Tamil Nadu Newsprint & Papers LtdQ2 FY20Paper, Forest & Jute Products

Tamil Nadu Newsprint & Papers Ltd

Q2 FY20 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

Capex

Yes

2 of 5 growth signals are positive.

Revenue guidance

Category 3

→Per capita paper consumption in India is expected to rise from 14 kgs to 17 kgs by 2024-25, indicating growth potential.
→Increased use of packaging board in the pharma industry due to the plastic ban and rise in e-commerce home deliveries.
→Growth in packaging boards estimated at 10-12% per annum, with strong demand from pharma, FMCG, and e-commerce sectors.
→Printing and writing paper demand expected to recover as schools, colleges, and offices resume normal operations post-Covid-19.
→Digitalization and growing literacy rates contribute to long-term demand growth, despite short-term Covid impacts.
→Expansion projects (MEP Unit II) will increase production capacity from 6,00,000 MT to 7,65,000 MT annually, driving volume growth.
→Optimism that fading Covid-19 pandemic will lead to normalization and trigger volume and revenue growth.

Category 3

→Covid-19 severely impacted printing and writing paper demand, with order flows dipping from 1.20 lakh MT (2018-19) to 41,000 MT in peak pandemic period, but packaging boards and cement sales remained resilient.
→Packaging board demand expected to grow at 10-12% annually driven by pharma industry, e-commerce growth, and ban on single-use plastics.
→Per capita paper consumption in India projected to rise from 14 kgs to 17 kgs by 2024-25, indicating growth potential.
→Capacity expansion underway: Mill Expansion Plan in Unit II will increase production capacity from 6,00,000 MT to 7,65,000 MT per annum, including a 400 tpd chemical pulp mill and 30 MW power plant.
→The company anticipates recovery in printing/writing paper demand with reopening of schools, colleges, and corporate activities.
→Despite challenges, management remains positive on volume growth as economic activities normalize post-pandemic.
→Large ongoing capital expenditures (~Rs. 875 crores for expansion) and loan repayments constrain interim dividends and share buybacks, focusing resources on growth.

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Yes

→There is no proposal for a buyback of shares this year as the company needs funds for regular maintenance CAPEX, new projects, and loan repayments.
→The company plans to repay around Rs. 400 crores of loans on earlier projects during the current year.
→Capital expenditure of about Rs. 50 crores is planned for normal CAPEX.
→A significant investment of around Rs. 875 crores is planned for the Mill Expansion Plan (MEP) Unit II pulp mill expansion.
→Due to these huge funding requirements combined with cash flow pressures from the Covid-19 outbreak, the company is conserving funds and not paying interim dividends.
→No requests or plans for bonus shares or equity fundraising have been indicated.
→Overall, the company is focusing on managing existing debt and funding expansion through internal accruals and loan repayments without announcing fresh equity or debt fundraising.

→During the peak Covid-19 period from April to August, order flow for printing and writing paper dipped significantly.
→Order quantities comparison:
→ - April-August 2018-19: 1.20 lakh metric tonnes
→ - April-August 2019-20: 83,000 metric tonnes
→ - April-August 2020-21: 41,000 metric tonnes
→Printing and writing paper segment severely impacted, while paperboard and cement sales were relatively stable.
→Demand for cut size papers is expected to normalize faster than other sectors due to printing needs during the pandemic.
→Packaging board demand sustained and expected to grow, especially in pharma industry and via e-commerce channels.
→Per capita paper consumption in India, currently at 14 kgs, is expected to increase to 17 kgs by 2024-25, indicating growth potential.

Yes

→The company has a Mill Expansion Plan (MEP) in Unit II to increase mill capacity from 200,000 MT to 365,000 MT per annum of Multilayer Coated Paper Board.
→This includes installation of a state-of-the-art Paper Machine with 165,000 MT per annum capacity and a 400 tons per day chemical hardwood pulp mill with chemical recovery boiler and wastewater treatment plant.
→Total capital outlay for this expansion is Rs. 2,520 crores.
→Overall paper and packaging board production capacity post-expansion will increase to 765,000 MT per annum from the current 600,000 MT.
→The company plans to spend about Rs. 875 crores for MEP Unit II pulp mill expansion.
→Around Rs. 50 crores are planned for normal capex (maintenance and upgrades).
→The company has significant loan repayment obligations (~Rs. 400 crores) in the current year, impacting available funds for buybacks or dividends.

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1Tamil Nadu Newsprint & Papers Ltd

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