on the industry's prospects. Excerpts: Scale is all-important in any commodity business. How is Ballarpur placed globally in terms of size?
We are 90th out of 30,000 companies. But we are number one in India. This is important because India is where the action is. At the same time, the challenges for doing business in India are much greater than anywhere else.
The policy framework in India is not conducive for growth. The fibre challenge is very intense. Water is a bigger challenge as the process of making paper is extremely water intensive. Then there is the excise duty of 16 per cent. Is paper a luxury item?
The government gives fiscal benefits to paper mills using agricultural waste. The quality of this paper is not the same as that of wood-based paper. Had it worked, the whole world would have switched to agricultural waste a long time back. There are also no large users here. These are all large entry barriers.
So you are happy doing business in this protected environment?
I am okay. As the market leader, we have unlocked a lot of value for our shareholders.
The issue is that you can't depend on bought out fibre for ever. That is why we want to go global. But the government says no to corporates that want to take up forestry and at the same time makes it difficult for us to put up plantations abroad. Western companies go to Africa after taking money from their governments. Grants and aid are provided by the governments. The cost of putting up a pulp and paper mill of a global size is at least $1 billion. A plantation costs another $150 million. We do have the capacity to raise funds, but we are not seen as a core industry.
You have been talking of acquiring plantations abroad for quite some time now. What is the progress?
It takes time. Land is a sensitive issue all over the world.
China is a much bigger market than India. Aren't you missing out on all the action that is taking place there?
The growth is much higher in China which consumes 50 million tonnes of paper and board. We are still at 8 million tonnes including pulp. In China, high manufacturing is driving the growth of the paper industry. The huge export of finished goods requires large quantities of paper for packaging, instruction manuals and so on. That is not happening out of India.
But if you look at the paper producers there, apart from two, all others are state-owned enterprises. There is no point in going to compete there. If you spend $1 billion to go there and work on a two per cent margin, the chickens will soon come home to roost. The world's paper makers are not willing to enter India or China. My own market is doing fine. The pulp cycle is good. The weakening of the euro will help further.
But isn't the Indian paper market still locked at the bottom of the value chain?
A large part of the market continues to be at the lower end. And for some time, India will remain a value for money market. But the top end is showing high levels of growth. There is very little substitution at the top. Quality is now the major discerning factor. We are seeing very high growth in printing and copier paper. That is why we are investing in high-end machines to make printing and copier paper.
We have commissioned a study to put up another 400,000 tonnes of capacity. That will take our capacity to over a million tonnes per annum. This will put us amongst the top 25-30 paper producers of the world. The market is changing. We need to position ourselves with assets of a large size. We see the equation differently. A lot of our competitors don't have the scale.
Does that mean you will not go for acquisitions in the future?
It is not the way forward. You have fragmented machine sizes that give you a small market share. When you buy older assets, you are not doing justice to your strategy.
In spite of being the country's largest paper company, you have stayed away from newsprint.
In the last seven to 10 years, the newsprint industry has been a disaster. There is no product differentiation. Producing newsprint is an energy-intensive process and there are only two routes for making it. That is not a business we want to be in.
