With a huge and diversified portfolio within pulp and paper, BILT’s journey to lead the tissue business in India is almost complete after Premier’s acquisition.
BILT, one of India’s leading players in the paper and pulp industry with a strong presence across the entire value chain. The company owns a hugely diversified portfolio whose management warrants an organization structure that is best suited to carry out different key functions across the entire pulp and paper value chain. With these objectives in mind, BILT has undergone an organization restructuring over the last few years to have a market focused approach to the business in various segments of strategic importance.
The majority paper business is now earmarked under Bilt Paper B.V. (earlier Ballarpur International Graphic Paper Holdings B.V.) excluding specialty and tissue paper business under direct access of BILT. Bilt Paper B.V. has further subsidiaries namely Sabah Forest Industries (SFI) that operates the Malaysian business and BILT Graphic Paper Products Limited (BGPPL) that has four plants in India–Ballarpur (Maharashtra), Bhigwan (Maharashtra), Ashti (Maharashtra) and Sewa (Odisha).
BILT has been undergoing big ticket expansion and modernization of facilities across India and Malaysia which concluded in 2014. Despite of its mammoth investment in complex modernization program, BILT has displayed resilience to overcome challenges and for the year ended June 2014 (FY2014), net sales grew by 7.5 percent to Rs. 5,220 Crore; EBIDTA rose by 8.3 percent to Rs. 948 Crore; and operating margins (EBIDTA/Net Sales) increased by 20 basis points to 18.2 percent.
As per BILT’s 2013-14 annual report, it has approximately 38 percent market share in coated wood-free, 42 percent market share in blade coated wood-free and 25 percent share in the high-end uncoated wood-free market. In Malaysia, it has around 24 percent market share in the uncoated wood-free segment
Paper Mart recently had the opportunity to talk to Mr. Anup Kansal, CEO, Ballarpur Industries Ltd & its wholly owned subsidiary Premier Tissues India Limited, who has been charged with overseeing the Specialty Pulp Business (AP Rayon), Specialty Paper Business, Tissue & Hygiene Product Business (Premier Tissues), and Industrial Packaging (Paper Sack) Business, to know what exactly is happening in tissue and packaging business segments of the company. Excerpts:
Paper Mart: As CEO now, you are heading important segments specialty paper, tissue, pulp and packaging at BILT. Tell us your experiences at Ballarpur Industries.
Anup Kansal: Well, by some standards, I am an old timer at Ballarpur. I worked for the company from 1999 to 2006 for six and a half years and then again from 2009 to present. In between, I joined as General Manager – Marketing, Saint-Gobain Abrasives in 2006. After I rejoined, my assignments have evolved over a period of time and have taken shape to my present responsibilities. I joined as VP-Business System, and then became Chief Operating Officer in 2011. Then, it evolved into CEO position last year. As anybody working here will vouch for, BILT is a great place to work. If someone takes an initiative, he is granted full ownership in its execution and he may act like an entrepreneur. That’s the best part of it.
PM: Share with us some of the developments which you initiated.
AK: Multiple things done, primarily within APR Packaging where we are trying to look at different segments in different ways going beyond cement packaging. The cement industry has been struggling with overall growth impacting our packaging business. So, the idea is to look beyond cement and come up with a more diversified portfolio with aligning our manufacturing process aimed at catering to variety of industries which have different requirements than what cement has.
On the market side, we have expanded the distribution network and strengthened the marketing team. All that we are trying to do is to have a wider portfolio that we have now.
On tissue business, BILT had a small tissue division which was based on sourcing completely. BILT did not have manufacturing facility. However, since BILT wanted to enter into tissue business for long term, it started looking for an acquisition which came forth in the form of Premier Tissues which we acquired in March 2011. After the acquisition, we have taken various initiatives and the company fortunately is doing a lot better than it was doing previously.
PM: Would you elaborate more on how Premier Tissues was before acquisition and how it is doing now?
AK: Premier Tissues, in the last few years before acquisition, had stopped growing in the domestic market. Whatever small growth was coming was coming out of exports which again is very-very volatile sort of business – it can come and go in quick successions and margins being very low. It was just about filling up the capacities and trying to get some topline growth.
At that point of time, Premier had just two brands – Premier and Royal –with their footprints in the domestic market confined to south and western India. Premier’s presence in north and eastern India was practically zero. Premier back then was not making any money.
After we acquired it, we did couple of things to put it back on track. We put the focus back on the domestic market because that’s where the sustainable growth can be derived from. The focus was not only shifted away from exports, it was also assured that whatever export we do, we do at healthy margins.
Moreover, BILT already had two brands – Spruce Up and Etiquette – which was becoming too much for us. Spruce Up didn’t have a separate or independent identity other than what Premier brand had. So we did away with Spruce Up and, at the same time, a clear cut brand positioning was also brought in for Etiquette brand. Finally, we had a portfolio of three brands.
Further, we expanded our overall distribution by reaching out to northern and eastern part of the country as well. Today, as you might have noticed, Premier is present Pan India. We have been able to consistently grow in these last four years – even higher than the market growth rate and at a much better, healthier margin. We are a profit making company now.
PM: In terms of capacity, what was the capacity Premier had prior to acquisition and at what capacity it’s operating now?
AK: Premier, at that point of time, was operating at barely 50 percent of its capacity. Today, we are almost utilizing its full capacity besides some additional sourcing. We are buying tissue jumbos for conversions, and also certain converted products, from outside so as to sustain the growth for some more time until we make some investments. When we decide for the investment, it surely would be big enough for expanding scale and size. There is a time when the growths from sourcing and manufacturing can be clubbed together to have a fully integrated facility.
We also have a portfolio, which did not exist with Premier earlier, of non-tissue products such as aluminum foil, wet wipes, etc. under Premier and Etiquette brands.
PM: How much tissue are you manufacturing every month?
AK: We are doing about 350 tonnes of tissue which we manufacture ourselves in addition to a significant portion sourced from outside.
PM: The quantity of converted products you are marketing?
AK: Converted products would be in the excess of 400 tonnes/month and then there are non-tissue products.
PM: Did BILT’s idea to become a leading player of tissue business see the ground with this acquisition?
AK: yes, I think so. I would rather say, in the Indian context, Premier was the best brand and overall asset available which we acquired. The other brands, whether available for acquisition or otherwise, were not as good as Premier. Pudumjee is there, but is primarily in institutional tissue business, not so much in retail space. We wanted a consumer facing kind of a business and only Premier was a name worth mentioning in this regards.
PM: Whenever it comes to marketing tissue, an institutional vs. retail theory comes into play. Please shed some light on it.
AK: Let me explain. In traditional Indian society, people hate anything which is disposable. Here most people don’t want to throw away things. They want to use, reuse, refurbish and reuse things again and again. Tissue is something fundamentally out of place in the Indian cultural context. That’s the reason why tissue use is still quite minimal in our country. Even in a country like Bangladesh, per capita tissue consumption is higher than that in India.
In India, institutional market preceded the retail market and, in a way, whatever we see today in tissue consumption has got infused through institutional customers. Initially, we had situation where hotels, restaurants, hospitals, offices, etc. started putting up tissues instead of cloth napkins. Later on, hand towels and tissue rolls followed in the process. That’s how the Indian public, the working middle class, started getting introduced to tissue. Until recently the institutional market was much bigger than it is now as compared to the consumer market. However, now the consumer market is catching up really fast and is growing faster actually.
Institutional market today is moving from introducing tissue use to a more efficient use of tissues by finding out newer products for minimization of wastages with folds and dispensing systems. From C-folds, people have moved to M-folds, Z-folds, and the latest HRT towels. All these things are designed to avoid the wastage without compromising the convenience. All these things have, for a brief period, resulted in actually the tissue consumption going down in institutional market by virtue of reduced wastages.
On the other hand, consumer tissue continued to grow because of new products, new brands and wider choices available on the shelf for the consumers to choose. So, definitely the consumer segment is growing much faster, and in the foreseeable future it will continue to grow further.
PM: What, in your opinion, are the main growth drivers for the tissue market in India?
AK: While a set of consumers are adopting tissue in household or other places, one big questions remains of affordability. Tissue is still seen as luxury because of the cultural context. If you look at the taxation structure which exists for tissue, I think it’s pretty high. If hygiene has to be promoted in India, tissue will play a big role. So, the taxation has to be more rational and tissue should be seen as a hygiene product and not as a luxury product.
Because of lower volumes and a variety of reasons, the trade margins are very high in this segment which should also get rationalized over a period of time. I think, in all this, GST would play a big role. If these things are corrected, tissue will become more affordable to consumers and will continue to grow. It also will be a significant component in ongoing ‘Swachh Bharat’.
If you look at the consumer tissue prices in-the-shelf (what it costs consumer, not what it is to retailer or distributor), tissue prices overseas are much lower than what they are in India because of these two reasons – taxation and trade margins.
PM: Coming to trade margins, do you think the online shopping boom will provide some relief in coming times?
AK: It’s too early to say because tissue happens to be a minuscule category on online business side, not a really focused category. Any kind of soothsaying would not be appropriate for me. Online shopping is evolving, and we are watching it closely of course. But, yes, in future online trade would play a big part and an educated guess is that it would help bring the product to consumer and perhaps at lower margin and lower cost. But, how it will evolve exactly, what kind of minor/major trends will happen, etc. has yet to be seen.
PM: Now, Ballarpur being the market leader in tissue business in India, what according to you are the market size and the growth rate of jumbo rolls and converted tissue products in India?
AK: Overall market demand is around 10-12 percent where consumer market may be leading by 14-15 percent and institutional market being in single digit growth rate. I really don’t have specific hang on the subject, but that’s roughly how the market is going to grow. The overall tissue consumption in India is only 100,000 tonnes annually which is very-very small. However, it’s definitely going to grow.
Fortunately, some of the bigger players are now taking interest which will help the market grow faster bringing more consumer awareness. Right now, most of the tissue industry works more as an unorganized sector – about 200 converters with the market size of 100,000 tonnes; 200 is a very-very conservative number. Most of the small converters are not even listed in the excise duty, so it’s quite difficult to tap them.
PM: What about hard kind of tissue grades in this 100,000 tonnes?
AK: Hard tissue is something which started the market run because soft tissues were not available with right prices. Hard tissue still remains within pocket, but it has kind of stagnated now with more and more soft tissue becoming available as consumers are getting more sensitive towards quality. I think things like hard tissue will get phased out over a period of time.
PM: International players like Kimberly Clark, SCA, APP, etc. are becoming more conspicuous with their presence in the India market place. How do you interpret your competition with them?
AK: Of course, the presence of these players indicates good days for the tissue industry in the future. The unorganized players don’t do any good to the industry because they don’t comply with standards and regulations. What they write and promise for size and quantities, they don’t deliver. We have seen many specific examples of this nature through our market intelligence. We have found that consumers are heavily shortchanged by these kinds of products. It’s a kind of discouragement to the growth of the industry.
People like SCA, etc. coming will surely help because of the kind of work they do for developing the market. Kimberly Clark, for reasons best known to them, confine themselves purely to AfH tissue market only. Moreover, they have been here for quite some time now – may be 20 years. APP’s Paseo has been around, but there have been half-hearted efforts and they have not done much in terms of developing the market. However, SCA coming in, I’m upbeat about it. Now, tissue industry would have at least one more player who looks at nurturing the market rather than just selling the commodity in it.
PM: Do you feel that APP may pose some threat to the existing players if they decide to put up some capacity in India?
AK: So far I have not seen anything from APP which makes them a serious contender in the Indian tissue market. They have strategies and they are definitely a potentially strong player with some good plans for India. So I hope that they would take some initiatives in developing the industry.
PM: Besides this tissue segment, you also handle the Yamunanagar specialty paper division. Tell us what BILT is producing there?
AK: Yamunanagar makes certain high value products such as Executive Bond, BCB, parchment paper, cartridge paper, and some other high value printing papers. We are also looking at developing some new products which is a constant exercise. For instance, we have, in our repertoire, a technically developed product, with the characteristics of controlled burning, to be used in mosquito repellents. We have developed the base paper for that.
PM: As far as we recall, Yamunanagar unit is quite old with rather small and aged machineries. Is it still profitable as you are creating some high value products from there?
AK: In fact, the kind of product mix we get from that plant is very high value addition to our portfolio. And, of course, it’s a profitable unit. For specialty paper, you require smaller machines. What you also need is the technical knowhow which is abundantly available as Yamunanagar has a longstanding tradition of innovation on the process and production side. Those are USPs we have at that plant.
Smaller machines in case of specialty paper are an advantage rather than a disadvantage. Specialty products, by the very definition, would be low volume. You require frequent grade changes, volume changes, etc. On large machines, you often can’t produce such small volumes. We can produce, at Yamunanagar, also 10-20 tonnes if need be. We have the knowhow and infrastructure which can cater to smaller requirements.
PM: Tell us more about nature of the specialty paper and its market scenario. Has the import in this segment created somewhat noticeable footprint in the market?
AK: See, specialty paper is very open ended kind of avenue. You can have a variety of specialty paper and in many cases it will require special kinds of equipments to make one specific type of specialty paper which may or may not be with us. So we have to pick and choose what makes sense for us.
On market side, the approach towards market has to be very different from what it would be for any other grades of paper, be it packaging paper board or printing paper, where it’s more like a commodity approach. You produce paper, good quality and decent enough, push it into the trade channels and that’s it; whereas in case of specialty paper, you need to have in mind a customer who is looking for a certain kind of solution.
Many a times, one particular specialty paper from papermaker’s perspective may not be a specialty paper. From user’s perspective, a slight tweak in one property of an existing commodity kind of paper becomes specialty for him because of being specific application oriented. However, specialty paper traditionally from a papermaker’s perspective is quite different from what we are looking at. We are looking at specialty, application based paper which will cater to specific requirements. It’s a customized solution which we are looking at. That’s why I gave the example of paper with controlled burning rate; other than that feature, it’s just a normal paper.
PM: Any development at Kamlapuram unit?
AK: We are expecting certain developments which I don’t wish to talk right now. On the packaging side, of course, we need to go beyond cement. For whatever reasons, cement industry’s shift towards more and more paper based packaging did not happen as was desirable. So, we are looking at different industries like cereals, chemicals, construction material, etc.