Technological Upgradation Fund should be created to provide finances on concessional rates: AS Mehta, JK Paper

"We have asked the government to take steps to stop dumping of paper from southern Asian countries like Japan, Korea and China, as it has an impact on the paper industry in the domestic market", says AS Mehta, President, JK Paper. During an interview with Swati Khandelwal, Zee Business, Mehta said, 'JK Paper has always outperformed the industry in terms of growth, profit and margins. Edited Excerpts:

What is/are your expectations from the budget, which is around the corner? Do you hope that specific announcements will be made to increase the consumption and demand for paper?
As far as the budget is concerned, then we have submitted certain things to the government and they are (i) paper industry suffers in the domestic market due to dumping from Southern Asian countries like Korea and Japan including China and we have asked the government to take necessary steps to stop this practice. These actions can be launched in the form of safeguard duty and the additional imposition of duty among others. (ii) We have asked for rationalisation of the tax on paper cups and glasses, which acts as a substitute for plastic. Actually, a high rate of tax is imposed on minor poly-coated paper cups and glasses when compared to general papers and we have asked for its rationalisation. The high tax rate is slapped even in tissue papers and we have also requested for the same. (iii) Wood is the basic raw material for the paper industry and 18% tax is slapped on wood, while it is 12% on paper, which is a classic case of inverted duty structure and we have requested for it as well and asked it to reduce the tax rate on wood. (iv) Paper industry is a capital intensive industry needs upgradation for sustainability from the point of view of environment and technology and meet the global competitiveness levels. It can be done if the government provides finances to us by creating a technological upgradation fund based on concessional rates. 

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Q2 has been a good one on both operational and profit fronts. What is your outlook for Q4?
JK paper has always outperformed the growth, profit and margin numbers of the industry till date. Our operational efficiencies, productivity and management bandwidth has helped us in demonstrating better margins and growth when compared to the industry. But, I can't talk about the specific numbers of the third quarter but can say that our numbers will be better than the industries numbers. When it comes to industrial growth then demand has been a good one and it is not facing any major hurdle as the prices of raw material and other commodities have been stable. 

What is the margin for the next quarter?
I can't provide any margin-specific guidance from the governance point of view but can say that the paper industry has posted decent margins in the past and it is likely to stay in the same range. 

Did you do any capacity expansion in this quarter to meet more demand and what is your CapEx plan for the future?
JK Paper's capacity plans were based on the industrial growth and future outlook on demand. We have started production at Sirpur Paper, which was acquired earlier and it will provide a decent volume in the January-March quarter. This volume will take up the volumetric growth of JK Paper. Sirpur will provide volume to us in the last quarter of FY20 and JK Paper's volume will grow by more than 20% in the financial year 2020-21 (FY21).

When it comes to the expansion of the packaging board in Gujarat, where a 2 lakh tonnes packaging board machine is being installed then I would like to say that packaging board segment is getting a healthy double-digit growth and is likely to grow in the same way. This addition of 2 lakh tonnes will increase our volume by 25-30% in the financial year (FY) 2021-22. Thus, JK Paper will register a growth of 20-25% for the next 2 financial years. Our CapEx plan and projects are running on time and we expect that the Gujarat plant will be commissioned by the last quarter of FY21. 

You have talked about the acquisition. So, let us know about your acquisition and expansion plans?
JK paper depends on its financial health and going forward when cash surpluses will be generated then we will like to deploy them and will keep looking towards it. Such opportunities can be organic as well as inorganic. We are open to any value-adding and accreditation proposals. Besides, Sirpur was acquired, which will be stabilised to increase production and product addition purposes. This is going to be our priority area in FY21, which will shift to the packaging board's new plant in FY22 and we will try our best to utilise its capacity and introduce new products in the market. Post FY22, we may expand organically in paper or non-paper segment if we don't have opportunities to expand ourselves in an inorganic way. We have an objective of creating value for our investors by making gainful investments in almost every sector/segment that would benefit us. 

Can you suggest other lines beyond paper where you would like to expand?
Any sector, like paper, non-paper, packaging, converting or any other business, that will provide a better return to our shareholders. We are open to it. 

What are the outlook on pulp pricing in the fourth quarter and next fiscal year?
Pulp prices are stable but are above a low level. It stands at $500 and I think it is below the sustainable level. An upward trend in the prices can be seen after the Chinese New Year from February-March. $600 is a sustainable level for pulp prices globally as it helps in providing a good return to pulp manufacturers over their investment and allows paper prices to reach $800, which is a sustainable mark for the paper industry. I feel that the pulp prices will start moving northward after February-March but can't say the level to which it will reach as commodity prices at times turn speculative in the market. As far as Indian paper prices are concerned then it will depend on demand and supply but coated paper prices have seen a huge decline is inching up due to demand. Even global price is going up and coated paper prices will go up by 2-3% in the immediate future.