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Ballarpur draws up $1 bn plan to raise capacity

Ballarpur draws up $1 bn plan to raise capacity
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First Published: Thu, Jul 03 2008. 10 04 PM IST
Updated: Thu, Jul 03 2008. 10 04 PM IST
New Delhi: India’s biggest paper maker Ballarpur Industries Ltd plans to invest about $1 billion (Rs4,330 crore) buying overseas rivals and expanding plants at home to quadruple capacity in five years, its finance chief said.
The paper maker and its units, part of billionaire Gautam Thapar’s Avantha Group, will double capacity to 1 million tonnes (mt) next year and increase to 2mt by 2013, B. Hariharan, group director of finance, said. The expansion will be funded by loans and share sales, he said.
“In India, there is a small base and there is no way paper demand will come down,” Hariharan said on Wednesday in his office in Gurgaon, near New Delhi. “The expansion is going to reduce the overall variable cost because of economies of scale.”
India’s market for coated paper, office products and newsprint is estimated to double by 2015, driven by record economic growth. Indians use an average of 7.7kg of paper products a year, compared with 45kg in China and Japan’s 250kg, according to Ballarpur’s annual report.
“Ballarpur’s expansion is coming on time and they have the best distribution network to take advantage of low usage of paper,” said Chintan Mewar, an analyst at Tower Capital and Securities Ltd in Mumbai, who rates the stock a “buy”. “The only concern would be if they face problems such as water availability, environmental clearances and pulp prices.”
Raising prices
The shortage of capacity helps Ballarpur raise prices at a faster pace than expenses, JPMorgan Chase and Co.said in a note to clients on 1 July. This shields the company from an increase in costs for energy, wood fibre andchemicals that have curbed profits for producers includingInternational Paper Co., the world’s largest forest-productsmaker by sales.
Shares of Ballarpur have gained 19% since resuming trading on 31 March after a stock split. The benchmark Sensitive Index of the Bombay Stock Exchange has declined 14.8% in the same period. All nine analysts tracking Ballarpur rate the stock a buy, according to data compiled by Bloomberg.
The shares fell 0.92% to Rs32.10 in Mumbai trading on Thursday, outperforming a 4.1% decline in the Sensex.
The company is scouting for acquisitions in South-East Asia, Hariharan said, without providing details.
Ballarpur and JPMorgan Securities (Asia Pacific) Ltd paid $261 million for Malaysia’sSabah Forest Industries Sdnin 2006.
The Malaysia unit is increasing its capacity to make 100,000 tonnes of pulp and 60,000 tonnes of paper by December 2009, Hariharan said.
Ballarpur’s unit at Bhigwan in Maharashtra is adding 200,000 tonnes of annual capacity to make coated paper, used in printing brochures, advertisements and marketing materials. This will start production in November, he said.
Another 110,000 tonnes of capacity to make uncoated paper will become operational at its unit in Ballarpur, Maharashtra, by June, he said. These additions will allow Ballarpur and its subsidiaries to produce 1mt of paper by the end of next year, Hariharan said.
Ballarpur will raise prices of coated and uncoated paper next quarter, JPMorgan said. The company increased charges of coated paper by Rs1,500 to about Rs47,000 a tonne, and uncoated paper by Rs800 to about Rs43,000 a tonne this week, Hariharan said.
Ballarpur expects to increase its margins by 50 basis points after it starts to export more coated paper from November, Hariharan said.
The company’s earnings margin before interest, tax, depreciation and amortization may widen to 26.5% from 26%, Hariharan said. The products will fetch higher prices overseas than in the domestic market, he said.
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First Published: Thu, Jul 03 2008. 10 04 PM IST