To invest Rs 70 crore as capex

Facing pressure on its margins due to increasing raw material costs, Star Paper Mills Ltd is planning to use agri byproducts such as “bagasse” as feedstock. Bagassse is fibrous materials such as wheat straws and rice straws and supplement wood in paper production purposes.

Kolkata-headquartered Star Paper will invest around Rs 70 crore as capital expenditure to make its unit and machinery adaptable to bagasse.

Dearer raw material

According to G.P. Goenka, Chairman, raw material costs — primarily that of wood and wood-pulp – have doubled. This apart, increasing power and fuel costs in the northern region have compounded the pressure on margins.

“Demand from particle board units (plywood) and expansion by plywood companies have led to an increase in demand for wood. As a result, prices have shot up substantially,” Goenka told Business Line after the company’s AGM here.

Star Paper Mills has its only manufacturing unit Saharanpur in Uttar Pradesh and produces nearly 80,000 tonnes annually. In 2011-12, the company reported a dip in sales to Rs 239 crore (Rs 270 crore) and a higher net loss of Rs 43 crore (Rs 15 crore).

Bagasse procurement

According to Goenka, the project is likely to take shape in another year’s time. Star Paper has already initiated discussions with local farmers for procuring bagasse.

Nearly, 50 per cent of the company’s raw material requirements – 100,000 tonnes of wood a year - will be through bagasse. The remaining 50 per cent will be from wood.

The company, he said, has already sought loans from banks to invest on capital expenditure. Clearances are expected to be received soon.

“Capex will be partly through debt and partly from internal accruals,” he said without divulging details.

New Products

According to Goenka, the company would look at increasing its product portfolio to high-end coloured paper and photocopier papers once margins improve.

Its current product portfolio includes writing and printing papers used in greeting cards, diaries, wedding cards and industrial paper used in wrappers, Braille and packing.

“We might look for high-end products but only after margins improve,” Goenka added.

The company has already sought loans from banks to invest on capital expenditure.

(This article was published in the Business Line print edition dated September 23, 2012)
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