Rating agency ICRA has said that the outlook for Tamilnadu Newsprint and Papers Ltd (TNPL) is “subdued” because of the weak demand for printing and writing paper.
While giving TNPL a “stable” rating for the company’s long-term outlook, ICRA commented on the weak demand for printing and writing paper “which remains vulnerable to overall macro-economic growth levels.”
The agency has also noted that “the delay in commissioning of the ongoing projects leading to deferment of the benefits from these backward integration and process improvement exercises.”
The mill expansion completed in January 2011 has resulted in improved scale of operations and better product mix, ICRA has said. However, this strength, and others such as efficient operations, are partially offset by the vulnerability of TNPL to cyclicality in the paper business. Further, the company remains vulnerable to volatility in the international coal prices as it meets a significant portion of its energy and bagasse requirements by importing coal.
“While the company has reported an improvement in operating margins for the first quarter of the current year, aided by favourable price revisions, the lower-than-expected sales volumes have resulted in lower absorption of fixed costs,” ICRA has said. The company achieved a turnover of Rs 345.64 crore and a net profit of Rs 11.17 crore for the quarter.
TNPL was promoted by the Government of Tamil Nadu and the Industrial Development Bank of India (IDBI) in 1979 to manufacture Newsprint and Printing and Writing Paper using bagasse as the principal fibre source. Following the sale of IDBI’s stake, the Tamil Nadu Government is the single largest shareholder with a stake of 35.32 per cent in the company.
TNPL has a production capacity of 4.00 lakh tonnes a year at its plant at Kagithapuram in the Karur district of Tamil Nadu. This plant is the largest single location paper plant in India.
The company does possess the manufacturing capability for newsprint; however, owing to unfavourable economics of manufacturing newsprint in India and the cyclicality witnessed in the newsprint prices, printing and writing paper accounts for 100 per cent of TNPL’s total production currently. In January 2011, TNPL had commissioned the Rs 1,000 crore Mill Expansion Plan (MEP), which led to an expansion of TNPL’s annual production capacity from previous 2.45 lakh mtpa to the current 4.00 lakh mtpa.
The company reported a net profit of Rs 109 crore on an operating income of Rs 1,523 crore during the financial year 2011-12.
On the BSE today, the TNPL share closed at Rs 107.30.