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• V Kumarswamy, chief financial officer of JK Paper spoke to CNBC-TV18 about his outlook for the business and the way ahead for his company. He says that after the terrible past quarter, this quarter seems to be much better. Kumaraswamy says that JK Paper will go ahead and buy coal from the European markets if need be since the plants cannot be kept shut.
• Q: Your profitability declined by about 78% last quarter and margins fell from 28% to 17%. Has Q3 been better for you all?
• A: Well, the last quarter’s disturbance was created largely by coal supply disturbances which you are reading in the paper almost daily now, and also some kind of dumping of coated paper from China consequent to US and EU putting some very high dumping duties there. A lot of quantities were thus diverted here.The coated paper scenario has been largely taken care of by the currency depreciation in India, almost going from Rs 45 to Rs 53 per dollar levels that has made imports of coated paper that much costlier. Coal supplies are improving but no where near normal. So that’s how the current quarter is panning out to be.
• Q: This gap that you have between what was your supply of about 1.5 tonne of coal required for every tonne of paper and what you get now, are you looking at buying in the open market? How are you looking at resolving this issue?
• A: We have to buy it from the European markets, there is no other alternative. I can't keep the plant shut for this reason. After all, there is a positive contribution and EBITDA margins even at the bought-out coal. We always buy coal from European markets because there is no way that we will not buy from the open market.
• Q: What will all this mean for your FY12 revenues because even that has been going at a tepid rate? Could you give is some guidance on what the margins and profits might look like for the entire year?
• A: In terms of revenue, as you know we are constrained by our capacities. We have already hit 100% and over capacity utilization. Unless we pretty quickly debottleneck our plant capacities which will take full effect during this year. That will push up the revenues of both the segments by around 17-18% and 1- 2% by way of debottlenecking. Margins largely depend on how much coal supply improves and some chemical prices were higher during the quarter however, they are softening.One positive impact that the rupee depreciation has given is a little backup protection pricing ability in the market, especially from where imported papers are coming in. The pressure on pricing for board also has been that much less because of this.On the other hand, we also have higher rates on imported pulp. But the pulp prices also have corrected steeply from 670-680 levels about six-nine months back. They have shrunken about Rs 560-580 kind of levels. They are not in a full extend to compensate the currency depreciation in the last three months, but they are giving a substantial protection this month.Economic slowdown also is a factor. Many sectors are running very slow, some in negative. Overall, revenue growth will be there by modest percentage for us because of the capacity constraints, but there will be erosion in EBITDA margins. It will be slightly better than the last quarter erosion, but not the same period last year.
• Q: We also understand that the proceeds of your rights issue have to be used towards your Orissa project. Take us through whether it is on schedule, what's the update on that front?
• A: The project is on schedule, 94% of the orders are being placed and civil construction is in advanced stage. Many of the sections are complete for production of equipment fund etc. The project is well on schedule as declared in the rights issues document.Orders have been placed on a fixed price basis which means no escalation in cost, duty is allowed. The only risk is the currency risk as about one third of the project cost is foreign currency denominated otherwise we are well on schedule to meet the time deadline as well as in the cost parameter.

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