SOUTH INDIA PAPER MILLS L Share price

The South India Paper Mills Limited was incorporated in 1959 asa Private Limited Company and acquired the assets formanufacture of paper and paper boards comprising of landbuilding plant and machinery of 5 TPD from Liquidator ofCauvery Valley Paper Mills Limited (in liquidation) for aconsideration of Rs.7.16 lakhs.The Company undertook an expansion project between 1968 and 1970after obtaining the requisite licences for increasing itscapacity and achieved a capacity of 24 TPD by installing papermachines-2 & 3. Due to the Company''s conservative policy of notutilising debt to finance expansions all investments were madeonly from internal accruals. During the period 1970 to 1983the capacity of the plant remained stagnant at 24TPD. In thisperiod the Company rapidly eroded its tax shields by way ofdepreciation without creating additional assets through anyexpansion diversification or acquisition. Consequently therewas a heavy cash outflow towards taxation which left littlescope for undertaking a rapid expansion of capacity whilst thepolicy of avoiding borrowings continued. Till 31.12.1982 therewas no borrowing either from the institutions or from the Banks.At this time the Company being faced with a situation of hightaxation rising overheads and a rising BEP was left with noother option but to amend its conservative financial policy.The Company received an Industrial Licence in 1982 for expandingits capacity to 45 TPD and thereafter undertook the overdueexpansion programme during 1983 and to install pollution controlequipment as required by the Pollution Control Board. Theproject undertaken in 1983 was financed by KSIIDC Ltd and KSFCto the extent of Rs.98 lakhs.Though the power requirement for the expansion was sanctioned tothe Company by the High Powered Committee (KEB) the same wasnot actually available due to an increase in power cuts thereon.The power cuts dung this period ranged between 30 and 70%. As aresult the investment made by the Company was not immediatelyproductive. The Company was constrained to install a 1525 KVADG set at a cost of Rs.53 lakhs during 1986. The D.G.Setproject was financed by KSFC to the extent of Rs.42 lakhs.In order to overcome the problems arising from an erratic supplyof coal and high cost of furnace oil the Company converted itsoil-fired boiler to an agro-fuel fired Fluidised Bed Combustionboiler by availing term finance of Rs.17 lakhs from KSFC. Inthis mannertwo major bottlenecks for achieving a highercapacity utilisation were removed.At this juncture however market conditions took a recessiveturn resulting in poor sales realisations for the Company''sproduct mix which largely comprised of low value added productsin a highly competitive market segment. The decline in salesrealisations coupled with a rising interest burden resulted in adecline in the Company''s profitability between 1983 and 1986.During 1987 the Company undertook to alter and widen itsproduct mix to include value added items and to suit marketdemand and credit patterns. In 1988-89 however the resultswere poor due to loss of production on account of teethingproblems associated with the introduction of new varieties aswell as a go-slow''for two months by the workmens''union due toits reluctance to enter into productivity linked settlement.Towards the tail end of 1988-89 the industry experienced aresurgence which helped the Company to exploit its pastinvestments and restore its profitability. The product mixdiversification strategy adopted in face of the recessive marketconditions also placed the Company in a very sound position.The operations during 1989-90 indicated for the first time areversal in the trend of declining profitability and the Companywas able to report cash accruals of Rs.61.0 lakhs inspire of astrike for one and a half months. A fresh Productivity linkedsettlement was entered into with the Workmens'' union. Thebenefits of the settlement have since accrued to both theworkmen and the company as is borne out by the quantum jump inproductivity and quality.The benefits of the investments made started accruing to theCompany during the year ended 31.03.1991 during which period thenet profit was Rs. 121 lakhs and.cash accruals from operationswere Rs. 1 51 lakhs.The industry faced a recession during the foreign exchangecrisis and tight money conditions during the period 1992-93 whenthe market was characterised by stagnant pricespoor demandslowdebtors turn8round and high interest rates. The Company''sperformance during that year took a set back as did that of mostcompanies in the industry. During 1992-93 the interest burdenwas significantly higher than in earlier years on account offresh borrowings towards capacity expansion.