Business Restructuring: NRAIL decides to invest INR 655 Cr in a new packaging board plant and sell one WPP machine (Unit II)

 Business Restructuring: NRAIL decides to invest INR 655 Cr in a new packaging board plant and sell one WPP machine (Unit II)

- New proposed unit will be located within the existing 100-acre factory, and  will enhance NRAIL’s installed production capacity to 4,38,000 TPA.
- NRAIL reported record revenues of INR 1,616.51 cr in FY 21-22.
- The machine will be equipped to manufacture FBB (Folding Box Board), SBS (Solid Bleached Sulphate) and recycled Duplex Board (grey back and white back).
- Plant is expected to be commissioned during the second half of FY 2023-24

Mumbai |  The Pulp and Paper Times:

N R Agarwal Industries Limited. (NRAIL), one of the most attractive proxies of the paper industry in India. The Company has been a prominent paper manufacturer for nearly three decades. NRAIL manufactures several types of duplex paper boards, as well as writing and printing paper. The Company has been one of India’s earliest and leading producers of recycled paper, as well as the largest manufacturer of grey and white back duplex board.

NRAIL remained profitable during each quarter of FY 21-22, raising prospects of attractive growth from this point onwards. The performance also validated the competitive business model of the Company across market cycles, enhancing optimism of how it perform when the market recovers completely.

“Times have changed since. The educational institutions that were closed for long have reopened, strengthening the demand for writing & printing paper. More importantly, the one consistent feature of the last couple of years has been the performance of the packaging board segment, underlining the fact that irrespective of broad economic cycles, India’s growing population will consume more products, strengthening demand for this segment,”

“In view of this, the focus of this annual report is the three P’s that are intrinsic to our business – Patience, Planning and Profitability,” said Mr R.N. Agarwal, Managing Director – NRAIL in the annual report for FY 21-22.

NRAIL reported record revenues of INR 1,616.51 cr; revenues increased 41.10% and profit after tax strengthened 6.63%. The Company’s revenues of INR 446.11 cr during the fourth quarter were the highest reported by NRAIL during any single quarter in its existence. Realisations, however, were muted; this growth could not be faithfully reflected in the Company’s profit figures and yet, NRAIL reported a positive bottom line each quarter, with the bottom line in the last quarter of FY 22 being nearly twice that of the third quarter. This indicates that its business has rebounded.

During the last few years, the Company had selected to fund growth through accruals, exited the newsprint business, moderated debt and initiated kaizens to strengthen operational performance. The complement of these realities paid off during FY 22 in the form of relatively low costs, enhanced productivity and an attractive debt-equity ratio of 0.13.

Business restructuring

A part of the improvement in NRAIL performance was the result of timely decisions taken to re-size and renavigate the business. At the start of the financial year (FY 21-22), the Company comprised two (Unit II & Unit V) machines dedicated to writing & printing paper. The Company selected to divest one writing & printing machine (Unit II) during the year for an aggregate value of INR 99 cr, leaving the Company with one machine (Unit V) with an estimated installed capacity of 1,08,000 TPA or a revenue generation potential of INR 500 cr.

Mr. Agarwal further describe that this divestment was prompted by increasing digitalisation. As this trend accelerates, we foresee growth tapering in the writing & printing paper segment with a corresponding moderation in realisations. Our unit sale is in line with this trend; we intend to utilise the proceeds to invest in a new packaging board capacity where we foresee growing demand. This reallocation of resources is in line with the Company’s commitment to maximise returns from existing resources and enhance shareholder value.

The immediate and long-term impact of this divestment are likely to enhance liquidity, enhance the role of accruals in NRAIL’s expansion programme, create a competitive foundation for its sustainable growth and strengthen our product mix. “Besides, the proactive speed with which we realigned our product mix will enhance the confidence of our stakeholders that the management is headed in the right direction” he added.

Fresh capital expenditure:

The one initiative that is expected to enhance NRAIL’s preparedness for an exciting future is its decision to invest INR 655 cr in a new packaging board plant at our existing unit. This 500 tons per day facility is expected to emerge as a game-changer for various reasons.

Mr Agarwal informed about the investment characteristics’, and says that the plant will be developed with cutting-edge technology that translates into a higher material efficiency and lower production cost by nearly 5 per cent, the basis of our sustainability.

Two, the new unit will be funded with nearly 35 per cent drawn from internal accruals, resulting in a lower debt load on the project and Company.

Three, the plant will be the biggest duplex board paper machine in India, strengthening economies of scale. The commissioning of this plant will enhance the Company’s installed production capacity to 4,38,000 TPA.

Four, the plant’s location in western India will service the growing demand for packaging board in the region, a decisive advantage over competing plants located in other parts of the country.

Five, the new unit will manufacture board varieties addressing the growing needs of food, hygiene and liquid applications. The machine will be equipped to manufacture FBB (Folding Box Board), SBS (Solid Bleached Sulphate) and recycled Duplex Board (grey back and white back). Even as this expansion positions the Company as a leader in the recycled packaging board segment, it plans to enter virgin grade qualities as well.

The new proposed unit will be located within the existing 100-acre factory area where only 40 per cent of the space has been utilised. This advantage will make it possible for the Company to capitalise on existing infrastructure, saving commissioning time and capital costs. By the virtue of this location being 120 km from the port, the plant will be empowered to import wastepaper, moderate pulp quantity on the one hand and export the end product on the other. This flexibility will make it possible for the Company to moderate resource costs, enhance offtake, increase capacity utilisation and strengthen average realisations.

Mr Agarwal said, “At N R Agarwal, we are optimistic of the prospects of our packaging board investment. India is passing through a retail consumption growth phase. This phase has extended across virtually every phase of the country’s economic growth story. This growth comes with an inflection point in consumption patterns: with the Government coming down heavily on the use of plastic packaging, a stronger demand is forecast for packaging board.”

NRAIL intends to spread its manufacturing capacities during the current financial year coupled with initiatives related to the commissioning of its packaging board plant. The new plant is expected to be commissioned during the second half of FY 2023-24. At its peak, the packaging board unit is expected to generate INR 1,000 cr of turnover. When combined with its existing business, the Company is expected to generate an aggregate turnover of over INR 2,500 cr at full capacity utilisation.

NRAIL will be better placed in this regard, considering that the commissioning will be located within its existing manufacturing facility, will draw on existing technical strengths and will leverage existing infrastructure. As a result, our commissioning cost of INR 655 cr for a plant likely to generate 1,50,000 TPA is below what would have been warranted for an equivalent greenfield facility.
 

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