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Servalakshmi Paper to raise Rs 60 crore for making value-added products

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‘Tirunelveli offers locational advantage for imports, exports'.

Mr K.P. Reddy, CEO(Marketing), Servall Group of Paper Mills
Mr K.P. Reddy, CEO(Marketing), Servall Group of Paper Mills

“Due to increased production of newsprint, the dependency on imports has come down.”— Mr K.P. Reddy, Chief Executive Officer (Marketing) of Servall Group of Paper Mills

R.Yegya Narayanan

Coimbatore, Oct. 6

The Coimbatore-based Servalakshmi Paper Ltd, part of the Servall Group of Paper Mills, Coimbatore, which is involved in the manufacture of printing and writing papers and newsprint, plans to come out with an initial public offering (IPO) to raise Rs 60 crore. The company counts some of the top media groups in the country among its clients.

Located at Kodaganallur in Tirunelveli district on about 340 acres, it has a total production capacity of 90,000 tonnes a year and is one of the largest single location plants in India.

In an interview to Business Line, Mr K.P. Reddy, Chief Executive Officer (Marketing) of Servall Group of Paper Mills, shares his views about the company and its growth plans.

Is your paper project in Tirunelveli district working at full capacity?

Servalakshmi Paper Ltd is having capacity of 300 tonnes per day and is working with 80 per cent capacity utilisation. The commercial production started from April.

Already, there is a paper mill nearby. Is there any specific reason for choosing this location – in terms of raw materials, availability of cheap labour, land, etc.

The location (Tirunelveli district) was chosen in view of the perennial source of water from Tamiraparani River, which is 5 km from our factory for the paper manufacturing. We have surplus power and steam for future expansion. Till then, power will be sold. We have enough water, land and infrastructure for the future expansion and situated 3 km from NH-7. We are 72 km away from Tuticorin port and logistically well placed for exports of finished goods and import of fuel and waste paper. Hence we have locational advantage for imports and exports vis-à-vis competitors.

We are producing eco-friendly paper with latest technology in place for paper making and located very close to the paper market such as Sivakasi, Madurai, Thiruvananthapuram, Kochi, Chennai, Coimbatore, Bangalore and Hyderabad.

What was the total investment in the project? Do you have plans to scale up capacity? If so, when would you initiate steps for that and what is the cost of that?

The total investment is estimated to be Rs 340 crore and the entire project is set to be completed in two phases. The company has completed the Phase-I of the project and has started the commercial production from April 1. We are in the process of implementing Phase-II. In order to improve the overall profitability of paper plant operations, the company has proposed to install balancing equipment for producing value added products such as copier paper, multi-purpose office stationery, high bright SS Maplitho and computer stationery and augment working capital funds representing the Phase-II of the project. These products will increase the sales realisation on an average by about 5 per cent of the same for the printing & writing paper varieties.

Can you provide details of (daily volume of production) various paper products? Do you have plans to increase production of newsprint?

At present the capacity utilisation is between 75-80 per cent. While offset printing paper accounts for 80 per cent of it, newsprint production constitutes the balance 20 per cent. We would like to increase the production by going for retrofitting in the existing paper machine.

India used to meet much of its newsprint requirement through imports. Has the dependence on imports come down? How much of the demand is met through indigenous production?

Due to increased production of newsprint in India, the dependency on imports has come down and currently 65 per cent of the demand of newsprint is met through indigenous production. Our focus is mainly on copier paper. Estimated paper demand is 9.2 million tonnes (mt) and actual production is 7.5 mt.

What is the size of the IPO and what is the percentage of equity the promoters are giving up. When is it likely to hit the market?

The issue size is Rs 60 crore. Issue proceeds are proposed to be utilised for purchase of equipment for producing value-added products (Rs 25 crore), for augmenting long-term working capital requirement (Rs 30 crore), issue related expenses (Rs 5 crore). We are awaiting SEBI clearance and once it is obtained, we will decide the timing of the issue.

The group has three more paper mills. Will the public issue cover all the mills or will it cover only the mill in Tirunelveli district? What is the annual growth expected?

The public issue will cover only Servalakshmi Paper Mills, Tirunelveli. The annual growth of the industry is around 7-8 per cent. But since ours will be recycled paper carrying an eco-friendly tag and as it has got good demand in developed countries, we expect the growth to be around 10 per cent.

(This article was published in the Business Line print edition dated October 7, 2010)
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