Paper prospects

Central Pulp Mills: Looks forward to stable paper prices

Manish Joshi & Sachchidanand Shukla

The JK Group controlled Central Pulp Mills’ (CPM) stock is rarely traded on the stock market owing to a very low non-promoter holding of 4.4 per cent. Once this problem is addressed, the company can attract investors’ attention assuming the paper industry does well. The JK Group has now decided to rename the company as JK Paper Ltd.

CPM is involved in the paper and pulp business. The paper division of JK Corporation was transferred to CPM for Rs 650 crore with effect from April 2000, which has catapulted the company’s production capacity. JK Paper’s 90,000 tonnes per annum capacity and its new pulp mill of 1.27 tpa has been transferred to CPM, which has small capacity of 47,000 tpa of its own. Even before the transfer of the unit, both the companies were having common marketing arrangement. Hence there were obvious synergies to gain from the merger.

Although financials of year to June 2001 are not strictly comparable with those of the previous year, sales and profit data clearly reflect the benefits accruing from larger scale of operations. The company has recorded a turnover of Rs 613.4 crore and profit of Rs 30.3 crore. Production and sales of paper and pulp was 1,82,587 tonne and 1,76,280 tonne respectively. The company’s efforts to increase captive power generation and better working capital management have helped to cut costs and improve operating efficiency.

As part of the scheme of merger of JK Corp’s paper division with CMP, JK Corp has been allotted eight per cent convertible cumulative redeemable preference shares (CCRPS) of Rs 162 crore and 10 per cent CCRPS of Rs 100 crore, aggregating Rs 262 crore. The balance amount Rs 392 crore, the debt of JK Corp, is shown as debt in the books of CMP that benefits JK Corp through lower debt burden. Further, JK Group has now been able to consolidate its pulp and paper business under one roof.

Bharat Forge
Bharat Forge (BFL) has the largest single location forging facility in the world. Besides Krupp of Germany, it is the only company to have two 1,600 mt Weingarth press lines with an installed capacity of 1.02 lakh mt per annum. Its clientele includes not only all the majors of the domestic automobile sector such as Telco, Ashok Leyland, M&M and Maruti etc. but also auto multinationals such as Volvo, Daimler-Chrysler, and Mitsubishi.

Yet, BFL has taken a hit on account of the domestic as well as global slowdown that has substantially affected demand for its products. The domestic heavy and medium commercial vehicle (M&HCM), utility vehicle segment (UV) and tractor segments have witnessed a fall in production during the year 2000-01. The trend spilled over into the first quarter to June 2001. On the other hand, the US heavy truck industry, the biggest buyer of BFL’s products, too has been witnessing a lean patch. BFL enjoys a market share of over 50 per cent in the heavy axle component segment there. And despite the company’s effort to enhance the geographical spread, exports declined 23 per cent to Rs 85 crore during 2000-01. A gloomy outlook in the domestic and international auto sector will further exacerbate BFL’s agony.

BFL has consciously tried to reduce its dependence on the auto sector. From 80 per cent of total turnover in 1996-97, the share of automobiles has come down to less than 50 per cent in 1999-00. Also, the company has gone in for a major restructuring and cost reduction exercise. It has divested its stake in Kalyani Lemmerz and Kalyani Seamless Tubes. Besides it de-merged its wind mills and investment divisions and transferred these to a new company.

However, large investments in subsidiaries have been a cause for anxiety for a long time now. But, as and when the auto industry revives BFL can surge higher owing to its inherent strengths. Also, the fact that environmental reasons have led to the closure of forging industry in developed nations, all their requirements will have to be sourced from developing countries. This only augurs well for BFL in the long run.