Chennai: The Rs854.84-crore turnover Tamil Nadu Newsprint and Papers Limited (TNPL) has been busy making money from "muck". In the '80s it proved sceptics wrong by successfully manufacturing paper out of bagasse, a sugar industry waste. (See: The gamble that paid off well)

Now the paper maker plans to make cement from the 350-tonne per day of waste wet lime sludge that it generates everyday from its paper manufacturing operations and the 100 tpd of fly ash generated at its thermal power boilers.

When the Rs50 crore, 400 tpd mini cement plant goes on stream in March 2009, TNPL will have become the first Indian paper manufacturer to make cement out of its own factory and power plant wastes.

The Rs69.38-crore equity paper maker has appointed Tafecon, Chennai, as the consultant for the project. According to officials the company will meet the cost with a mix of internal accruals (Rs10 crore) and term loans to the tune of Rs40 crore.

As in the '80s, this time, too, valid doubts are being raised about the viability of company's plans.

Apart from using its waste as raw material there is no synergy between a paper and a cement mill. As a matter of fact TNPL rolls out printing and writing paper (PWP) and not paper bags to pack cement.

Moreover, the marketing dynamics of cement are entirely different, given that the brands of established cement companies like India Cements Limited, Madras Cements Limited and Dalmia Cements are deeply entrenched in Tamil Nadu.

With the future of mini plants in question, would the company not be better off by selling the lime sludge and fly ash to other cement manufacturers and focus on paper making, instead?

According to the TNPL executives, there is a strong economic as well as environmental rationale for the company's mini cement plant, for which, apart from being a source of raw material, TNPL would also be the captive power supplier.

The company has an installed power generation capacity of 96.6 MW (61.1 MW thermal and 35.5 MW windmill) and transfers around 1,000 million units as surplus power to the state grid. It will commission a 20 MW turbine generator later this year, taking its total in-house generation capacity to 116.6 MW, which in turn would help it bring down the cost of its cement production.

Interestingly, the cement plant will be housed inside the paper plant premises.

TNPL will have to source normal limestone, which is cheaper as its lime sludge contains high calcium oxide.

Further when the paper capacity increases, the cement production will be raised to 1,000 tpd, helping the company to utilize its the waste profitably rather than creating environmental problems.

But an IT park?
As if this diversification were not enough, TNPL is looking at an entirely unrelated activity - building an IT park. Decades ago TNPL swapped a loan of Rs2-crore loan extended to TANSI, a state government entity, for a 3.5-acre plot in the Ambattur industrial estate in Chennai.

To capitalise on its land holding in the present real estate market, TNPL plans to create 3.45 lakh sq.ft office complex at an investment of Rs88 crore and is currently awaiting a feasibility report from Cushman and Weikfield, the real estate project consultant, in view of the likelihood of Chennai ending up with surplus office infrastructure for the IT sector.

Already, IT rentals have begun to decline and banks are showing reluctance in providing loans for IT park projects. Accordingly, it is evaluating options like whether to develop the IT Park or offer the land on a build-own-operate-transfer (BOOT) basis. It is also mulling the options of selling the land and using the proceeds for its expansion projects instead of getting bogged down with vacant constructed space.

Paper to roll on
The company is not abandoning its core activity, but simply following a two-pronged approach to capacity expansion. First, TNPL is in the process of completing its Rs565- crore paper mill development plan (MDP) that would de-bottleneck and modernise some of its operations and enable it to raise its production by 15,000 tonne per annum to 2.45 lakh tpa.

Several of its MDP projects have already been commissioned and some like, chlorine di-oxide plant, turbo generator set, hard wood pulp plant, lime kiln, and others are due to go on stream by this October.

The second and more ambitious plan is the installation of a new paper machine, the company's third, and rebuilding the existing over two decade-old paper machine I to increase the production from 2.45 lakh tpa to 4 lakh tpa, which would involve an investment of Rs725 crore.

It is also awaiting the Ministry of Environment and Forests' permission for increasing paper production by 1.55 lakh tonne per annum to 4 lakh tpa by installing a new paper machine. IT has floated the tender for the new paper machine and hopes to commence trial production starts in October 2009 and commercial production from January 2010.

TNPL plans to fund the expansion project through a mix of debt (Rs.500 crore) and internal accruals.

In order to secure its requirement of hard wood for its future requirements, estimated at around 3.5 lakh tpa, TNPL started farm forestry and captive plantation in FY05. Last year it brought around 10,000 acres under cultivation and this year plans to add another 15,000 acres and gradually take its captive forest capacity to at least 50,000 acres, in order to meet its hard wood needs. For 2007, it plans to increase cloned plantations instead of seedling plantation to raise the yield.

Even after raising the supply of hard wood pulp that would increase the captive pulp requirement to 2.6 lakh tpa from the current 1.7 lakh tpa, TNPL will use at least 65 per cent bagasse as raw material for its paper manufacturing.

The increased need for hard wood pulp could be traced to TNPL's changing product mix. During the first quarter of the current fiscal the company produced only PWP and newsprint. Last year TNPL produced just 2,950 tonne of newsprint out of total production of 2.31 lakh tonne. The 2007-08 union budget saw excise duty on PWP being reduced by 2.5 per cent to 10 per cent while import duty on newsprint was retained at 5 per cent.

So the company does not have much of a tax advantage in using bagasse in producing paper.

During this fiscal the company plans to maintain newsprint production at 2 per cent of its overall paper production which will be around 2.4 lakh tonne.

During the first quarter of this fiscal the company logged a turnover of Rs219.11 crore and a net profit of Rs23.73 crore. Owing to the appreciating rupee the company intends to limit exports to 45,000 tonne this year as against around 52,700 tonne sold during FY07.

On the other hand TNPL will increase its copier paper sales from 44,000 tonne sold last fiscal. Post MDP, copier paper production will go up to 54,000 tpa and by 2009 it will be 90,000 tpa. At present this segment is growing at 15 per cent per annum. It will also produce pigmented papers.

On the realisation front, the company hopes for higher margins given the firming up of paper prices and close this fiscal crossing the Rs1,000-crore turnover mark.