With their own modest resources, accessing funds from the progressive state government for equity, the promoters of Seshasayee Paper and Boards set up a modern paper mill. With his yen for research, development and innovation techniques, S Viswanathan (SV) steered the company through tough times; all through, refining the processes and expanding capacity with the help of a bunch of dedicated team. Significantly, his SPB Projects and Consultancy team has been offering project planning and technology support to dozens of paper mills spread across the country. The most shining of these is the Tamil Nadu Newsprint and Papers Ltd (TNPL), the brainchild of SV, set up in the government sector. (At the end of March 2013, TNPL had built up reserves and surplus of Rs 966.10 crore on a share capital of Rs 69.38 crore; it earned a net profit of Rs 91.48 crore for the year).
I visited the SPB mills located at Pallipalayam on the banks of the Cauvery after several years. The plush greenery and the thick forest cover in a town with a dense population struck me. Chairman, N Gopalaratnam and his team pay great attention to the conservation and improvement of the environment. I noticed electrostatic precipitators filtering dust particles from the boilers and anaerobic lagoon created for treating high BOD liquid effluents and secondary treatment for total mill effluents. The treated effluent is utilised to the last of drop for irrigating sugarcane fields nearby. These measures had brought about twin advantages: the effective use of the effluents discharged by the mill duly treated and providing irrigation to around 1500 acres. The sugarcane raised, feeds Ponni Sugars & Chemicals, part of the Seshasayee group; the sugarcane bagasse meets a significant share of the pulp needs of the paper mills. A brilliant integration!
K Shanmugam, GM (Environment), pointed to the company providing quality clonal seedlings of eucalyptus and casuarina seedlings at subsidised rates to farmers and to assisting them with technical guidance to raise tree farms. Through tissue culture the clones are multiplied thousand fold. This veteran with over four decades of service also referred to plans to double acreage irrigated by treated effluents through drip irrigation.
A prized acquisition
A couple of years ago, SPB acquired Subburaj Papers at Tirunelveli at a cost of around Rs 300 crore. The mill, equipped with Canadian machinery has capacity to produce 300 tonnes of paper per day. This mill is also endowed with large land area of around 300 acres and is near the Tuticorin Port. This factor, combined with SPB’s status as a star exporter, should be a big advantage for taking up large-scale expansion. In a short time this sick mill has been turned around integrating its operations with SPB and availing the vast technical and management expertise of SPB. With production of 50,012 tonnes this mill even earned a cash profit.
In the year ended March 2013, total production of the company in its two mills amounted to 169,438 tonnes. Total revenue amounted to Rs 838.66 crore. With the expansion of capacity at Erode completed recently and with the new acquisition, provision for depreciation and finance costs amounted to around Rs 94 crore. Still, net profit was a sizeable Rs 20.51 crore on a share of capital of Rs 11.25 crore.
India can emerge a global leader
N Gopalaratnam (NG) joined SPB after graduation in mechanical engineering from the PSG College of Engineering, Coimbatore. Through these four decades plus, he has been closely involved with the evolution of SPB into an efficient and technology-rich paper mill.
NG pointed to the highly favourable conditions in India to emerge a global leader in paper and pulp production. Fresh from chairing the XI International Paperex Technical Conference held in Delhi during 24-26 October, NG provided an overview of the Indian paper industry.
With rapid increase in population and literacy, as also in urbanisation, consumption of paper has been growing at a handsome 8 per cent CAGR. In 2010-11, production was 10.11 million tonnes and consumption 11.15
million tonnes. NG pointed to production predicted to grow over the next 15 years four’ fold to around 40 million tonnes and consumption to 44 million tonnes. Even while consumption has declined in the developed countries of the west, including Europe and the US, India has been registering the fastest growth. The present capacity is for 13 million tonnes through 650 mills with an estimated turnover of Rs 35,000 crore. But per capita consumption is low; just 10.5 kg against the world average of 56 kg and Asia’s 26 kg.
Declining share of wood
With the difficulties experienced in procuring required quantities of wood, the industry is constantly striving to look at non-conventional sources. NG pointed to the pioneering work done by S Viswanathan to boldly introduce bagasse and other agri-based waste products as raw material: “SV’s indefatigable work at the state and the Centre helped the industry get excise duty exemption for bagasse and other agri-based waste products used as raw material by paper mills. Today, wood as raw material source for paper forms just around 35 per cent; agri-based material for 21 per cent and re-cycled fibre for the balance 44 per cent. The persistent shortage of wood is resulting in increased resort to imports. “In 2012, raw material imports for the paper industry of around three million tonnes (primarily recovered paper) and finished paper/paper board imports of 1.8 million tonnes, resulted in a foreign exchange outgo of around $ 3 billion (around Rs 15,000 crore),” said NG.
The SPB chairman pointed to the steep and continuous increase in the price of hard wood: “it was Rs 3167/tonne last year and today it is Rs 5330/tonne. On a consumption of 4 lakh tonnes, the increase works out to nearly Rs 100 crore. Relate this to the profit earned of around Rs 60 crore. And you realise that industry cannot absorb such steep increase.”
Increasing cost of raw materials
Industry analysts point to the paper price index increasing from the base of 100 in 2008-09 to 111 in 2012-13; but, hard wood price index with the base of 100 shot up to 166 over the last four years. This explains the modest increase in price of paper through last year. Luckily, the market has been able to absorb this. But, such uncontrolled increase in raw material price is bound to depress demand growth, cautioned NG. He pointed to growth falling to around five per cent against the projected nine per cent.
Paper and pulp manufacturers have been investing handsome amounts on fresh capacity. NG estimated this at around Rs 20,000 crore made over the last five years. SPB has spent around Rs 800 crore including the Rs 300 crore spent on acquiring the Tirunelveli plant.
Steep increase in domestic raw material prices and the high cost of imported pulp and wood chips contribute to steep fall in profitability. If this is not arrested, marginal units and those in the small sector would face closure and no fresh capacity will be created, caution industry leaders.
VG pointed to the shortage of wood: against the required nine million tonnes,
availability is just six million tonnes. He pointed to a McKinsey report on delivered cost of wood: it was $ 55 per tonne in Brazil and $ 58 in Russia, $ 69 in the southern US but $175 in India and to the absence of policies that would contribute to sustained growth.
In a paper presented to the government, Indian Paper Manufacturers’ Association suggested several interventions needed for sustained wood supply. It pointed to the paper industry as the only industry doing farm forestry wood production over the last 24 years – more than 80,000 ha of farm forestry are done annually and cumulative coverage so far exceeds 550,000 ha.
Look for expansion abroad…
Over the next ten years, foreign exchange outgo on paper imports will exceed $ 15 billion (over Rs 90,000 crore), NG suggested the government allotting two million hectares out of the 28.5 million hectares of degraded land on lease for raising the needed wood. Industry feels that this issue is not addressed seriously.
The persistent and increasing shortage of wood and the higher costs of imports have led to Indian paper manufacturers looking for capacity expansion abroad. Already leading global manufacturers have been doing this. In recent years, China, the largest producer of paper, has been aggressively expanding into Latin American and African countries.
A few years ago, IE suggested the potential offered by Mizoram: this northeastern state is a large producer of bamboo and has little industrial activity. Language is no barrier as English is the state language. The mountainous terrain with little transportation facility has been a serious handicap. The Indian government has been assisting Myanmar in developing port facilities, which are proximate and accessible to Mizoram and other northeastern states. With much improved relations with Myanmar, it will be worthwhile to leverage on this port facility.
With the liberal tax incentives offered for the development of northeastern states, it may be worth exploring possibilities of setting up a large capacity pulp plant and integrate it with paper production in other parts of the country. The Tirunelveli unit near Tuticorin port will also benefit shifting pulp from Mizoram through coastal shipping.
Look at the e-waste!
The head of the Seshasayee group referred to the concerns of the paper industry extending far beyond profits. He cited several factors:
• Paper industry worldwide plants more trees than it cuts
• Increased carbon sequestration; that is much less carbon footprint
• Young trees absorb more carbon than old ones. Thus, the man-made plantations programme of cutting old trees replacing them with young trees is of special value.
• With renewable raw material the process of manufacture is sustainable.
• Used paper can be re-processed
• Contrast this with the e-waste generated
• e-waste is not easily biodegradable and is not environment-friendly.
This chronic bachelor spends time liberally on industry-wide and societal concerns. He takes keen interest in organising the bi-annual Paperex conferences held in Delhi that attracts experts from across the globe. Manufacturers of equipment, chemicals, technology leaders and traders participate in the conference held over three days. Experts present more than two-thirds of papers from abroad. The SV Memorial Lecture is delivered at the inaugural session as a mark of respect to SV who pioneered extensive use of bagasse and other agricultural waste materials for papermaking. This year the lecture was delivered by Rajinder Gupta, Chairman of Trident Group, Ludhiana - of which Abhishek Industries’ Paper Mills is a part. His company has been making extensive use of wheat straw. SV’s spirited work at the state and Centre helped the industry get excise duty exemption for agri-based raw material used in papermaking. This exemption was withdrawn fifteen years ago.
Deputy Managing Director Kasi Viswanathan pointed to the attrition rate at SPB as among the lowest. He attributes this to the harmonious relationship maintained with the employees and the rich facilities offered at the sprawling (green) residential colony that has been attracting and retaining talent.
Pallipalayam-Erode has undergone a spectacular change through the last five decades. A rich concentration of power looms, educational institutions, the paper and sugar mills have contributed to a high level of prosperity of this district. The third generation of senior managers and skilled workmen at SPB have been making a rich contribution to this transformation. One index: the SPB Employees
Colony has more houses then are in demand!
SPB has been able to survive and grow on the strength of trust it commands from all stakeholders. SPB is tested by time and trusted by all.