Kanpur Plastipack set to expand

Kanpur Plastipack, city-based maker of PP woven sacks and jumbo bags for industrial applications, is set to expand its production of finished products from 6,000 tonnes to 10,000 tonnes a year, with about Rs 21.5 crore.

This expansion entails setting up a factory on the new premises, where a plot of 16,000 square metres will cost Rs 8.25 crore, and plant and machinery Rs 12.25 crore. There will be a working capital margin of Rs 1 crore.

The new unit will produce flexible intermediate bulk containers, also known as jumbo bags. This will be technical upgrade, replacing old looms with new ones and buying one or two add-on machines.

To fund expansion, rights shares will be issued, apart from using loans and internal accruals. The paid-up capital of the company is Rs 3.54 crore and the proposal is to issue one share for every two shares held, at a premium of Rs 10 on the face value. This means the company will raise another Rs 3.54 crore, of which Rs 1.77 crore will be added to the equity and the same amount will come under share premium reserves.

"We have been earning profits for the past 10 years and unbroken for the past 28 quarters; for the past two years, we have been giving dividends, although a token one of 6 per cent," said Manoj Agarwal, managing director.

Agarwal said: "We did not accept the advice to go in for a premium above Rs 10 because since we went public in 1986, we have not given anything to shareholders. Only in the last two years have we have given a 6 per cent dividend. We want to increase the share capital only to the extent we can service it."

There will be an SBI loan of Rs 12.50 crore and internal accruals of Rs 5.5 crore. The loan has come and the disbursement has begun.

Kanpur Plastipack will manufacture food packets in accordance with the specifications of the British Retail Consortium, which specifies the methods of production and packing. On the new premises, food-grade bags will be produced for the European market.

The building should be ready in eight months and the machinery installed in the next financial year. Hence, the expansion is expected to have its impact only in 2008-09.

"This diversification is necessary because traders want all the products to be made available to buyers. They don't want to buy certain products from one seller and some others from another. With this diversification the whole range of products desired by the market in this segment will be complete," Agrawal said.

The company's turnover after expansion is expected to increase to Rs 10 crore. It exports to Europe primarily and started exporting to the US two years ago.