Input cost pressuring margins, eyeing acquisition: JK Paper

AS Mehta, president, JK Paper, says that the company is looking for a suitable company to go for acquisition. He also says that the rising input costs have added pressure on margins. The company plans to increase the price by around Rs 6000 per tonne in January.

Also read: Britannia sees rising input cost, double digit growth: CEO Below is the edited transcript of his interview to CNBC-TV18. Q: Has anyone approached your company with the intent of acquiring a majority or a minority stake or is there any plan of the company selling stake per se?
A:  We are not approached by anyone on the other hand we are looking to acquire if we find anything relevant . Q: Are you looking at potential takeover candidates?
A: If good candidate is available we ill explore and evaluate. Q: So, there is no question of even a merger with existing companies?
A: No. Q: A couple of analysts are of the opinion that the commissioning of the new plant is likely to put pressure on your profitability in FY14 along with interest costs etc. and in FY14 there is a possibility of a company reporting a loss. Do you see that likely?
A: The new plant is adding huge capacity for the company but at the same time this is not simple incremental capacity addition. Infact, the state of art plant which we are establishing in Orissa gives us tremendous advantage of the operational efficiencies.
Infact the new capacity will give incremental additional margins. So I don't think that it will create pressure on the margin rather it will improve the margin percentages in time to come. Q: But this impact or benefit will only come in later may be in FY15 etc. In the run up to that stage perhaps in FY14 when the new plants are in the stabilization phase do you see the likelihood of your margins coming down and perhaps some pressure on your profitability in the near term?
A: In 2013-14, the margin percentages because of the incremental capacity addition would not be present. Rather it will improve whatever the margin we will have from our existing capacity. Q: You mean that there is no question of profits falling to much lower levels even for one year as you stabilize your plant and are not able to use the capacity and yet have to pay interest?
A: Yes, there may be pressure on margin due to other reasons like input cost pressure and the inability of the companies to pass on the impact of input cost in the market but not due to capacity addition. Capacity addition will give better margin in time. Q: When do you plan to complete the plant itself, the expansion?
A: Our plan is to commission the plant in the first quarter of 2013. Q: How are the cost pressures currently for the company?
A: There is a huge cost pressure on not only JK Paper, but the whole paper industry. The wood cost has gone up by about 30-40 percent in last six months and the coal prices have gone up and availability has also become an issue, increase in chemical prices due to availability issue and rupee/dollar parity has also impacted chemical prices. These three inputs are impacting the profitability.  Q: So where do you see your margins now currently in the second half of the fiscal year given the cost pressures on all the three key ingredients and is there a possibility at all of a price hike in the coming few months?
A: Yes, we have hiked our prices in the last week of November and also in December in the range of Rs 2000-3000 per tonnes. Cost pressure demands an increase in price by around Rs 6000 per tonne. There is a need of one more price increase sometime in January. Q: Your expanded paper and pulp capacity of 1,65,000 paper and 2,15,000 pulp goes on stream first quarter of 2013. So should we expect it between January and March?
A: It should come in February and March.