JK Paper Ltd. is India’s largest producer of branded cut size papers and a leading player in the fine papers and packaging board segments. Grappling the major chunk in the copier segment and growing it year on year basis involves capital investment, workforce and other resources but the most important element that makes all the things worthwhile is the strategy and its rightful execution. In an interaction with Mr. A.K. Ghosh who spearheads the sales and marketing operations at JK paper ltd., he took us through the market strategies of JK Paper, their focus on product development, its strength and critical success factors highlighted below.

Paper Mart: Highlight the marketing strategy of JK Paper and its focus on product development.

AK Ghosh: When paper industry was content with producing ordinary cream wove quality, JK pioneered in 1962 the surface sized maplitho paper – popularly came to be called ‘JK Maplitho’ – a premium quality printing paper ideally suited for the litho printing process. We went further and the real transformation in marketing began in early 1990’s viz. JK Paper’s customer driven business approach.

Advancements in printing technology in copier machines, with upgradation from liquid toner printing to dry toner and now digital printing – saw evolution of a premium and brighter copier paper – made to exacting specifications – in consumer friendly packs of various sizes.

JK Paper was quick to see the opportunity of introducing ‘Mill Pack’ as compared to ‘Local Cut Packs’ of copier papers available in the market that time – giving birth to largest copier paper brand in the country – ‘JK Copier’ – no machine jamming, whiter & brighter, excellent edge finish and print results.

JK Paper was among earliest to invest in state-of-the-art A4 cutting lines for mass production of these products. JK Copier’s status as the largest selling multi-functional office paper is not by chance but its efforts over the years.

Apart from JK Copier, JK Easy Copier and Sparkle, we also introduced JK Copier Plus, CEDAR etc to meet the requirements of corporate executives as also to meet the demand from printers for high quality premium writing and printing paper.

Branding approach + diversification into coated and virgin board segment has helped us to be present in all the fast growing paper and board segments of the market (the only Indian paper co. to have this distinction).

Introducing ColorLok is yet another milestone in our efforts and market initiatives to be ahead of the curve. JK Paper has signed an agreement with HP to be the first Indian paper company to make ColorLok papers in India.

It is important to emphasize that this will also provide “true-value-for-money”. It substantially reduces printing costs and helps reduce environmental wastes. It will also, by making printers run smoothly, increase life of printers themselves.

Branding and marketing of JK Paper is being greatly facilitated by wide marketing/channel distributors. Some of these have been with us for a very long time. Good quality products require good technology and quality people.

PM: Elaborate on the strengths that a company such as JK Paper brings to the table.

AKG: JK Paper has been constantly creating value in a highly capital intensive and cyclical business, where volume is traditionally considered as key profit driver. Most companies concentrated on increasing capacity but JK Paper responded with a brand driven strategy, with customer at its heart. We were able to make JK Paper synonymous with premium quality paper and this is reflected in customer’s trust in its products enjoying the ‘Brand’ status among its competitors. It is the ability to understand customers’ expectation / aspirations and fulfil their needs and requirements that had given us the “first mover advantage” in many products.

PM: Highlight the factors that seem critical for JK to succeed in emerging markets.

AKG: It is essential to ensure that JK Paper service different pricing points without sacrificing quality standards. This is why we have two distinct brands JK Copier and JK Easy Copier: for high end market and lower end market respectively. Sparkle’ is yet another brand introduced to meet the middle segment of the market and face competition from new products launched by other paper producers in the country. We also went for modern technology and focussed on “size” whenever we took capacity expansion. This helped us to gain economies of scale on one hand and resource conservation on the other.

Apart from catering to the domestic market we have also been making efforts to penetrate global market. Our efforts have been rewarded with a special export award from CAPEXIL for 2010-11.

Constant innovation, eye for managerial and operational efficiency through programs like TPM helped us to save on costs on a wide front. The fact that we largely have an “in-house” pulp capacity to meet our requirements also helped us to overcome volatilities in price of market pulp also helped us in a significant manner.

It is important that we make available all varieties and at various price points to cater to a wide range of customers and their varied requirements. Paper is still considered as a commodity or “a white piece” and it is important to differentiate our products from the rest in the market place. The critical factor would be to augment our branding to commodity marketing like paper, particularly when copier paper is emerging now almost like a FMCG product.

PM: Where do you see W&P segment in the coming 5 years?

AKG: Currently W&P segment size is about 5 million tons per year. It is likely to grow by 9-10% annually so over the coming 5-6 years one would see the market expanding to around 8 million tons per year. Copier and coated, however, are growing faster than the overall W&P segment. I see a combined size for coated plus copier at around 2 million or doubling from annual 1 million today.

The point is we shall see a further shift in output mix that favours branded and value added products and at the expense of traditional varieties like maplitho, cream wove etc. I also visualise a big demand growth from digital printing segment and these would require high quality papers like ColorLok etc. Competition is bound to intensify and only those with good understanding and meeting the aspiration of customers will succeed.

To give a global perspective, it is clear that markets in developed countries are likely to grow slowly if at all and most of the growth will come from emerging countries including India. This is all the more so in recent years when we saw recession in many advanced countries and this in turn accentuated the stagnancy in demand for paper in these countries. Add to this, the growing competition from electronic media like internet advertising, I-Pad & smart phones in these countries. Thus, I would not be surprised to see India emerging among the top global pulp and paper players over the next decade and possibly earlier as well.

While this is a good sign as it reflects greater opportunities we would also see foreign players eyeing this market either through exports to India or setting up production bases. Competition is therefore like to become intense.

PM: What are the biggest growth constraints in the Writing & Printing Segment?

AKG: The challenge is to be among the low cost producers but with high quality products. Economies of scale and modern technology will thus become far more important than now. These are important not only from cost point of view but also from the fact that resources like water and energy will become scarce and also environmental issues will occupy greater relevance then. Besides I also see raw material availability as a major challenge.

The Heimbach head quarter and manufacturing plant in Dueren, Germany.

In 1811, a time when Napoleon still reigned in the Dueren region in Germany, Thomas Joseph Heimbach laid the foundation stone of today’s Heimbach. By the middle of the 19th century, Heimbach had already ceased to produce any clothing apparel and was focussed exclusively on the manufacture of felts for paper machines. With a product portfolio including forming fabrics, press felts and dryer fabrics, as well as transfer and shoe press belts, Heimbach now supplies clothing for around 5,000 paper machines in 80 countries. This is a result of intensive research and product development, a modern sales structure and advanced production technologies. Heimbach reinvests at least 4% of the group sales turnover into innovative R&D projects. Currently the entire Heimbach Group employs 1,561 people worldwide working in the Paper Machine Clothing, Filtration or Technical Textiles division. Here we present the excerpts of the interaction with Mr. Herbert Loehrer – Managing Director, Heimbach Asia.

Paper Mart: How Heimbach has emerged into the global markets?

Herbert Loehrer: Simultaneous to the ambitious development of the parent company in Düren, Heimbach took steps to establish its’ global position and business activities by acquiring interests and establishing production facilities abroad. The first connections with Conrad Munzinger AG in Olten, Switzerland took place in 1924. Internationalisation gathered pace at the beginning of the 1970’s with the setting up of production in Burgos, Spain, and the acquisition of the felt manufacturer R. Bruch & Cie, just across the border in Belgium. Through the founding of a further production site in Tralee, Ireland, and the subsequent takeover in 1991 of C. H. Johnson Ltd., today Heimbach UK, the company began to expand its’ forming fabric division. A felt factory in Atlanta, USA, was established jointly with the Canadian Johnson Group in 1980.

Further the thoughts turned towards Asia and a sales centre was opened in 2003 with an American partner. The green light for a new production facility in China was given around the same time. Collaboration with our transatlantic partner became increasingly difficult, and following the break-up of this partnership Heimbach opened its’ own sales company in Singapore in 2006, and immediately began to build up a factory in Suzhou, China. Heimbach’s motto since 1811 has always been – “experience and innovation at the same time.” This will remain so in the future.

PM: What are the parameters which should be kept in mind to analyze the Performance of Paper Machine Clothing?

HL: Among others some of the key factors to be mentioned here are definitely excellent runnability combined with efficiency-oriented, energy-saving and thus eco-friendly application.

PM: Reducing Cost & Increasing Efficiency is the key to any business. How Paper Machine Clothing and specifically solutions from Heimbach can help Paper Industry on this?

HL: Paper machine clothing plays not only an essential role to the functioning and performance of a paper machine, but also contributes significantly to the efficiency of a paper machine from headbox to reel. We understand that in the future the question of price of clothing will take second place to its efficiency potential. Heimbach has long understood the demand profile of its customers as a “creative imperative” – and with successful clothing innovations for the whole paper machine has translated these demands into practice. For example, the unique Heimbach ATROCROSS non-woven felt design, which has proven itself as an extremely fast starter and outstanding “nip dewaterer” on most of the shoe presses including single shoe presses of fast running machines worldwide.

Mr. Herbert Loehrer - MD, Heimbach Asia

Another example is Heimbach’s new generation of multi-axial felts. Primarily developed for the packaging paper industry, the robust and versatile ATROMAXX.M press felt has proved its maximum dewatering efficiency & life especially in brown paper grade production. Whereas the ATROMAXX.XF multi-axial felt ensures a high level of openness for rapid dewatering with simultaneously high surface integrity designed to meet the increased demands on minimizing marking potential over the whole felt life.

In the belting section, Heimbach offers a complete new generation of transferbelt, Heimbach’s WEBMOVER. The patented paper-side surface and the unique completely embedded cross section ensure an outstanding long life time without any need of maintenance. In order to achieve an optimal runnability the roll side of the WEBMOVER is equipped with a structure for trouble free roll side water management and guiding.

PM: Energy cost is a critical aspect of paper manufacturing process. How can the same be reduced with right paper machine clothing?

HL: With energy expenditures accounting for up to 35% of total manufacturing costs, pulp and paper producers have always had a strong incentive to improve energy efficiency, especially when talking about cost savings.

It is commonly accepted that the dryer section of a paper machine is the largest consumer of energy. Therefore, dryer fabric designs, which provide a balanced interaction of a very high contact area combined with a homogeneous surface and optimal distribution of the evaporation channels lead to the best possible energy utilization. With our secoplan product range, Heimbach offers high dimensional stable, very fine and thin dryer screens with a special energy friendly performance profile.

However, reaching the maximum dewatering potential in the forming and press section will always have positive consequences on the overall energy consumption in the dryer section. The opportunities to optimize and conserve energy in the forming section and press section exist and are often overlooked.

The areas of focus to save energy in the forming section are in the vacuum and drive systems. In order to be able to successfully increase dryness ex-couch and reduce energy through vacuum optimization and reduction, it is essential to apply a suitable forming fabric design, which meets all of today’s requirements – from highest retention to maximum dimensional stability. In addition to this, forming fabric materials have a considerable influence on the energy consumption of drive components. Compared to the conventional used weft monofilament materials, which is Polyester and Polyamide, the Duralon containing Heimbach forming fabrics have a significantly lower coefficient of friction. The application of Duralon containing forming fabrics results into reduced power consumption of the drive components and consequently to less energy costs.

The energy saving possibilities in the press section can be realized by optimization of the dewatering situation, which means maximizing the nip dewatering especially in high speed machines. With maximized nip-dewatering the Uhle box vacuum can be reduced with an immediate energy saving. Optimized nip-dewatering brings not only energy savings, but also the highest total dewatering (=higher dry content) and better sheet profiles. This will result in fewer breaks and better sheet quality. Heimbach’s non-woven ATROCROSS substrate felt offers here the best possibilities, especially in fast running machines.

PM: What future innovations / developments can we expect in paper machine clothing?

HL: One major innovation is the expansion of the forming fabric range to include thinner fabrics with energy-saving properties to reduce friction and hence drive power. There will also be felts that are not woven in the traditional way but are based on innovative surface technologies to facilitate different dewatering effects.

PM: Lastly, what kind of presence does Heimbach has in Indian Paper Industry?

HL: India, with its fast development and enormous economic potential, had been one of our first target markets in whole Asia. We can proudly look back to almost 20 years of a strong and successful partnership with our agency Foresight International, located in Jaipur. We highly appreciate Foresight’s profound paper technology expertise and their focus on high quality service, which are key requirements of our success. Thus, we consider Foresight as our ideal partner to further grow and increase our PMC business in India. The Indian team is fully supported by our Heimbach product managers and technical experts based in our professional competence center in Singapore. Due to our advanced technology and our strong focus on innovations as well as our highly qualified technical service team, we enjoy a good reputation in the Indian market and are supplying to the biggest paper manufacturers in India. We feel fully prepared to take on the challenges the Indian paper industry and market does offer in the near future.

Mr. Paul Brown - Executive Chairman, Andhra Pradesh Paper Mills Ltd.

On October 14, 2011 International Paper (IP) announced that it has completed the acquisition of a 75 percent stake in Andhra Pradesh Paper Mills (APPM). IP purchased 53.5 percent of the APPM shares from Mr. L.N. Bangur and related family members and affiliates for approximately US$226 million in cash. They have also entered into a not to compete agreement, for which they received a cash payment of US$57 million. In addition, International Paper acquired an additional 21.5 percent of APPM shares in a public tender offer completed on October 8, 2011, for approximately US$105 million in cash. Mr. Paul Brown, President, IP India, has become executive chairman of the APPM.

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After the announcement of APPM acquisition by IP, we had an interaction with Mr. Paul Brown in our Apr-May 2011, issue. Now with the completion of the acquisition it was right time to take a snapshot of the comprehensive plan of action which IP has chalked down on paper, the only thing that is left is the execution. During the interaction Mr. Paul Brown highlighted the way forward by saying “It’s a marathon, not a sprint”.

Paper Mart: You have recently completed the acquisition of APPM and now come the prioritizing aspect. Kindly summarize on your stepwise program ahead for APPM?

Paul Brown: We are taking a few months to learn more about the company, get to know the people and discover opportunities for improvement. IP technical experts are beginning to visit APPM and APPM managers are beginning to visit IP operations in the U.S. A long range facility plan for the mills is under development and this will be our roadmap for further investment. We are also getting to know APPM’s distributor network, and learning about the market for APPM’s products. IP’s impact on APPM will happen at a steady and positive pace but we are mindful that APPM has a business to run and customers to satisfy, so I don’t think anyone will detect sudden changes in the way APPM operates. It’s a marathon, not a sprint.

PM: M&A’s are highly effective means of achieving rapid corporate growth, penetrating into new markets and gaining a number of other strategic advantages. But they are also complex endeavors that require swiftly integrating resources and systems of different companies to realize the projected synergies. What steps are planned to ensure smooth integration of diverse corporate cultures and bridging fundamental differences in management style?

PB: International Paper has plenty of experience integrating acquired companies around the world. I’ve been deeply involved in five of IP’s acquisitions in the last 12 years, so I understand the complexities involved. Successful integration requires a thoughtful understanding of the acquired company’s unique company culture, as well as sensitivity to the local culture and norms. One of our first steps with APPM was to establish an integration team, with IP and APPM experts from all of the key business functions. This team is working quickly to ensure that APPM transitions smoothly into International Paper. In the end, some processes and policies in APPM will follow IP’s global norm and other aspects of APPM will continue same as before.

PM: Till today you must be abreast with the technological capabilities of the Indian manufacturers. What are your plans of bringing the IP’s technological forte to your Indian facility?

PB: International Paper has extensive experience in bringing global best practices in operational excellence, environmental, health and safety and social responsibility to the regions in which we operate. Over the next many months, we will have a considerable number of IP resources working closely with APPM management to identify opportunities where IP can bring best practices and transfer knowledge.

I should also note that APPM’s operations are well managed, so we expect to learn things from APPM that IP can spread around its global manufacturing network.

PM: IP specializes in the packaging grades and with the acquisition of APPM you are entering India with W&P grade? Kindly elaborate on the plans when are you bringing your specialization to India?

PB: It’s true that IP has a strong global footprint in packaging, but we also have a strong global footprint in W&P grades. We’ll be studying opportunities for expansion and we may expand into other grades or market segments, if it makes sense and if we can generate attractive returns for our shareholders. In any event, W&P is a good place to be in India for a long time to come.

PM: Kindly brief us about the vision and mission with which this acquisition was primed and your long term plans for the Indian market as a whole?

PB: It’s simple, India is one of fastest-growing markets for paper and packaging in the world and we expect paper and packaging demand to grow at a fast rate for many years. I think it’s an amazing fact that India has about 15 percent of the world’s population, but consumes less than 2 percent of the world’s paper. India’s rapid economic growth, combined with increasing focus on education and the growing middle-class will drive the growth of paper consumption well into the future. IP has entered this fast growing market via an established company, with good assets, good people, access to fiber and room for expansion. We are enthusiastic about India’s future, and pleased with the investment in APPM.

PM: Kindly highlight the areas where you think that the premium which IP has paid for the acquisition will provide you the justified returns in the long term?

PB: APPM is a strategic investment for International Paper and the price we paid reflects the cost of entry into a high-growth market with significant upside in the future. We take a long-term view of the investment, and APPM provides an attractive platform for growth.

PM: Your thoughts on the challenges & opportunities ahead for the IP in the Indian market in terms of customers & suppliers both?

PB: The opportunities are to significantly improve the existing business, grow in line with market growth, and perhaps expand beyond W&P grades into other market segments. I don’t see any specific challenges beyond the normal challenges that you face in any business, every day, in any area of the world. I believe that customers and suppliers will be very pleased with what IP brings to APPM, over time.

PM: “The existing management team and 2,500 employees of APPM will continue to operate the business, supplemented by additional International Paper leadership, and professional and technical resources” Comment?

PB: APPM has experienced and competent people and the current management team will continue to operate the business. We have added a few additional people to the IP team in Hyderabad, including myself, who will support APPM, share global best practices and introduce International Paper culture to the Andhra Paper team. As part of International Paper, Andhra Paper will have access to the company’s network of professional and technical services and expertise. IP puts enormous focus on people and we want to make APPM a great company for people to grow and develop, to have career opportunities, and to be highly engaged in running a very successful business. The future is bright for APPM and International Paper, and I have no doubt that we will be successful in the Indian market.

Emami group, headquartered in Kolkata, a diversified business house enjoying leadership positions as:-

• 4th largest Indian FMCG Co (Emami Ltd)
• Largest newsprint manufacturer (Emami Paper Mills Ltd)
• 4th Largest manufacturer of ballpoint tips in the world (CRI Ltd)
• Largest healthcare provider in private sector in Eastern India with hospitals and pharmacies (Advanced Medicare Research Institute)
• Prominent real estate player
• Ventured into edible oil & cement manufacturing (Emami Bio-tech Limited, Emami Cement Limited)
• Turnover of over Rs 4328 crores (USD 940.86 mn) (FY 2010-11)
• EBDITA of over Rs 821 crores (USD 178.68 mn)(FY 2010-11)
• Net worth of over Rs 1358 crores (USD 295.21 mn) (F.Y.2010-11)
• Strong and dedicated workforce of over 20,000 people.

Emami entered into paper business 30 years back with a small newsprint plant of 15-20 TPD based on rice straw. In the span of 30 years they rose themselves to become the largest manufacturer of newsprint in India with 145,000 TPA capacity. They serve most of the leading newspapers – The Economic Times, The Times of India, Hindustan Times, Anandabazar Patrika, The Telegraph, The Hindu, Dainik Bhaskar, Dainik Jagran, Rajasthan Patrika, Samaj, Sanmarg, Deccan Herald etc.

New expansions on the Cards

Emami initially chalked out 2 expansions for its paper business. First to install a 400 TPD newsprint machine at their existing location with total outlay of Rs. 500 crores and second an integrated wood based writing and printing paper unit of 175,000 TPA with a project cost of approx Rs 1225 crores (USD 272 mn).

Seeing the market scenario they have switched their plan of expansions and now they are first putting up an integrated W&P unit which will be followed by newsprint unit. Highlighting the reasons for switching the plans Mr. Patwari explained “the market scenario for newsprint is bright with 8% per annum growth. Today the country’s total requirement is around 2.2 million ton out of which 50% is manufactured domestically and 50% is being imported. Our entire production is getting consumed amongst the selected clients. We face competition from the inter-national players only. Internationally the growth in the newsprint segment is slowing down and contrary to that it’s increasing in India and China. Newsprint being exempted from import duties creates threat of imports. Thus in order to balance our portfolio we thought to go first for the integrated W&P unit.

Describing the idea behind opting for W&P first, he said: “The copier segment is growing at 15% per annum which act as a requisite force to go ahead. Besides, the Indian printing industry is expected to grow at a CAGR of 15-18% and recent trends show India has emerged as the outsourcing hub for printing and publishing businesses”.

“The W&P plant will get commissioned in April 2014. Once this W&P project is commissioned we will add up capacity in the newsprint segment as there is a ready market and ready customers who are comfortable with us and need our product. Sooner or later we may enter into packaging board segment too.”

Securing raw material

The planned capacity of 175,000 TPA would need around 500,000 TPA wood for the pulp making. We have done the complete research work for securing of raw material availability within 200-300 kms area. Since last 2 years we have started the plantation activities in Orissa, Jharkhand, West Bengal and in and around areas under 300 km radius. We have opened agro-forestry division within our company and a team of 60 people has been created. We roughly need 7000 hectares land per annum for the plantations. Last year we covered around 2000 hectares and this year we will cover 5000 hectares. Our target is to cover 70,000 hectares in next 4-5 years.

To secure the marginal land from the farmers our team goes village to village to meet the leaders, panchayats and convince them by giving audio and video presentations to give there marginal land for growing trees. Once they are convinced then we provide them saplings at 1/3 cost. We have created more than 30 nurseries in all the districts and are developing the saplings with the clonal technology. We also arrange finance for the farmers from the banks and give them buy back guarantee. We are growing the species like eucalyptus, casurina, subabul etc.

From this agro farm forestry we will roughly get 25-30% in the first year, 50% we will take from open market like Andhra Pradesh. 2nd year it will be 30-40% and 3rd year roughly 50% and 4th year we will get full 100% of our own, so that way we are considering our project also that first 2-3 years we have to incur roughly Rs 1000 per ton for wood as extra cost. Moreover, we can also access the plantations that are standing for long due to the closure of paper mills like Titagarh, Bengal Paper Mill, IPP etc.

Planned Technology, Product and Project Finance

The W&P integrated unit will be established at the current campus in Balasore, Orissa where we have further acquired the land. We will manufacture copier, offset printing and if requirement is there then base paper for coatings. We are targeting to produce internationally competitive product as 3-4 years down the line import duties will come down further giving push to imports from South East Asian region. So, we have to be at par in terms of quality & pricing. We are planning to put up an environmentally sustainable technology in which the consumptions of energy, water, chemicals and other variables can be minimized. For W&P we have identified a second hand machine and we will be rebuilding it to the latest standards. The cost of the W&P integrated project is 1,225 crores. Financing of this project will be majorly through debts (70%), partly by internal accruals and equities (30%).

Steps taken to become environmentally sustainable

Whatever waste we generate out of pulp making we burn it in the boiler to generate power. Secondary sludge is also used as manure in nearby areas. Similarly, fly ash generated is utilized 100% by manufacturing fly ash bricks, in road construction and filling low lying areas and in asbestos sheet manu-facturing. Then, we are planning one cement unit also at Chhattisgarh so we will be using the waste from our mill over there.

Initiative for waste paper collection

Considering the global scene there is dearth of waste paper. In order to tackle the future scarcity of the waste paper we have tied with local rag pickers for dumping all the collection of paper every day at our various dumping points and take immediate payment, which act as an incentive for them. To encourage the households to sell it as a scrap rather spoiling it we have made it more remunerative for them i.e. instead of Rs.6/kg we give them Rs. 9/kg.

CSR activities at Emami

Our founder’s philosophy is to incur 10-20% of the income towards CSR activities. Our CSR activities on education side includes opening schools with all the basic amenities, giving scholarships and distributing free text books, sponsoring colleges for providing higher education. We have also in the process of opening up an industrial training institute (ITI) to train local people and provide them employment. On healthcare side we send the mobile vans equipped with latest medical equipments for free check-ups of the local people. For empowering women we supply sewing machines and other employment opportunities.

Mr. Vivek Dugar – JMD, Kohinoor Pulp & Paper Pvt Ltd

Kohinoor Group added the paper segment to their portfolio in the year 2007-08 in addition to their other interests like steel, mining and power. As a group they have turnover of Rs. 1500 crores. Last year paper contributed Rs. 100-110 crores and this year their target is to achieve 100% growth in the turnover i.e. Rs. 200 crores. Then, with the duplex plant coming in next financial year they are eyeing on above Rs. 400 crores of turnover. In the span of just two and a half years they are expanding and projecting big for their paper segment. Briefing us about their positive & aggressive attitude towards the paper industry Mr. Vivek Dugar, JMD, Kohinoor Pulp & Paper Pvt Ltd told us about their present operations at Falta unit in West Bengal, their new aspiring project of 300 TPD integrated paper mill at Goalpara in Assam and their marketing strategies.

The Existing Operations

Presently we are engaged in 4 segments steel, mining, power and paper. In paper, we have established 200 TPD Writing & Printing plant at Falta (West Bengal), which is operational and now a 250 TPD Duplex Board plant is under execution at the same premises and is expected to be commissioned by April-May, 2012. Presently, we are operating around 70% of our total installed capacity producing newsprint, creamwove and maplitho, which will further improve in the coming financial year.

The existing W&P machine at Falta has been sourced from various suppliers like deinking (Lamort), dispersers (Cellwood), pulping section (Arjun Technologies), paper machine section (Hardayal and Servall), rewinder (Globe Radio), size press is from China. The duplex board machine is also coming in the same premises of 35 acres which already houses a 6 MW captive power plant and an ETP. The 250 TPD 4-layer duplex board machine is being sourced from various suppliers and an 8 MW captive power plant will be installed with a total investment of Rs. 180 crores.

The Aspiring Goalpara Project

We are setting up 300 TPD integrated writing & printing paper mill at Goalpara, Assam with the total project outlay of Rs. 585-600 crores. A plot of 200 acres has been allotted to us in the industrial area by the government on which civil work has already been started and the required clearances have been obtained. Besides we have good access to water as river Brahmaputra is 4-5 kms away. The major equipment orders have already been placed with Metso such as recovery boiler, cooking line, fiber line etc. The paper machine will be ordered in the next 2-3 months. The plant is expected to be fully operational in the coming 3-4 years and then we plan to raise the capacity to 1,000 TPD. Therefore immediately after commissioning the first phase the second phase will start.

Plan for the Raw Material Procurement

To secure the raw material we have tied up with local communities for doing our own plantations but initially we have to depend more on the available resources in and around the state. Recently, we started social farm forestry program and distributed around 4-5 lacs saplings which is targeted to 1 million in the coming year. In the near future we would be having our own labs but presently we are taking help from the government labs. The government has also assured us to give access to the wastelands, which is available in abundance. In Assam bamboo is cultivated additionally along with the other crops, so we feel that we would be able to sustain our first phase from these kind of procurements.

Market Strategy

With this project we are targeting the North East market and eyeing on Middle East & SAARC nations for exports (20-25%). SAARC countries like Nepal, Bhutan, Bangladesh etc. will be on our radar as we have the advantage of being nearer to them and logistically firmed. I feel in the coming years that the paper industry will become more regional based because transportation and logistics will form the important part of the cost. So, from the beginning only we want to target the markets which are logistically more approachable and feasible in long term.

Netzsch Technologies India Private Limited houses the operation of all three business units of the Netzsch Group, with a manufacturing facility in India for the products under Pumps & Systems, Sales & Service and Testing Laboratories for its business units Grinding & Dispersing and Analysing & Testing.

We had an interaction with Mr. Vivek Norman, Managing Director, NETZSCH Technologies India Private Limited, who explained us about their operations in India, the new facility in Goa, solutions offered by them and shared his views on Indian paper industry.

Operations in India

The Netzsch Business Unit Pumps & Systems manufacture progressing cavity pumps and rotary lobe pumps for the South Asian Markets from the latest manufacturing facility in Goa, India. Our Products cater to offer pumping solutions for handling complex fluids in traditional and futuristic market segments such as food, pharmaceutical, chemicals, pulp & paper, oil & gas, waste water and renewable energy industries.

Netzsch India has sales & service centers throughout India located in Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bangalore, Baroda and Pune. Besides it is supported by their partners in the neighboring countries.

Netzsch Technologies / Solutions

We provide pumps solutions engineered to suit challenging requirements for various industrial applications on a global basis. At Netzsch, we provide cost effective solutions to our customers’ process and operational needs by engaging modern technologies predominantly researched, tested and proven in Germany and other developed markets.

New Facility in Goa

While extending its global presence across all continents Netzsch in India is active with the motto “In the region for the region” catering its tropicalised product mix for the Indian sub-continent. The Indian facility aims to cater the nearby countries and has already established business partners in the region.

The production unit is located in a 17,000 sqm facility in the coastal vicinity of Goa at Verna Industrial Estate. We have highly motivated, trained and skilled engineers and we operate under the technical advice from our parent company, Netzsch Mohnopumpen GmbH Germany to deliver NEMO progressive cavity pumps and rotary lobe pumps with world class quality.

The facility is equipped with the highest standards of machines and process in place for manufacturing progressing cavity pumps, rotary lobe pumps and spares. The plant has a capacity to produce 4,000 pumps per annum with a production shop floor space of 5,000 sqm. The state-of-art testing facilities provide the opportunity to validate our product quality and performance to meet our customer demands.

Views on Indian paper industry

Paper industry is touching new horizons with plenty of investments and a promising future. It has got immense potential for growth despite increasing input costs. The pulp and paper mills have tremendous opportunity to improve their profit margin if they adopt energy efficient technology integrated with enterprise solutions.

The cost of energy/tonne of paper produced is one of the highest in India. This has certainly contributed the need for modern core process equipment. However the pumps play a major part in this as well. Energy is the most significant part of measuring the life cycle costs of the pumps in a paper plant. With our latest designs and repeatability of precision in manufacturing our products also contribute to saving in energy at the highest order.

The scope to become more competitive is certainly in the area of energy conservation by investing in more modern technologies and equipment.

Mr. AJ Devanesan, COO, APRIL

APRIL started up its biggest single pulp line in the world to produce 1.5 million ton per annum of bleached kraft pulp in Rizhao, Shandong Province of China during mid-2010. In addition to featuring some of the most advanced environmental protection technology, facilities, and control & management systems in the world. The mill is smell-free and the effluent is almost colourless. Recently APRIL has announced a new USD 4.6 billion investment which will be used to increase pulp production of the Rizhao mill by about 1 million tons and production of paper and paperboard by 2.4 million tons.

We had an interview with Mr. AJ Devanesan, COO, APRIL on various subjects including APRIL’s Chinese facility, Indian paper industry synopsis, challenges & opportunities in addition to global industry scenario etc.

Paper Mart: As an international pulp & paper company, how do you look forward for the Indian market?

AJ Devanesan: India is one of the fastest growing markets for us, as its paper and board demand per capita has grown by CAGR 6.2% p.a, from 2.9kg in 1990 to 9.8kg in 2010. This is promising, however India is still lagging behind other growing economies like China and Indonesia where per capita paper consumption in 2010 was 66.2kg and 27.9kg respectively. Clearly there is significant room for development and we anticipate a continued healthy growth rate for the industry.

There is also scope for domestic manufacturers to improve their quality and increase capacity, with the copier segment, tissue & speciality, packaging & certain grades of coated paper like medical grade, fuelling future industry growth. The Indian market is currently highly fragmented, so consolidation in the near future would be highly beneficial for the industry. We expect future market developments to come from new products, introduction of world standard technologies, as well as the aspirations of major domestic players. All these should go far to improve the rating of this undervalued industry.

PM: What opportunities and hitches do you find in Indian paper industry?

AJD: Generally, the growing economy and particularly the service sector will fuel demand, which is expected to cross 20 million tons by 2020. With increases in average income, customers have become more demanding for quality products, meaning they are now ready to pay a premium for higher quality. With demand for improved quality and increased product segments, Indian paper manufacturers will have a great opportunity to increase their share of market. FDI in the retail sector should also further boost demand for packaging and coated paper. New government initiatives related to education such as “Right to Education” & “Sarva Shiksha Abiyan” should also be a boost to the printing and writing segments.

On the downside, the cost of energy as well as wood and pulp, constraints in water supply, and the lack of proper environmental protection facilities at manufacturing plants, are major limitations. To support the industry, the government must relook relevant policies on industrial tree plantations. Of course, significant improvements in infrastructure such as ports, roads and railways need to be made, in addition to improvements in distribution and delivery costs.

PM: Elaborate your plans for India.

AJD: We have been a major supporter of the Indian paper industry with our raw material (pulp) for the last two decades. We have always kept our options open for participation in the downstream market and have explored possibilities of strategic alliances and partnerships. We have noticed the presence of overseas companies in domestic markets and of course have our own interest to participate in partnership with national players.

PM: Take us through your new pulping facility in Rizhao and the new paper machine.

AJD: APRIL SSYMB, as we are known in China, is based in Rizhao, Shandong Province, the province with the 3rd largest GDP in China. To give you some background, Phase One of annual production capacity for BHK pulp was 315,000 tons and 170,000 tons for high grade ivory board. We invested RMB 11.3 billion (INR 78 billion) in Phase Two, which began construction in 2008 and started test production in mid-2010. Phase Two has a production capacity for bleached kraft pulp of 1.5 million ton per annum, making it the biggest single pulp line in the world, in addition to featuring some of the most advanced environmental protection technology, facilities, and control & management systems in the world. The mill is smell-free and the effluent is almost colourless. This establishes new industry benchmarks for scale efficiency and environmental performance. We are especially proud to have reached full capacity utililisation by the 10th month of operations. Our pulp facility is also home to the World’s largest Recovery Boiler (7,000 tDS/d acacia).

We recently announced a new RMB 30 billion (INR 208 billion) investment for Phase 3, which will be used to increase pulp production of the Rizhao mill by about 1 million tons and our production of paper and paperboard by 2.4 million tons. The expansion includes development of a second production line for high quality paper board and additional high quality paper production capacity.

PM: What are the three most important factors for your company to realize rapid growth?

AJD: Firstly we need to broaden our plantation base to strengthen our supply and market leadership. Secondly, a solid pool of talent to sustain and grow our business, and thirdly, a strong focus on product diversification, for example, to new pulp species, tissue and board products.

PM: Sustainability is the buzz word today. Being a forest based industry and considered as a polluting industry too, how do you ensure sustainable operations at APRIL?

AJD: To us sustainability is not a buzz word; it is a fundamental part of a successful business. Sustainability is embedded in everything we do – from identifying and setting aside high conservation value forest (HCVF), to making our mill energy efficient, to ensuring that local communities where we operate share in the benefits of our growth through development opportunities. This makes good sense from a business, social and environmental perspective.

In fact, far from being a “polluting industry” as being considered for paper industry, APRIL is very much part of the solution in addressing major sustain-ability challenges through best-in-class forest management practices in Indonesia, where the bulk of our plantation development is located. We are also proud to establish global industrial benchmarks in environmental performance that others can follow.

PM: What are major changes you foresee happening in the structure of the global paper industry?

AJD: The global paper industry is experiencing some structural changes. Firstly, the correlation between world GDP and global paper and board demand was historically as high as 1.2x during 1985-2005. So theoretically paper and board demand would increase by 1.2% if world GDP increases by 1%. But that correlation is now expected to reduce between 2005-2020, chiefly due to technology impacts from changing consumer behavior, which is favouring electronic substitution (e.g. devices such as computers and iPads). Secondly, global paper and board demand are expected to grow modestly by 1.5% p.a from 2007 to 2025. Thirdly, the center of gravity is shifting from North to South, from West to East, similar to many other industries. The established players are all using older, less efficient and high cost operating facilities that simply cannot compete with the newer players and their modern, efficient large-scale facilities, which are also far superior from an environmental performance perspective.

PM: What are the major causes of concern for the pulp and paper industry in the near future?

AJD: Paper – The Paper industry is expected to experience a challenging period in near future. In North America & Europe, paper producers will enter summer months resulting in seasonally slower paper demand. However, paper producers are more disciplined and will manage their paper supply accordingly in order to match this lower demand, by doing market related downtime to support paper prices at certain levels in these regions. Higher pulp prices, higher energy costs and relatively low paper prices will also impact the profitability of paper producers, especially the small and medium sized ones.

In China, over 1 million tons of additional wood-free paper capacity are expected to start up during 2H 2011. This additional capacity in the market would create extra supply, which may negatively impact the supply demand balance in the wood free paper grade. Also, shortages in water and electricity supply are likely to cause operational difficulty for paper mills.

On Pulp side, though the paper market will face challenging times in the near future, the fundamentals of the hardwood pulp market are still balanced. There is no major additional hardwood pulp capacity until the end-2012. A higher than historical price gap between hardwood pulp and softwood pulp prices can encourage paper producers to shift some of their softwood pulp consumption to hardwood pulp to create additional demand in that area. Cost push factors like higher energy costs and weakening US$ (vis-à-vis pulp producer’s local currencies like rupiah, rias, pesos etc.) will increase production costs for pulp producers hence creating a higher floor in pulp prices.

PM: As President & COO of APRIL, what are the three main objectives you have for the coming years?

AJD: Our business will grow and evolve if we achieve strong results for our triple bottom line – People, Planet and Profit. Being part of the solution on wider sustainability challenges in a way that not only benefits our business but also meets societal expectations, will continue to underpin our right to operate. Ensuring that we excel in delivering terrific products and service for our customers, in combination with achieving people and planet goals, will generate strong returns for us as a business. Currently, we are planting about 200 million trees a year, numbers that will keep growing. Lastly, continuing to attract and retain the right people is key for a stronger future.

Mr. K.L. Chandak

Mr. K.L. Chandak has gone through ranks at West Coast Paper Mills Ltd. and now manages the mill as the Executive Director. He has also served as a Director of Rama Newsprint & Papers Ltd, Bahubali Papers Ltd., Speciality Coating and Lamination Ltd. Above all he is a chartered accountant and a coveted rank-holder in ICAI . He is committed and indebted to Bangur family who has provided him growth opportunity from management trainee to executive director over the career span of 40 years in the company. With his inherent quality of meticulous planning, quick and precise decision-making traits, he has played a vital role in the execution of 1425 crores expansion project which has provided WCPM a leap of ambition.

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Paper Mart: What are the factors that have helped the propagation of the idea for such a huge expansion of Rs. 1400 crores e.g. growth prospects, competition etc. Explain briefly?

K.L. Chandak: Expansion programme completed at an investment of about Rs. 1425 crores which ensured the long term viability of the unit by increase in production from 180,000 TPA to 320,000 TPA (including 135,000 TPA on new paper machine – No. VI) and cutting costs due to scale of operations. It was also for better environment compliance as fiber line with elementary chlorine free (ECF) technology has been installed not only for incremental production but also for taking care of pre-expansion production capacity. It has also helped us in improving the quality of the paper in terms of brightness and strength properties, particularly copier paper production on new paper machine No. VI is very well accepted in the market in terms of quality. We are also able to tap industrial consumers as we can deliver excellent reel quality on the new paper machine and even reeling quality from the existing machines has improved. Our export target on PM VI is 25% of production. Concurrently, we have also strengthened our product mix derived from the new machine; we produce writing and printing paper of a higher bulk with the same grammage. Varied grammage were also introduced in copier paper with corresponding brands.

The project has been mostly funded through foreign currency loan / external commercial borrowings to the extent of USD 165 million (about Rs.750 crores) at lower rate of interest which is presently less than 2.5% p.a. International Finance Corporation, Washington has participated to the extent of USD 40 million, whereas USD 105 million was funded by ICICI bank led syndicate and remaining USD 20 million by Barclays bank.

PM: What factors were taken into consideration before finalizing the expansion in various areas of the mill? Kindly elaborate the Technology & Equipments selected for respective areas?

KLC: Thrust was to adopt latest technology in all sections i.e., pulp mill, chemical recovery and power house. The equipments have been purchased from reputed national and international suppliers so that we get the benefit of cost reduction apart from quality improvement. The company has also gone for backward integration in terms of plantations in a major way so as to ensure that at least 50% of the requirement of raw material (wood) is met from captive plantations. It has already raised plantations in 21,916 acres till 2010 rains and target is to plant 100,000 acres over a period of time.

Technology & Equipments selected for respective areas:

• Pulping – ECF. Supplier Metso Paper

• 135,000 TPA Paper M/c – Voith Paper

• Power Generation, Utilities, etc.

…•  34.5 MW Turbine – Bharat Heavy Electricals Ltd

…•  125 TPH AFBC Boiler -Thermax, Babcox & Wilcox

PM: What were the challenges faced during the execution of entire project and how you overcome that?

KLC: We had faced problem of project over-run due to delay in commissioning on account of government actions, including employment visa restriction on foreign technicians engaged in project work. Further, it is a brown field project and hence equipments were to be installed within the available space in the existing factory premises. Teething problems were also faced with various equipments which have been successfully resolved and now the plant is fully operational.

PM: How are you meeting increased raw material requirements to service your expanded capacity?

KLC: We require around 900,000 tons of raw-material per annum to feed our enlarged paper production capacity, completely procured from the current market. However, a few years ago, we embarked on contracts for farming scheme, wherein we identified fallow/waste land belonging to marginal farmers within a 250 km radius from our manufacturing unit. We provided clonal seedlings to these farmers, encouraging them to raise plantations from a long-term perspective with the safety net of an assured buyback. This proposition will lead to a win-win situation, provide income for wasteland owners and enhance our raw material security. We expect to derive raw materials from 661 acres (planted in 2006) of our total plantations in 21,916 acres currently. We expect to scale up with speed; our annual plan is to plant 10,000 acres, and based on an average yield of 40 to 60 tons per acre, we expect to secure 50% of our annual raw material requirements from these proximate plantations over the foreseeable future. This will not only protect our raw material sourcing from a volume perspective but it will also provide us with robust raw material, leading to superior paper quality.

PM: How do you view the fundamentals of the Indian paper market, given the volatility in demand, supply and prices and what are the drivers and enablers of growth for the industry?

KLC: The country’s paper industry is in good health; the copier and packaging paper segments are growing at an annual rate of 15%, even as the other segments are growing at 5-7% per year. The government’s thrust on the education sector is likely to catalyze paper demand from a per capita consumption figure of 9.6 kg – considerably lower than the international average. Further, we feel that an increase in disposable incomes and faster rural economic growth will strengthen paper demand – even a one kg per capita consumption increase could enhance annual paper demand by about 1.2 million TPA. We hope that paper market will remain buoyant, given the demand drivers, particularly industrialization and government focus on education. There is replacement demand also, particularly cup stock board replacing plastic and paper replacing plastic packing for Ghutka, etc. Due to recession from 2008, effective actions for creation of additional capacity have not been taken in the last 3 years and therefore paper realization should improve on account of demand/supply mismatch.

In addition to India our existing markets of focus are the Middle East, Africa and South East Asia. Our technology up-gradation helped us present superior grades in line with the requirements in these geographies.

PM: Lastly the recent acquisition of APPM by International paper in India shows that most of the times the Indian paper industry has been undervalued. After this acquisition BILT Paper Plc has kept on hold its IPO in UK for re-rating of the industry. Does this acquisition has really paved way for the Indian paper industry to get image makeover and rather appropriate valuation and might also open up a trend of consolidation in the Indian paper industry. Comments?

KLC: We do agree that acquisition of APPM by International Paper will definitely add value to the paper sector as more international players will be interested in this industry, given the growth scenario in Indian paper market. It will also make paper industry more competitive.

WCPM entered the paper industry in 1955 with a production capacity of 18,000 TPA, which gradually increased to 1,80,000 TPA in a little more than 50 years; then within the space of just three years we increased our capacity by 78% to 3,20,000 TPA, indicating the management’s faith in the long-term viability of this business.

Ms. Niyati Agrawal, Sr. Vice President, Rainbow Papers Ltd

In this edition team Paper Mart decided to do something different which was not done earlier by us. Sitting on the round table everyone was lost in the thought “what different”. Suddenly an idea crossed the mind to showcase the individual who belongs to a different gender but has decided to make her future in this industry. Ms. Niyati Agrawal, Sr. Vice President, Rainbow Papers Ltd has evolved in the industry from the scratch and learned the strategy of business from every level she went through. During the interaction she told us about her evolution process in the industry, challenges, company’s strategy behind expansion etc. Excerpts:

Paper Mart: How you came to the paper industry?

Niyati Agrawal: I did my MBA from NMIMS, Mumbai. I did have offers from other companies at that time to pick up. But, I was keen on joining my family business to add value to what we already had because being educated I wanted to contribute to my business rather than joining elsewhere. Once I joined I realized that the paper industry is so dynamic and it has got a lot of potential which has been unexplored. And now paper is posing interesting career options for lot of youngsters. I joined in about 7 years back when our main challenge was to build our export market and expand our international boundaries. Today, I have my head involved in almost every field whether it is marketing, international business, day to day finance, waste paper procurement etc. Technical is one part where I am not involved.

PM: What do you think the most significant lessons you have learnt about managing and particularly managing the change and adapting in the industry.

NA: One strong lesson that I learnt was during our expansion mode, that planning is very important and you need to plan even the smallest possible detail of the work. As management if we are not planned we cannot direct people and give them confidence to take the crucial decisions.

Just to sight an example of change and adaptability, 2 years back during implementing ERP the work got stuck for 5-6 days and all the work came to a standstill because we were adapting to a system which was new. Now 2 years down the line my people could not think beyond ERP, they cannot think of putting up a system where ERP cannot be used because it is so convenient. So this takes me to the second point that after planning you need to give it required set of guiding principles as well as the required time to adapt.

Change is not subjected to one person in an organization; it is the organization as a whole. It’s people who are eventually going to be the one who will have to adapt to the change and perform accordingly. So the change cannot be done without the consultation of your people. So, once the bold decision was taken that we have to bring the machine, the next thing was to sit with all the partners and tell that boss we have done this. So, now we are going to move ahead and this is where we are going to lead you all. Your goals should be realistic, they should be achievable and they should be measurable.

PM: What are the difficulties you have faced with in the paper industry and how you overcome them?

NA: Waste paper procurement is going to remain an issue because of the multiple use of paper. The next challenge would be availability of skilled manpower apart from the regular changes which are coming within the business environment is something which we are facing.

During the expansion the difficulty that we faced was on technological front. When we took the bold decision of bringing the 2 machines, we had to send our technical people abroad to learn how to run the machines. Since technology there was far better and far more advanced as compared to the Indian technology it took time to adapt to that technology which was sorted out with course of time. The entire process of bringing machines here was not as easy as it was expected. We need to comply with various environmental norms in Germany, there were norms which related to timing, skills and all of them had to be tackled at one point of time.

PM: Now, apart from that being a feminine gender did you see any difficulty in context of working within the industry?

NA: Initially it was little hard because people under you are far senior. I started at very low level as a documentation executive and then slowly transition happened and I moved into the marketing, projects & exports etc. It is important also because to understand the business you need to really start from the ground level and then slowly move up when you are sensitized to every possible level in the organization. Initially people would not really take you too seriously and treat you just as the boss’s daughter. But today there are people who are working under me or with me, I am aware of the exact problems they might be facing and it makes easier for me to sort out that problem. So initially there might be a sentiment that she is the boss’s daughter only but slowly and gradually I think as you move up and take up your responsibilities you start gaining the respect.

PM: Dearth of manpower in the industry and how we can tackle it?
NA: There is a major lacking of manpower at the operational and supervisory level. As far as marketing, finance and human resources are concerned I don’t see it much of an issue these are the departments wherein you will still find good educated people who can run the department. To run a paper industry you need skilled manpower which is not available. This issue can be tackled by running the vocational training or on the job training. Vocational training and on the job training are two separate concepts, on the job training is that you hire a person fairly skilled or semi skilled and put him on the job under a skilled worker and slowly and gradually he learns the process, this is one. Secondly you can run vocational courses for couple of months giving an overview about the industry, technology, operations etc.

PM: About the expansion which Rainbow has initiated can you give a quick outline about it and the strategy behind it?

NA: We have picked up two paper machines from Germany; they were dismantled and brought to India, after which PM7 was commissioned in the year 2009. It is running to its full capacity. Now PM8 is under installation and start up is scheduled in 3-4 months time. We are also installing power plant
of 20 mw which is also under the process.

The strategy behind this expansion was, earlier we were only into the board segment and thus in order to widen our product portfolio and also seeing the solid demand in newsprint and writing & printing paper we thought of bringing these 2 machines. Besides, paper industry is a volume centric industry so if we have better volumes than we have better economies of scale and one cannot survive being a small size mill.

Even when these two machines were picked up the next strategic decision was whether to install them together or to prepare one at a time. The decision was to go for one at a time because the combined capacity of these two machines was around 500-550 TPD and we were talking about a jump from 300 to 900 TPD at one go which was essentially tripling the size. It sounds really good but on the practical side there are challenges in terms of capital, adaptability by people to handle 900 TPD from 300 TPD. Also newsprint and writing & printing was a new segment for us thus we decided to do stage wise implementation wherein install first machine, introduce the product in the market, create an image for Rainbow and then put in the next machine.

Now we are targeting to create a brand Rainbow for which we are planning to move into the value added products like stationary, copier papers, notebooks etc. We are going to start on the branding activity in the mid of 2012.

We have set the target to become a thousand crore turnover company by 2013-14.

Mr. Harsh Pati Singhania, Managing Director, JK Paper Ltd

Mr. Harsh Pati Singhania, Managing Director, JK Paper Ltd, talks to Team Paper Mart on the company’s recently-announced Rs 1650-crore expansion plan giving the general picture of the Indian paper industry with regards to the different subjects like future consolidation in the industry, challenge of raw material and manpower and how India can become truly global. Excerpts.

Paper Mart: Where does the Indian paper industry is heading? How do you see it evolving over the next decade or so? Moreover with the recent takeover of APPM by International Paper, do you see better valuation, professional culture & consolidation happening in industry?

Harsh Pati Singhania: The first point that I want to make is that the paper industry in India will grow strongly and there are several factors pertaining to this, starting from the fact that we have extremely low capita consumption i.e. 9.5 kg per capita as compared to the other developing countries in Asia. So, it is bound to grow. Besides, India’s ongoing strong GDP growth will support the paper growth as paper has traditionally grown along with GDP or even higher than GDP growth. In the recent years the industry has grown tremendously for example there was an increase of almost 30-35% in the installed capacity of Writing & Printing paper and that capacity has got absorbed. Today we are about 10 plus million ton industry and with good growth we are looking forward towards the demand of 20 million tons by 2020.

The recent acquisition of APPM by International Paper has shown that the paper industry in India was grossly undervalued. If we look at the evaluation at which IP has bought APPM there is a huge difference compared to valuation of current paper companies in India. With this I think the industry will clearly improve on valuation in recent times to come which will help the industry to raise more money to fund its growth.

The other aspect of this acquisition is that it will bring in international operating standards not only in terms of production but also in operations, sales, marketing, quality standards and service along with the improved trade channel which will have beneficial effect on the entire industry.

Yes, the competition will be there and I think some paper companies can clearly stand up with it because here in the Indian market our products are established as brands with certain values attached to it. So as long as the Indian brands are going to deliver a good quality product with good levels of customer service, I don’t see any problem.

PM: Do you foresee further consolidation happening in the near future?

HPS: Globally pulp and paper companies have been looking in India for a long time to have their say but the factors like size and the scale of the Indian operations and the issue of raw material availability has resisted them to take a decision. Also, the markets are very fragmented in terms of the quality, price sensitivity, standardization etc. All these things have lead to situation where it was not easy for these companies to find a sight and place themselves in the Indian paper industry.
As far as consolidation is concerned I would imagine that there could be consolidation but it would be gradual and let’s see what happens.

PM: Paper industry has been earning lower margins while on the other side paper convertors always feel that paper mills take benefit of demand and supply gap by fluctuating the prices. Comment.

HPS: Business growth depends upon the sufficient returns on the capital for the reinvestment. As far as margins are concerned, in India we have different sizes of mills i.e. large, medium and small along with their respective raw material base. Due to this it is difficult to evaluate the ROI as paper has long gestation period. One important point about the paper industry is that it is not a glamorous industry so most of the people don’t even notice it and that’s one of the reason why we have been undervalued.

Talking about the prices and convertors feeling, it is completely mistaken because first of all lets understand in today’s era prices are completely market determined. The price of any product not only of paper but anything is what the consumer is willing to pay for it. Its not that the producer can command the price in today’s open economy. Paper prices go up due to the cost push in the prices of the inputs like pulp, chemical, fuel, logistics etc. The second point is that where the prices have gone up and also there have been instances when prices have come down.

If prices grow up which is inevitable than the converting industry will have to look at its pricing availability to the consumers, minus what they can offset from better efficiencies. Today, when input cost goes up for paper mill, we also offset some of them through improved efficiencies, higher productivity but beyond a certain amount we cannot absorb it.

PM: As you said paper industry is not a glamorous industry. How industry should tackle the problem of manpower?

HPS: The issue in the paper industry is that we are being challenged by quality of manpower. First of all there are not so many specialized courses in the pulp and paper technology. The Saharanpur institute got merged and became IIT Roorkee. The students passed under this program get picked up by IT industry.

In order to overcome this challenge we have to re-emphasize our focus on having more programs for the pulp and the paper industry across different levels which emphasis at that one could be managerial in terms of management or engineering. Secondly, introduction of diploma programs is essential. This will not only produce the managers but will also produce good supervisory level people because we need those as well to run the industry. There is a need to revise and upgrade the course content. The third would be to add a basic skill development focusing on the practical aspect of the industry which will create the skilled work force. Laying a career path and providing the career development program for all employees will help us to retain the manpower for longer period.

PM: Does Indian paper industry need an image makeover? And, how this can be perpetuated?
HPS: It’s not that the paper has the negative image but sometimes it is made out to be more negative then actually it is. There are enough things to prove that paper is not anymore a polluting business for example the water which is used for paper making is more than 90% discharged back and it is meeting all the standards, the industry is planting trees and runs in a sustainable manner.

There is a need to have not only awareness but projection in terms of what the facts are. The fact that that industry uses or eats up forest is completely incorrect because there is no wood that the industry uses today which is really coming from forest. Rather, industry actually helps in providing huge amount of jobs in tribal areas through its initiatives like farm forestry programs. And, it is really increasing green cover rather than decreasing, improving water conservation and soil conservation etc.

There is much more that needs to be done by the industry to educate people. The industry as a whole has to confront these issues and at least sensitize people that today paper is a sustainable product as paper can be recycled and apart from that you can clearly grow trees as even if you can cut one then you can plant two more trees. Today a large amount of water recycling is done due to which consumption of water has also come down. The discharge from mills is far more eco-friendly and in any case it is not something which is toxic waste in that sense the need of communication is necessary of this whole aspect.

PM: Rs 1650 crore expansion…that’s fairly large. So how the funding is planned and what are the major highlights of the project i.e. product mix, technology, equipments, scheduled startup etc?

HPS: Basically, we are putting up an integrated plant at our existing location in Orissa and this will consist of a pulp mill of 250,000 TPA and a paper machine of 165,000 TPA along with utilities. The project cost has been computed at about Rs. 1650 crores and from this we will be producing office and copier papers as the main product mix. We hope that with the new machine we would be able to keep our leadership in this segment. This will not just give us the increased capacity but also the increased efficiencies in the form of reduced water consumption, energy usage per ton of paper. This eco-friendly technology will also benefit in terms of improved product quality and most importantly cost of production will come down leading to improved margins.

As far as funding is concerned we are close to completing the financial closure which will be a mix of debt and equity, internal accruals plus an FCCB program of 135 million euro (Rs. 225 crore). Also we have tied up for loans with banks.

PM: How the Indian paper industry can become truly global paper industry?

HPS: If we see it pessimistically, I don’t think that the Indian paper industry can truly become a global paper industry because we have certain constraints and unless they are resolved we can’t go beyond borders. Single biggest constraint is the issue of raw material and the prices which are extremely high in comparison to other competing nations like Brazil, Indonesia and others. Secondly the scales of operations in India are very small as compared to the global companies. Thirdly the technology is not by far of the global standards. We don’t have the ingredients for the global competitive advantage, so first we need to have them to enter the global industry.

On optimistic end we have huge growth happening in India and the world is coming to us plus the fact that the Indian paper industry has been able to satisfy the domestic demand successfully. The things which help in adding the competitive edge to it will be policy of plantation which will make a huge difference in the availability of raw material. We need to do the upscale in terms of size and scale which is going to be important and with scale comes the state of art technology which will help us to improve quality of product at the global level. Above all the reductions in cost of production for the industry entitling it to have more margins and allowing it to plough back funds for growth. Lastly having better carbon footprints with more eco-friendly processes.

PM: According to you how the industry can secure their raw material?

HPS: The industry will have to keep on focusing the agro farm forestry and there’s no doubt that there are limitations to it. The first limitation is that trees are grown on marginal lands which are non-continuous leading to high cost of production. The second thing on these lands is that we have constraints from competing with the food crops. And the last but not the least is that today with the establishment of the bio fuel power plants, most of the wood is being burned to generate power. If we don’t have the raw material then India will have to resort to other sources i.e. imported pulp and waste paper.

Lesson you have learnt during your long experience
• There is no substitute for hard work.
• You have to keep on working on what you want to pursue and you have to work in a focused manner.
• You should be focused to be successful.
• You should keep on looking ahead. There will be ups and downs in life but you have to keep looking ahead and there is no shortcut to that.