N R Agarwal Industries is optimistic of enhancing its revenues to INR 2500 Cr with a superior blended profitability; India’s largest paperboard plant is expected to be commissioned in Q4 of FY24

N R Agarwal Industries is optimistic of enhancing its revenues to INR 2500 Cr with a superior blended profitability; India’s largest paperboard plant is expected to be commissioned in Q4 of FY24
- Revenues increased 9% to INR 1766.07 cr in FY 2022-23 compared to INR 1616.51 cr in FY 2021-22.
- Profit after tax increased 62.70% to INR 99.30 cr in FY 2022-23 compared to INR 61.02 cr in FY 2021-23
Mumbai | The Pulp and Paper Times:

N R Agarwal Industries Limited (NRAIL) is one of the most attractive proxies of India’s paper sector. The Company caters to domestic and international markets with its premium paper products, is undertaking an investment to deepen its personality around packaging board. This expansion is expected to enhance the NRAIL’s revenues, margins, surplus and stakeholder value.

While this transition will be most marked during the current financial year, the change has been in process during the last couple of years. During this period, NRAIL’s  management took a decided call to churn its products portfolio, moderating its presence in slow moving segments and graduating to the value-added end.

"At N R Agarwal, we are engaged in strengthening the portfolio of our products with long-term profitability in mind. As a company responsive to market trends, we will remain committed to enhance overall portfolio value. In view of this, it will be our objective to add products that enhance capital efficiency and moderate our exposure to products that are likely to deliver sub-optimal returns. This portfolio approach is flexible and responsive to the demanding needs of our stakeholders.” Stated by MR R N Agarwal, Managing Director, NRAIL in the annual report for FY 22-23.

In view of this flexibility, NRAIL selected to divest one writing & printing paper unit for an aggregate value of INR 99 cr to Shree Ajit Pulp and Paper Limited; it also selected to shut a small duplex board unit. The sub-optimally sized units represented relatively low economies; their legacy nature prevented the Company from manufacturing value-added paper. Consequently, the return on employed capital in these units was below the N R Agarwal profitability average. The Company utilized the proceeds to enhance its presence in the packaging board segment, which is expected to enhance overall capital efficiency once this capacity is commissioned during the current financial year.

Mr Agarwal further stated that the decision to restructure the portfolio was on account of shifting consumer preference. On the one hand, digitalization is affecting the offtake of writing & printing paper; on the other, there is attractive demand growth for packaging board. The result is that the capacity of writing & printing paper available with the Company declined from 460 ton per day to 296 ton per day by the close of FY 2022-23; the capacity of packaging board will be 789 TPD once the new project commences. Your Company generated proceeds from the divestment to repay all its long-term debt and not draw on any working capital sanction from banks during the last financial year.

Even as this churn was transpiring, NRAIL set in process the largest capital expenditure in its existence: the Company embarked on a INR 650 cr expansion programme to commission a new 500 TPD with capacity to go upto 900 TPD packaging board plant. This plant achieved financial closure a couple of years ago and is likely to be commissioned during the fourth quarter of the current financial year.

Game changer: 

The commissioning of this new plant is expected to emerge as a game changer in our existence for some good reasons.  

One, the new plant was negotiated during a sectorial downturn that made it possible to buy advanced infrastructure at an attractive discount to the established benchmark. We believe that this prudent investment will translate into a sustainably attractive return for years. 

Two, the plant will be possibly the largest single packaging board plant in India (as estimated at the time of writing), translating into attractive operating efficiencies. The plant will manufacture coated food grade packaging board, enhancing its application in hygiene-critical applications with correspondingly attractive realizations. 

Three, the plant, by virtue of being located 18 kms from Tumb port, 150 kms from Hazira port and 165 kms from Mumbai port, will be attractively placed to import wood pulp and manufacture a value-added packaging board variant.

Four, the plant has been funded by INR 425 cr of long-term debt and INR 225 cr of business earnings (net worth). The debt has been mobilized for ten years, marked by a moratorium of three years and a repayment tenor across seven years. This comfortable tenor will take the pressure off debt repayments, strengthening our cash flows.

Sustainable 

At N R Agarwal, the new plant will reinforce our business sustainability at critical levels. 

One, the plant has been designed to address the most demanding standards related to pollution minimization and other responsibility benchmarks. As a result, the packaging board plant will not merely be the largest standalone plant of its type in India but also the cleanest. This plant will reinforce our standing as an environmentally responsible corporate citizen. 

Two, the plant has been designed in a manner that following a relatively nominal capital spending, its installed capacity can be increased, moderating the capital cost per ton. This implies that at debottlenecked capacity utilization, the Company should be equipped to deliver higher profitability. The result is that the Company could get more profitable even as it gets larger.

“During the first full year following the first expansion round, we are optimistic of enhancing our revenues to INR 2500 cr with a superior blended profitability (assuming existing and emerging operations). The Company is optimistic of servicing its debt and generating attractive surplus. We believe that this will set into motion a virtuous cycle of capacity investments, graduating us into a sustainably growing player across the foreseeable future.” Mr Agarwal said. 

State of Company’s Affairs 

The financial year 2022-23 was the first year of revival of the economy post Covid-19 and this is reflected in revival of paper sector in general and working of the Company as well. NRAIL reported record revenues of INR 1,766.07 cr as against revenue of INR 1,616.51 cr in previous financial year, showing a growth of 9.25% whereas the profit after tax strengthened to INR 99.30 cr as against INR 61.02 cr in previous year. The overall production was 270,941 MT as against 304,759 MT in the previous year due to closure of Unit-3 at Vapi.
 

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