The Hindu Business Line : Large capex may strain paper cos' financials: Crisil

Capital expenditure
The size of capital expenditure in the current phase is nearly four times the size of the capital expenditure carried out between 1996 and 2001
While the business profile of players to strengthen because of robust demand, they may be offset by large project-related debt stock and rising interest rates

Mumbai , Sept. 12

The credit profile of large and medium-sized paper producers in India could come under some strain in the wake of the large capital spending lined up by these companies within the next three years.

The paper industry proposes to plough in Rs 9,000 crore up to 2008-09, with a major chunk of this investment being debt-funded, according to a study on the paper industry by Crisil. About 60 per cent of this spending will go for capacity expansion and the remaining 40 per cent on modernisation of paper mills, installation of co-generation and chlorine-free pulping facilities.

Proposed projects

Some of the proposed projects are the Rs 1,600-crore capacity expansion project of Ballarpur, Rs 635-crore project of AP Paper, Rs 350-crore new pulp mill project of Seshasayee, Rs 385-crore expansion plan of Century Textiles and JK Paper's Rs 235-crore new paperboard machine unit.

Crisil expects the business profile of players to strengthen because of robust demand conditions. However, these benefits will be largely offset by the pressure on the financial profiles of players over the medium term in the wake of large project-related debt stock and rising interest rates, the study says.

About 1.3 million tonnes of fresh paper, board and newsprint capacity and one million tonnes of pulp capacity are being added between 2005 and 2009. The additional capacity will not result in any excess capacity, as demand growth is expected to remain healthy at about 6 per cent.

Debt funding

The current phase of capital expenditure is nearly four times the size of the capital expenditure carried out between 1996 and 2001. In the current phase, three players, ITC, Ballarpur Industries and Whitefield Paper (a new greenfield venture), will account for about Rs 5,300 crore, or 60 per cent of the total capex programme of the industry.

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