The Hindu Business Line : BILT plans to get leaner in 3-4 years

BALLARPUR Industries Ltd (BILT) is the market leader in the Indian paper industry. The company is also the largest manufacturer and exporter of paper, with a strong presence in all segments of the usage spectrum that includes writing and printing paper, industrial paper and specialty paper.

In an interview to Business Line, the company's Group Director (Finance), Mr B. Hariharan, talks about how BILT plans to consolidate its position and its strategies for the future. Excerpts:

Recent Q1 results of Ballarpur Industries showed a dip in total income net of excise. Is this a matter of concern?

During the period, we had a 7-per cent growth in the paper business. Overall growth has been less because there was a shutdown in our rayon-grade pulp plant because of turbo generator maintenance, which has now been set right. You will see the impact of the operations in the second quarter.

What are your capacity addition plans for the future?

This year we plan to increase our capacity by 30,000 tonnes, but that would be coming through only by the end of the year. Next year, we plan to put up one more machine, with a capacity of 35,000 tonnes, at our Yamunanagar unit.

Besides, we have a unit making sack craft paper, which is not a Ballarpur unit at this point in time. It's a separate company called APR Packaging, where Ballarpur has a 38 per cent stake. The sack craft paper made at the unit is used for cement bags. However, we are in the process of converting this unit into a writing and printing paper one.

Today, APR's capacity is 40,000 tonnes. This unit will be upgraded to 60,000 tonnes by August 2005. Our current capacity of 3,80,000 tonnes will go up to 5,00,000 tonnes by the end of 2005-06.

Can you outline how the paper demand cycle works?

The average demand in paper is about 6 per cent, it normally follows the GDP growth rate, or slightly above the GDP growth rate. But there are some varieties of paper like coated paper that grow at about 12 per cent, while copier paper grows at around 12-14 per cent.

We make very little creamwove, which is the normal writing paper. If at all we have to get into the creamwove segment, we will be doing it through trading but do not plan any investments into setting up manufacturing facilities.

Is there a restructuring of sorts happening in the company?

At present, we have a 9,200-employee strength. We have introduced a VRS scheme in three of our units and, this year, we expect about 500 employees to take the scheme. Also, there are two old mills where the normal annual attrition is about 400-500 employees. Our target is that before we make a major investment, which we plan to do in 2007-08 and 2008-09, we should optimise our employee strength to around 5,500 people. But that is going to happen only during the next three to four years.

Of the machines in operation at present, two are small. So, our plan is to optimise the number of machines and replace some of the older machines with bigger machines. This would bring overall variable and fixed costs savings.

Today, we are running with 15 machines across our five locations. In four years, we would be running with say, 11 machines. But we will be making double the capacity of paper.

Are you looking at acquiring pulp companies abroad?

We are always on the look-out for fibre outside the country, because countries like Indonesia and Malaysia are rich in fibre. So our idea is to look at fibre resource outside the country but nothing has been finalised as yet.

Are any of the domestic paper companies on your radar?

To be very frank, in India, there is nothing to acquire at present.

If at all, we would be looking at units of a big size of around 60,000 tonnes and above capacity.

I don't think there is anything available of that size right now.

Have you set any targets for better margins during the fiscal?

We have the best margins in the industry, because of our size and since we make coated paper. We are almost 2.5 times the size of the next biggest competitor, and, correspondingly, margins are higher. Also, since we are into the higher segment paper, the margins are higher. Our target is to increase margins by a per cent this fiscal over last year's figures.

We have taken lot of initiatives to achieve this during the last year. For instance, we tied up with the Maharashtra Government for long-term supply of bamboo.

Also, a company called Imerys has put up a facility to manufacture one of our bleaching chemicals called calcium carbonate. That is being put up at our Sinar Mas site. The chemical would be captively consumed and is being put up entirely by Imerys and is expected to save us about Rs 15 lakh to Rs 20 lakh annually.

The plant will come into operation by end of this month. Also, the VRS measure is a step towards improving margins. But there have been some increase in raw material costs, particularly in the South, and coal prices are also going up.

While these incidents could eat into the margins, I am confident we would be able to achieve our target of improving margins by at least 1 per cent compared to the previous fiscal.

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BILT plans to get leaner in 3-4 years