Seshasayee Paper plans Rs 250 cr capacity expansion by FY12

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V Pichai, Director Finance of Seshasayee Paper , in an interview with CNBC-TV18's Reema Tendulkar and Ekta Batra, spoke about the results and his outlook for the company.

Below is a verbatim transcript. Also watch the accompanying video.

Q: Can this performance be replicated? Can your profitability stand at Rs 80 crore for the entire year versus Rs 40 crore that you did last year?

A: We are operating more than the capacities so we don't expect much improvement on the volume. But on value basis, we expect it to be flat because lots of new capacities have come into the market from Andhra Pradesh Paper Mills (APPM), West Coast and Tamil Nadu Newsprint . The product is under pressure and we expect the profitability to be under pressure in the third and fourth quarter.

Q: Where do the realizations currently stand and how much pressure do you anticipate on that and what will it do to your margins?

A: We were able to increase the prices by Rs 1,500 per tonne in the first quarter. So in the second quarter we could not do any price increase. We expect that a lot of discounts have to be offered in the third and fourth quarter to push the product into the market taking into consideration the additional production that is going to come to the market.

Q: What is the kind of discount you think the market will need and what will this do to your margins, because this quarter you did about 25.5%?

A: We expect that the market may expect a discount of around Rs 500-750 per tonne.

Q: What is the pressure that you foresee on your realizations?

A: That maybe of an order of Rs 4-5 crore for the next year.

Q: Do you have plans to add on capacity like the rest of the industry has and this demand-supply mismatch, for how long do you expect it to continue?

A: We are planning to double the capacity and the plans are being worked out. We are working out new plans and we expect the plans to be in place in another six months time. Once it is finalized, it will take another 18 months for us to complete the project.

We expect the mismatch between supply and demand to be there till the end of this year.

Q: So should things improve in FY12 and what are you expecting in terms of performance?

A: We expect the performance to be robust from next year onwards.

Q: It's only next half of the year that you foresee some pressure?

A: Yes.

Q: For this expansion, what is the kind of investment that you have outlined and how will that be raised?

A: We are estimating the cost to be around Rs 250 crore. The entire Rs 250 crore will be met out of internal accruals and term loan borrowings from banks.

Q: Any other price hikes on the anvil for the company for the rest of this fiscal?

A: No.

Q: Could you talk about your interest costs which dropped quite significantly. Where doest the loan book stand at and what sort of interest costs can we envisage for the rest of this fiscal?

A: We have a lot of surplus cash so we have closed all our working capital borrowings. Today we are a nil working capital borrowing company but the term loans that we have borrowed for the last mill development plan is standing at around Rs 172 crore and on an annual basis we are paying around Rs 50 crore.

Q: What is the surplus cash with you after paying all these?

A: We are carrying a cash of around Rs 30 crore.

Q: There has been an increase in your power and fuel costs. Do you expect that pressure to continue from there?

A: We use a lot of imported coal in our boilers. The imported coal prices are volatile and it has reached the peak. We don't expect further increase on that front.