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From THE HINDU group of publications
Sunday, July 08, 2001













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Central Pulp Mills -- Beaten in the long term

Sowmya Krishnan

AT THE rates on offer, the fixed deposit programme of Central Pulp Mills is a decent investment option for high risk-takers.

The interest rates are slightly higher than that offered by companies in the same risk class.


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The high interest rates in itself indicates the risk involved and, hence, investors could consider the short-term rather than the longer tenures. The lower incremental interest on the three-year tenure is another reason for the investors to keep away.

Scheme features: Central Pulp Mills accepts both fixed and cumulative deposits. The interest rates for the fixed deposit programme are 11.5 per cent, 12.5 per cent and 13 per cent for one, two and three years respectively. Interest is payable quarterly. The effective yields per annum (compounded quarterly) for the cumulative option are 12 per cent, 13.96 per cent and 15.59 per cent for one, two and three years respectively. The minimum deposit amount is Rs 5,000 and, thereafter, in multiples of Rs 1,000. Investors can contact the company's registered office at Fort Songadh, Surat district, Gujarat, 394660 for further details.

Business: The company in involved in the paper and pulp business. Recently, the paper division of JK Corporation was transferred to Central Pulp Mills for Rs 650 crore, which resulted in additional capacities for the company.

The company's gearing levels were comfortable at 1.73 times the profit before interest and taxes. The debt component was 2.03 times the shareholder funds compared to 1.91 the previous year. The increase in the proportion of debt to shareholders funds should not be a cause of worry because of the comfortable gearing.

The company's efforts to increase captive power generation and better working capital management have helped cut costs and improve operating efficiency. Therefore, the company is well-placed from the point of view of operational risk profile.

After a good performance in the last couple of years, the current sluggish domestic price trends linked to international trends could be a cause for concern.

Financial performance: The company's financial performance was fairly good for the third and fourth quarters of 2000-2001; net profit was Rs 5.20 crore for the quarter-ended March 2001 on a net sales of Rs 33.39 crore.

The net profit was Rs 1.98 crore for the corresponding previous period on a net sales of Rs 29.45 crore.


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The improved performance for the quarter-ended March 2001 was the result of the company's continued thrust on marketing value-added and branded products, savings from higher captive generation and improved outlook for the paper industry during the year.

Though growth rates may taper in line with industry price trends, for a one-two-year horizon, the FD programme of Central Pulp Mills can be considered.


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