Orissa plant will help improve JK Paper’s realisations

JK Paper commissioned its Rs. 1,750-crore expansion at Rayagada, Orissa, last month adding nearly 60 per cent to its paper production capacity. The expansion comes at a time when the general economic scene is slow, costs are on the rise and the paper industry has seen a huge increase in capacity in recent years, particularly in the printing and writing paper. 

Harshpati Singhania, Vice-Chairman and Managing Director, JK Paper, shares with Business Line his views on the impact the expansion will have on the company and the outlook in the market. 

What does the expansion mean for JK Paper?

 

The expansion adds an annual pulping capacity of 2.15 lakh tonnes; paper capacity of 1.65 lakh tonnes; and a captive power generation of 55 MW. The existing paper machine capacity totalling 2.9 lakh tonnes will continue to run fully. 

The plant adds to JK Paper’s scale and volume. Cost of production will go down and margins will increase due to this fully automated plant. The full capacity will be reached in a few months. It is also environmentally-friendly in terms of natural resources as it will consume less of chemicals and energy.

The company’s paper production will go up to 4.55 lakh tonnes. 

You had actually planned to rationalise some production… What will be the product range?

Yes, some time ago. But we decided to run all the older machines too, as subsequently we found a way to be profitable. 

The product range will essentially be more grades of office paper. The company will also re-enter maplitho – it is a pioneer in this segment which it introduced in the 1960s.

JK Paper is a leader in copier papers and hopefully we will be able to increase market share. In fact, in the last couple of years we have been product-starved. 

Is the increase in capacity a concern in the present market conditions? 

Right now finished goods inventory is at the lowest it has been in a few years. The entire industry is carrying fairly low stock which is an indication that whatever is being produced is being used. JK Paper has added volumes at a time when other capacity additions have been absorbed – so it should not be such a big issue.

Also, the industry has been exporting and will continue to export.

Even domestically, inspite of being the market leader in office paper, we believe we are under represented, we could sell more.

What does the rupee depreciation mean for you? Other exporting countries are also seeing their currencies depreciate...

There is better realisation from exports so this will increase. Also on the positive side, cheap imports of coated paper have been hit. This gives JK Paper an opportunity to correct some of its selling prices.

But the industry is adversely hit on imports of wood, pulp, coal and chemicals. There has been a steep increase in costs.

As for competition, India is a small exporter, about 1.5 lakh tonnes annually of printing and writing paper. 

How has the market reacted to paper price increases?

 

So far they have been well absorbed. The hikes have been driven by increasing costs and margins being squeezed.

JK Paper has increased prices and intends to increase if further in October as well because of cost pressure. The company will benefit from the twin factors of increasing realisation and decreasing cost of production from the expansion.

How is JK Paper positioned on raw material – wood pulp and wood?

 

We will be meeting a majority of our wood pulp requirement through this expansion. But there will be some percentage of imports because of our decision to run existing capacity and also to improve the quality of output.

The industry itself is in an adverse position vis-à-vis wood in terms of price and availability. For the first time, the 100-year-old industry has imported wood and wood chips. That is because there is no plantation policy.

Three years ago, a disease outbreak hit tree plantations in Andhra Pradesh and gross tonnage of wood available dropped. Though companies have stepped up farm forestry it will be a couple of years more before normalcy is restored. JK Paper has over 100,000 ha under farm forestry and it focuses on developing areas within 100-200 km. This will mean that it will be natural buyer of choice for the farmers. 

What are the concerns in the coming year?

 

Major concerns will be the availability of wood and pricing, petroleum-based chemicals and the impact of the rupee-US dollar parity. In the domestic markets the overall economic growth and interest rate fluctuations will have to be seen.

But, at the end of the day, the fundamentals for growth of paper are strong — it is driven by trade and commerce. There is no demand contraction even if the rate of growth varies.