Fears of the impact of fall in newsprint prices on TNPL are baseless. In 1993-94, newsprint made up 35.91 per cent of sales mix (in quantity terms). For 1994-95 and 1995-96, it stands at 30.8 per cent and 19.8 per cent respectively. OPM in 1993-94 was 39.06 per ce-nt, 42.3 per cent in 1994-95 and 43.91 per cent in 1995-96, implying a move away from low-yeilding newsprint.
In the 10 years prior to its IPO, TNPL never reduced newsprint prices. This speaks volumes about the management which had the foresight to move out of the product before it was shifted to OGL from May 1995.
In the budget the excise duty was hiked from 5 per cent to 10 per cent on mills using non conventional ma-terial like bagasse. Despite no duty on newsprint, TN-PL can claim modvat as countervailing duty on project imports and excise paid on domestic equipment canbe set off against excise payable on final product.
The fall in newsprint prices forced TNPL to reduce newsprint prices in July and August. After being a zero inventory company for last 7 years, it has been saddled with inventory and forced to offer discount on the basis of quantity and not on the basis of payment period.
We believe that the major problem is the offloading of eight per cent of the equity by the state government before February 1997. However, the management rules out any offer to public. Institutions will be able to pick the scrip at a very low price if the price remain soft and this is the reason for their lack of interest.
The company will avail of benefit under 80 IA of IT Act as the unit is located in backward area. MAT will have minimum impact on it. It is available at a P/E of 4.5 on 1996-97 earnings. We still recommend a buy.
