Investment in Indian paper industry
09/10/2005
Demand for paper products is growing strongly in India. Refurbishing of the Andhra Pradesh Paper Mills, APPM’s mills in southeast India will improve efficiency and environmental friendliness of the facilities. Finnfund has made an equity investment in the project.
As India’s economy expands, it is experiencing a strong growth in demand for paper industry products. Finnfund is to help develop this rising sector by investing in a mill project of a local forest industry company.
The target of Finnfund’s investment is one of India’s largest forest products companies, Andhra Pradesh Paper Mills. APPM is listed on the stock exchanges of Mumbai and Hyderabad and has two plants in southeast India. It is currently refurbishing its mills in cooperation with local and international financiers.
The International Finance Corporation IFC, part of the World Bank Group, and Germany’s Deutsche Investitions- und Entwicklungsgesellschaft DEG are among the organizations providing finance for the project. Finnfund is making an equity investment that entitles it to roughly six percent of APPM’s stock.
New equipment from Finland
The total cost of APPM’s project is estimated at about 139 million US dollars. It includes upgrading two production units.
The investment will boost mill capacity and make production significantly more efficient. At the same time the focus of output will shift from packaging paper and newsprint to more profitable grades, such as printing and writing papers.
The first phase of the investment project is due to be complete by spring 2006 and the second a year later. A large part of the new equipment ordered by APPM will come from paper machine supplier Andritz, manufactured at its plants in Kotka, Finland. The value of the letter of intent on equipment purchases is 42 million euros.
Fast-growing demand for paper products
APPM was established in 1920. Its main owner today is the Bangur family. It has more than 4200 people on the payroll and generates an annual turnover of nearly 100 million US dollars.
The present capacity of its mills is some 153 thousand tonnes of paper a year. The investments will boost this to about 194 thousand tonnes.
In proportion to its turnover, these are major investments, but Ole Sand, principle investment officer for the IFC’s global forest products investment sector, firmly believes that the project will be profitable. Demand for paper products is growing strongly in India. Current annual paper consumption is five kilos per capita, compared with 337 kilos in North America, 110 kilos in Europe and 30 kilos even in China.
“The growth outlook for the Indian pulp and paper market is extremely good, about 5-7 percent a year. The country’s paper industry is currently being comprehensively restructured. Large paper companies are grabbing market shares from smaller firms that are less efficient and have mills that cause the greatest environmental burden,” Sand explains.
The project to refurbish APPM’s mills is justified on environmental as well as economic grounds, he points out. After the new equipment has been installed, emissions will drop distinctly. Among other things, the company will be able to stop pulping rice straw, a major source of pollution. The end of chlorine bleaching will also reduce environmentally hazardous emissions.
The APPM project meets World Bank criteria for environmental and social responsibility. The company has already been living up to its responsibilities rather well but the new equipment and production processes will further curb the volume of solid waste, as well as atmospheric and waterborne emissions. Occupational safety will also be enhanced.
More income for family farmers
APPM’s project will help the inhabitants of the region around its plants. The extra papermaking and pulping capacity will push up demand for wood feedstock and thus boost incomes and employment in rural areas.
The positive social impact was important for Finnfund, too.
"When we analyse a project we look at its developmental and environmental effects as well as its commercial viability,” says Finnfund investment manager Tarja Myllymäki. “APPM’s project will serve to reduce rural poverty in India.”
In southeast India the company has created a pioneering system for procuring feedstock from family farmers.
APPM’s pulp mills use fast-growing casuarina wood, which grows in areas that are unsuited for farming food. It also pulps plantation bamboo and eucalyptus. The company currently buys feedstock from about 15 thousand farmers. As output expands, the number of families acting as subcontractors will rise to 25 thousand. It means a rise in income levels for about 100 000 people.
An effective wood procurement system gives APPM an important competitive edge. India suffers from a shortage of the fibre needed in papermaking. A source of high-quality feedstock near its mills gives it an advantage over many domestic and foreign competitors.
For further information at Finnfund please contact Ms Tarja Myllymäki, tel. +358 9 3484 3326, email firstname.lastname@finnfund.fi