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India's boom: PPI's exclusive interview with RR Vederah, CEO, Bilt

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India's boom: PPI's exclusive interview with RR Vederah, CEO, Bilt

October 23, 2011 - 16:00

LONDON, Oct. 24, 2011 (RISI) -

Mr. Rajeev Ranjan Vederah, Managing Director of Ballarpur Industries Limited (BILT), part of the US$ 4 billion Avantha Group, was recently selected as the Asian CEO of the Year for 2011 by RISI. Vederah was chosen as the RISI Asian CEO of the Year by a group of investment analysts and portfolio managers covering the forest products industry and was chosen as this year's winner due to BILT's healthy financial performance and its exploration in upstream development (including forest plantation abroad).

Vederah has been associated with the BILT for 25 years in various positions of increasing responsibility. He has worked with several paper companies over a period of 40 years, including Sinar Mas Pulp & Paper India. Vederah has also been ranked in the top twenty of RISI's Power List for two consecutive years in 2009 and 2010. He was also the President of the Indian Paper Manufacturers Association from 2005 to 2006. Vederah holds a Bachelor of Technology (Chemical) from the Indian Institute of Technology, New Delhi, and a Master of Science from the University of Ashton, UK.

PPI: You were nominated by a number of financial analysts and portfolio managers for the Asian CEO Award, did it come as some surprise? What was your reaction to being awarded this prestigious title?

Vederah: I felt elated and honoured. I am thankful to RISI for giving this award to me.

Why do you think you received the award?

This award recognises Bilt's leadership position in the region's pulp and paper industry, particularly in India. It acknowledges the company's growth both through organic and inorganic development and it also validates the goup's strong financial performance.

The paper industry appears to be booming in India, with growth rates in certain grades being estimated at around 25%, what is your opinion on the phenomenal growth, and will it be sustained?

The primary drivers of demand for woodfree paper are strong GDP growth and increasing per capita income and consumption. Currently, per capita paper consumption in India is still way below the rest of the world (9 kg per annum in 2010 compared to 63 kg in China, 158 kg in the UK and 227 kg in the US). Indian demand for coated and uncoated woodfree paper products is expected to grow 9.4% and 6.3%, respectively per year between 2010 and 2020, with demand for blade coated woodfree paper and hi-bright uncoated woodfree paper expected to grow 11.5% and 8.0%, respectively, per year in the same period.

In the packaging sector both carton board and container board, driven by expected strong manufacturing performance in the country between 2010-2020 we expect growth rates between 8-10% per annum. In view of the opening up of the corrugated box sector for large scale investments we also will see significant technological up-gradation in this area. It would also serve as a trigger for our group to take up a strong position in this segment keeping in mind the expected growth in the future.

In view of high level of GDP growth rate expected in the country over the next 2-3 decades until we achieve a basic threshold of per capita income / consumption, we expect paper and board consumption in the country to grow and consider Bilt to be best positioned to take advantage of this market opportunity.

Last year Bilt made a move into tissue, can you explain this move further?

Bilt's acquisition of Premier Tissues was a strategic move to help the company become a leading player in the Indian tissue and hygiene business. While the market for tissue products in India is at a very nascent stage, with current per capita consumption at under 100 grams, changing lifestyle and growing consumerism is expected to drive a CAGR growth of 20%. This acquisition provides Ballarpur with a strong position in the organized tissue and hygiene market, and the ability to offer consumers good quality products.

The group is also expanding on the pulp front with two new BHK lines, can you also comment upon these two investments?

While in the last three years we have expanded both our coated woodfree and uncoated woodfree capacities with the addition of the two state-of-the-art paper machines, our operations have become increasingly dependent on bought fiber to support the build up in our paper capacity. As a strategy, we would like to be fully integrated with respect to our pulp needs and accordingly, we are expanding our Malaysian pulp mill by 120,000 tonnes per annum of bleached hardwood pulp as well as modernising our pulp mill in Ballarpur so as to achieve an additional capacity of 170,000 tonnes per annum of bleached mixed hardwood pulp. The Malaysian pulp mill expansion is currently under commissioning and we expect to ship pulp to our operations in India from November 2011 onwards. The Ballarpur pulp mill modernization cum expansion is currently under construction and will be completed by June 2012. After this capacity addition we would become fully integrated as far as our hardwood pulp requirement is concerned. We will only source small quantities of softwood pulp which form a mandatory part of our pulp furnish.

On the subject of pulp, it is quite well known that in India, raw material sources, particularly of wood, have some challenges. Can you tell us how you are overcoming those challenges?

It is acknowledged that India is deficient in cellulosic fiber and the industry has no access up until now to captive plantations. However, the industry has aggressively pursued raw material sourcing through farm forestry initiatives.

Bilt, also is aggressively growing its farm forestry program in and around its manufacturing facilities, realized that it could not meet its fiber needs in line with its growth aspirations from within India in short and medium term. It is for this reason that we moved to Malaysia by acquiring Sabah Forest Industries (SFI) through which we have access to large concessions of land which could enable us to grow pulp wood to meet our short and medium term requirements of cellulosic material.

In the meantime, Bilt along with the Indian Paper industry continues its efforts with the Indian government to allow industry's initiatives for aforestation of degraded forest land.

Can you tell us about your dissolving pulp (market rayon grade pulp) operation in India? Is this also an expanding area of the group's business?

Bilt is the only producer of market grade viscose pulp at our facility in Kamlapuram in the state of Andhra Pradesh. The capacity of this pulp mill which has been designed to produce dissolving grade pulp is a little under 100,000 tonnes per annum. The entire quantity of this pulp is sold to Messrs Grasim Industries who are world leaders in the manufacture of viscose fibers.

We are currently looking at some increase in capacity of existing plant through debottlenecking and addition of balancing equipment.

Can you tell us more about your Malaysian operation? Is that country experiencing the same growth rates as India in terms of paper consumption? Is the production of both pulp and paper there focused mainly on exports to India (and other countries) or is it predominantly for the home (Malaysian) market? What expansion plans (if any) do you have here?

We acquired Malaysian Sabah Forest Industries (SFI) in 2007. SFI is Malaysia's largest producer of uncoated woodfree paper products. The current production is largely consumed in Malaysia and exports comprise around 30% of its production volumes.

As compared to India, the Malaysian paper market is more mature (per capita consumption is 100 kg) and therefore the growth rates are expected to be 3-4% with respect to writing and printing grades.

While we will be always looking for opportunities to grow our paper capacities by modernizing / upgrading the existing two paper machines, real emphasis in immediate and medium term would be to expand our pulp capacity to meet our fiber demands related to our Indian operations. I have earlier mentioned that we are currently expanding our existing pulp mill capacity by 120,000 tonnes per annum and also investing in plantation programs on our concession land so as to support further pulp mill capacity growth in the near future.

Any plans for further investment at Bilt going forward both at home and abroad?

We are always interested to look at opportunities both towards organic and inorganic developments.

In my view very exciting growth potential exists within India and immediate focus would be to grow aggressively in this market. However, we would be looking for opportunities to enhance our fiber linkages outside India.

It is common knowledge that there is interest in listing Bilt on the London Stock Exchange, but it has been postponed. Can you tell us why this postponement took place, and where the company now stands regarding the listing?

The current market is not conducive to an LSE listing. Therefore, we have deferred our IPO plans. We are currently engaged in completing our pulp mill expansions and would pursue such initiatives only thereafter, subject to the overall economic scenario being positive.

BILT has seen phenomenal growth, doubling turnover in a very short time, where do you see the company five years from now?

Yes, Bilt has invested very aggressively over the last five years in acquiring SFI, adding two large paper machines in India and now expanding and modernising two pulp mills. This of course has resulted in doubling our capacity over a five year period and also would make us totally self reliant with respect to our pulp needs. This would strengthen our margins and the overall financial performance.

As the Indian market continues to be the fastest growing paper market we also expect to increase our paper capacities so as to maintain our market shares.

The group is also looking at opportunity in the container board / corrugated box segment to add to Bilt's dominant position in the woodfree papers in the Indian market.

Can you comment upon the other challenges that pulp and paper has as a whole? For instance the threat of electronic media and books being replaced by e-readers; does this pose a threat to paper consumption in India, particularly in the future?

The Indian Paper Manufacturers' Association (IMPA) estimates that the country's demand for paper will reach around 14 million tonnes by 2015. The major growth drivers are higher standards of living, increasing disposable incomes and consumerism, growing literacy rate, greater demand for advertising collaterals, introduction of more magazines, and the emergence of the printing publishing outsourcing industry (PPOs), to name a few.

Improved paper and printing technology, and modernization of the printing industry continue to raise the demand for high quality paper. The government's thrust on education, including making elementary education mandatory, gives a further boost to the industry. Until 2012, government expenditure on primary education is estimated at US$17.75 billion. Of this, around US$6 billion is expected to be spent on paper, i.e., books, notebooks, etc.

We expect that as the per capita consumption of paper in the country is extremely low and also the penetration of internet at a very nascent stage, it will be quite some time before we really see the impact of electronic media reducing the consumption of paper. It is our belief that Indian paper industry would show healthy growth in demand of both wood free and packaging grades at least until 2030.

The Indian paper market is extremely fragmented and it comprises of a two tier product market with a small number of players (35-40% of the total capacity being produced by modern mills) and the balance coming from many small and unorganised players. The industry finds it challenging to service the fragmented market.

Raw material availability and competitive pricing of various inputs is a challenge especially with India fast integrating with the world with respect to an open economy propelled bi- lateral trade agreements with various countries including ASEAN block. These considerations leave no option for the industry but to modernise, invest in economies of scale, technology and become efficient.

In conclusion, can you tell us about your management style? What are the achievements you are most proud of at Bilt, and what have been the toughest challenges that you have overcome?

We follow a very empowering management style in Bilt where initiative, innovation and integrity are rewarded. Bilt has been a leader in this industry in India for several decades. The managers have had to face several challenges during its growth phase, a steadfast belief in the ability of our people and our drive to succeed has made us stay the course.