The Hindu Business Line : `Outsourcing has helped JK Paper boost volumes'

WITH the paper sector on a continuous growth path, the organised players are witnessing a steady rise in turnover and profits. While the last few years have been good for all players, certain basic issues relating to an industrial plantation policy are yet to be addressed by the Government.

In the backdrop of a moderate growth of four per cent, Mr Harsh Pati Singhania, Managing Director of JK Paper Ltd, discusses the strategy of the company and the future of the industry with Business Line.

What level of production has JK Paper achieved in the last two years?

Our production grew over four per cent from 1.65 lakh tonnes in 2001-02 to 1.72 lakh tonnes in 2002-03. In the same period, our sales rose 3.7 per cent from 1.73 lakh tonnes to 1.79 lakh tonnes. We hope to continue on the growth path in the current year as well. Our turnover rose from Rs 625.5 crore to Rs 679.75 crore, an increase of 8.6 per cent, while the net profit nearly doubled from Rs 16.98 crore to Rs 33 crore. In both the years, the company maintained a dividend of 15 per cent.

What is the average cost of funds for the company? Has JK Paper replaced some high interest loans with cheaper funds, taking advantage of the falling interest rates in the last couple of years?

Our financial costs have reduced significantly in the last two years. We were able to reduce our cost of funds by 13 per cent in 2001-02 and further by 23 per cent in 2002-03. The average cost of funds for the company now stands at around 10 per cent.

Is the company planning to go to the equity market for funds in the near future?

We review the market situation continuously and we will look at capital markets at the appropriate time.

What quantum of funds has the fixed deposit scheme of JK Paper managed to garner. What is the current rate of interest offered under the scheme?

As on November 30, the fixed deposits with the company stood in excess of Rs 30 crore. Depending on the term of the deposits, the present interest rates offered by us are 7.5 per cent - 8.5 per cent, which we feel is quite competitive, given the market conditions.

Is the company looking at any capacity expansion in the near future?

In order to increase our market coverage and product portfolio, we propose to put up a Coated Paper plant for production of 45,000 to 50,000 tonnes per annum (TPA) of coated varieties of paper. This facility will produce international quality art paper. From where does the company source its raw materials? How is the supply situation with regard to pulpwood in the country?

We largely source our hardwood requirements from the farmers of Andhra Pradesh and Orissa. We have been promoting plantation of high-yielding, short duration pulpwood species such as casuarina, eucalyptus and babool. We have made pioneering efforts in harnessing cloning technology and have distributed 2.90 crore saplings, covering 5,400 hectares with plantations in the current year itself. Till date, JK Paper has distributed more than 12 crore saplings, covering approximately 32,000 hectares in terms of farm forestry.

But having said that, I would like to emphasise that the sector is facing a major problem with regard to raw materials. The quality and quantity of supply is inadequate and despite all our efforts at farm forestry, we are hard pressed for raw materials.

In this regard, we have been pressing for an industrial plantation policy that would allow the private sector to set up plantations on degraded forest land. That will help increase the green cover and give us an assured supply of raw materials. India is a tropical country with abundant labour available locally.

If the industry is given a chance to grow, we can generate a lot of employment and become a major paper producing country in the world. I feel it is a win-win situation for all and the Government should seriously examine the possible benefits of such a policy.

Which new products has JK Paper launched recently. Are any new grades of paper in the offing?

We entered the high value, high growth coated paper segment through `JK Cote' (upmarket coated art paper) and `JK Eco Cote' (economy grade - chromo paper). Both the brands were well received in the markets. We also introduced `Eco Print' in the mass market of Creamwove paper. JK Copier Plus, a premium copier paper was introduced towards the end of last year. The product caters to the top end of the segment and competes with leading global brands. Even this product has been very well received in both domestic and export markets.

What is the progress with regard to your plans to outsource part of your production?

Although we do not wish to reveal the names of our vendors, we are already outsourcing both coated and creamwove grades from domestic and overseas paper mills. These may be smaller players, but we ensure that their products as also the production processes conform to our standards before we sell their paper under the JK brand name. Outsourcing of certain grades of paper has not only helped us augment our portfolio, but also brought about growth in volumes. As much as 8 per cent - 10 per cent of our total sales come from paper outsourced from our vendors and the trend is likely to continue as we see no merit in trying to produce every grade of paper.

We keep reviewing the situation and if the volumes justify, we can start production of those grades as well.

How much paper does JK Paper export and what are the likely trends in the market?

We hope to continue exporting about seven per cent of our production. We exported over 10,000 tonnes of paper in 2002-03 and earned Rs 30 crore worth of foreign exchange.

The figure was slightly lower than the previous year, when we exported 11,650 tonnes and earned Rs 31 crore in foreign exchange.

We hope to improve the export performance in the current year.

Paper is considered to be a polluting industry. How does JK Paper ensure that the environmental damage caused by the company is minimal?

JK Paper is a highly environment-conscious company.

We were the first to bring the most advanced technology in pulping in the country, which uses very little water.

We have a modern effluent treatment plant. In fact, our effluent discharge meets all current prescribed limits by the Central Pollution Control Board.

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`Outsourcing has helped JK Paper boost volumes'