Across the globe certain factors are providing a growth impetus to the global paperindustry while others are holding it back. Broadly speaking the industry is beingstrengthened by increasing e-commerce demand for cardboard as packaging material newmarket opportunities thanks to increasing demand from the growing middle class in emergingmarkets as well as increasing demand for hygiene products. Equally however the industryis facing headwinds from feedstock cost sensitivity high investment costs to sustainfuture growth and competition of plastics with cardboard in certain aspects of packaging.Not surprisingly therefore global paper demand is estimated to be growing at a low butsteady rate of around 2% to 3% per year.
Thankfully for us India is a fast growing market. The domestic market of paper is over16 million tonnes per annum (TPA) with over 2 million TPA being imported. By 2024-25under the baseline scenario domestic consumption is projected to rise to 23.5 millionTPA. If the industry gets the right impetus the optimistic forecast by the Indian PaperManufacturers' Association estimates paper consumption in India to increase to 36.90million TPA by 2024-25. Even as I pen this letter about 1 million TPA of integrated pulppaper and paperboard capacity has to be created in India on an annual basis over severalyears to meet the growing demand.
However it is important to note that paper production is highly capital intensive andinvestments are lumpy in nature.
In the last five years there have been consistent investments by leading players inthe industry and over ' 20000 crore has been spent on capacity addition. This investmentdrive has brought in a sudden spurt of new capacity well in excess of the annual increasein domestic demand. Consequently capacity utilisation of much of the new equipmentinvested has been economically unviable.
Though most companies including BILT had estimated a gestation period while planningtheir investments the fact is that this period has been longer than initially expected.For one while rate of growth of paper demand in India exceeds that of the world as awhole this demand growth has been slower than expected. Second with global excesscapacities there have been increased imports into India which has significantlyreduced prices of certain grades of paper especially in the value added segments likecoated paper where BILT is a major player.
This business scenario has put severe financial pressure on companies like BILT whichhad made sustained investments in capacity and technology. Consequently we had torecalibrate our business plans internalizing a much longer gestation period for these newinvestments. As a result your
Company had to go through a very difficult phase over the last couple of years. Therewas considerable stress on our ability to service financial obligations; and inadequateworking capital prompted severe curtailing of business operations.
Thankfully FY2019 has been different and one that I dare say was a watershedyear for your Company's revival roadmap. Operationally BILT is back on track on a newgrowth trajectory. It has already demonstrated its abilities to meet obligations of therestructured financial plans for its principal entity. And the management is confident offinalising restructuring plans with our financial partners for some of the other step-downsubsidiaries in FY2020.
Let's look at the highlights of the Company's consolidated performance in FY2019:
Even with working capital constraints at both our principal facilities Ballarpur and Bhigwan we increased production to service the market. At Bhigwanthe production growth was a significant 81% which has brought the scale of operationsback on track. At Ballarpur too there has been around 5% growth. Consequently revenuefrom operations has increased by 45% to ' 3643 crore in FY2019.
Concerted efforts at improvements in operating efficiencies continued unabatedacross the facilities. In addition there were several improvements brought about inexisting products; and new products added to provide value addition and enhance theaverage realisations. As a result operating margins before exceptional items (EBIDTA)increased from 14% in FY2018 to 18.5% in FY2019.
The topline growth with improved operating margins has translated into operatingprofits before exceptional items (EBIDTA) for the consolidated entity almost doubling to '676 crore in FY2019 compared to the last year. This
is particularly impressive as it is after accounting for the losses incurred in some ofthe other facilities and entities that are yet to be revived.
Finance cost reduced by 8% for the consolidated entity.
All these efforts contributed to a reduction in net losses before exceptionalitems tax and discontinued operations from ' 840 crore in FY2018 to ' 433 crore inFY2019. After accounting for all other factors total net losses for FY2019 was ' 1071crore which represents a 47.4% reduction over FY2018.
Thus your Company has continued on the revival path initiated in FY2018 andoperational performance has improved significantly.
While the emphasis on running the operational unit more efficiently and drivingprofitable growth remain the paramount objectives there are some critical issues thatyour Company has been actively working on resolving.
In the early part of FY2018 there were issues with the lenders of BGPPL and the entitywas advised to be taken to NCLT. Subsequently after obtaining a stay it finalised arestructuring package for this entity with the financial creditors; and BGPPL has alreadystarted servicing its debt as per the restructured package.
The Kamalapuram pulp mill has been shut since FY2014. There have been several effortsto revive this entity including introduction of an outside investor. The Government ofTelangana has been supportive in revival efforts and agreed to provide ' 45 crore subsidyevery year for a period of seven years. The banks are now finalising a restructuringpackage in line with what was accepted for BGPPL. And BILT has also made commitments tomake an investment in this plant. We expect a clear path to emerge in the first half ofFY2020 with the facility focusing on paper grade pulp.
Operations at Sabah Forest Industries (SFI) have been affected for the last couple ofyears. The Company had already decided on exiting the business and was in talks withinterested investors. However with a changed political environment in the region theprogress on arriving at a solution for SFI is taking longer than expected. We arehowever confident that the new government will appreciate and understand our stance onthe subject after they get the requisite time to study the business condition.
During the entire difficult phase of restructuring the business and positioning it backon a growth trajectory our human resource function and senior management worked very hardin being able to successfully retain most of our talent. My thanks to them.
My thanks too to our sales and distribution partners suppliers and vendors who havestuck with us during these difficult times.
I assure all of them that we are now well on the path of profitable growth.
Finally Mr Gautam Thapar our Chairman and Chief Executive over the last decade and ahalf stepped down from his office on 31 March 2019. He continues to be on the Board ofyour Company. I take this opportunity to thank him for being the Chairman of the Board atBILT for all these years and look forward to his regular advice and guidance.
I want to thank all the banks and financial intermediaries who continue to support ourbusiness. And to you our shareholder my gratitude for continuing to repose faith inBILT. The worst is behind us and we will walk together on the next stage of prosperityfor your Company.
|B Hariharan |
|Chairman & Executive Director |