How would you summarise the industry scenario in FY 2018?
This year the paper industry in India has witnessed an unprecedent boom. Strongeconomic growth has been accompanied by equally robust demand for paper. The demanddrivers and growth triggers have come from a combination of factors such as rising incomelevels growing per capita expenditure rapid urbanisation and a larger proportion ofearning population which is expected to lead consumption and there is enormous potentialfor the paper industry in the country. The low per capita paper consumption in the countryalso provides a greater window of opportunity in the near long-term.
Additionally the Chinese Government's move of banning import of several varieties ofwaste paper amidst environment concerns has resulted in a drop in global waste paperprices. As a result the prices of recycled paper in China used for packaging materialhas increased due to short supply of waste paper. Indian manufacturers using waste paperstand to benefit on account of lower global waste paper prices (on excess supply) andhigher realization for recycled paper.
Could you please elaborate on NRAIL's performance in FY 2018?
Well this year was another round of commendable performance continuing to lay thefoundation for future growth. All our capacities are operating at 90%+ capacities. Wereported revenues from operations of Rs 1226.17 Cr during the year an increase of 11.95%from the previous year and the highest since our inception. We fast-tracked our salesacross the different product lines and reported 12% growth at the EBIDTA level and 81.46%growth in the net profit after tax level. Our net operating profit and net profit aftertax margins recorded 12.65% and 7.36% respectively. Hence this year is marked by robusttop-line and bottom-line growth.
What were some of the major initiatives that transpired during the year?
Technological improvement and upgradation of the machineries are two of the majorinitiatives that transpired during the year. At NRAIL we felt that it was imperative toundertake a major overhaul across all our manufacturing units in order to stay relevant intoday's competitive world as well as ensure future readiness. Leveraging our pastexperience of more than four decades in the paper business we undertook some of the mostdecisive initiatives during the year in question towards building a robust future for theCompany. In line with this strategy we embarked on upgrading our old machines with thelatest state-of-the-art ones. This has been an ongoing work for some time now at NRAIL butin FY 2018 it picked a great momentum and we invested Rs 53.64 Cr during the year fortechnology and machinery upgradation.
Another step that we took during the year was deciding to continue with the newsprintbusiness. Earlier during the year we had decided to bid adieu to the newsprint segment onaccount of higher import cost and shift in user preference to online news platforms whichhad been adversely affecting newsprint prices. However to our pleasant surprise in thelast few months the newsprint prices have soared to historical highs reducing the gapbetween newsprint and writing printing papers to less than 10%. In the light of thisrecent development the Company is not exiting the newsprint segment in totality.
We also took the decision to fast track the transition of the Company with envisagingthe setting up of a new 600 TPD kraft paper unit. The rationale behind considering kraftpaper as an option is the foresight of a strong demand growth from the packaging sectorespecially the brown-grade. Because of the growing e-commerce business the packagingpaper and boards (PPB) segment is likely to grow fast. With readily available land spaceand infrastructure this move can provide us with the required impetus for achieving thenext leg of our envisioned future growth.
How is this new project unfolding?
Currently we are at a pretty nascent stage of implementing our vision and the kraftproject is just being looked at as a potential possibility. Recently we came to anagreement with Ernst & Young to undertake a techno economic viability study on ourbehalf and based on their report we would take our final decision.
How do you see the Indian paper industry shaping up over the next 5 years?
Considering the present per capita paper consumption in India I see a sea ofopportunity lying ahead of us. With the growing importance of e-commerce business risingliteracy rates and burgeoning FMCG and packaged food industry the days ahead for theIndian paper industry are expected to be phenomenal as the Indian paper industry is likelyto outpace the global industry in terms of growth. Despite increasing digitisation theIndian paper industry is expected to clock double digit growth over the next five years.Moreover there are some changes in the Chinese market which has restricted their ownproduction and curtailed their imports of some of the waste paper varieties which is goodnews for Indian waste paper consumer mills. Looking at all these factors I am quitebullish about the paper industry for the coming years.
How is the Company accelerating towards the future?
We aim to be one of the top five paper mills in India in the near future and all ourinvestments and strategies are aimed towards achieving this transition. The capitalexpenditures we have made over the last few years mean that our plants are more agile andour machinery and equipment are up to date. These investments coupled with processimprovements also mean we are well prepared to handle more volume and are well positionedto cater to the growing demands.
How you plan to fund your investments?
The project is expected to cost ~H 4 bn and shall be funded by way of debt and internalaccruals. The exact proportion of debt-accruals shall be determined in due courseas we move ahead with the project execution.
What is the outlook for the year ahead?
At NRAIL our outperformance is derived from our strategic focus to be a low cost papermanufacturer with a growing systemic integration on new technologies and processes. In abid to extend our value chain we intend to explore new opportunities in the kraft papermanufacture firmly establishing our status as a multi-product Company.
In line with these statements of intent we expect to possess one of the highestrecycled paper product manufacturing capacity in India and generate a top line of Rs 2000Cr in next 5 years with capacities of nearly 500000 TPA. We believe that theimplementation of these capacities and delivery of revenues will not only enhance ourprofits but will also enrich our organisational value.
By being agile or nimble footed one can easily adopt to the changes of tomorrow today.Thus a few recalibrations at different levels across the organisation helped NRAIL to beready for the future growth.
We focused on creating a continuous cycle of investment which largely revolves aroundthe focus areas of fostering product innovation that differentiates our brands enhancingour operating excellence that optimises performance.
We focused on developing new product lines within the present eco-system and tried tomove out of the ones which impacted profitability.
We partnered with professionals for maintenance and monitoring of our machineries thushelping us eliminate machine idle-time owing to breakdown to a large extent.
We recalibrated the raw material composition for a number of our products recalibratedthe process and the machines and retrained our employees to the new system.
All this resulted into reduced waste generation reduced power and water consumptionand most importantly enhanced realisations from the same product line.
Mr. R N Agarwal
Chairman & Managing Director