 million seedlings of these varieties. In the next few years, total self-sufficiency would be achieved, he said.