Acknowledgement

All successful work needs large number of hands to accomplish any work. I take an opportunity
to extend my sincere thanks to “Sidharth group of Paper Industry” for offering me a unique
platform to earn exposure and earn knowledge in the field of finance and learn the day-to-day
activities that are carried out in the company.

I further acquire this opportunity with much pleasure to thank all the people who have helped
me through the course of my journey towards this project. I sincerely thank my internal guide,
Prof. Kshitija Soman , for her guidance, help and motivation. Apart from the subject of my
study, I learnt a lot from her, which I am sure, will be useful in different stages of my life.

I am especially grateful to my colleagues for their assistance, criticisms and useful insights. I am
thankful to all the other students (past and present) of MITSOB, PUNE with whom I share tons
of fond memories. My sincere gratitude also goes to all those who instructed and taught me
through the years.

Finally, this project would not have been possible without the confidence, endurance and support
of my family. My family has always been a source of inspiration and encouragement. I wish to
thank my family, whose love, teachings and support have brought me this far.
 Background of the Study

Demand for paper would go on increasing in times to come. In view of paper industry's strategic
role for the society and also for the overall industrial growth it is necessary that the paper
industry performs well.

Paper industry in India is the 15th largest paper industry in the world. It provides employment to
nearly 1.5 million people and contributes Rs 25 billion to the government's kitty. The
government regards the paper industry as one of the 35 high priority industries of the country.

The Indian pulp and paper industry at present is very well developed and established. Now, the
paper industry is categorized as forest-based, agro-based and others (waste paper, secondary
fibre, bast fibers and market pulp).

In 1951, there were 17 paper mills, and today there are about 550 units engaged in the
manufacture of paper and paperboards and newsprint in India. The pulp & paper industries in
India have been categorized into large-scale and small-scale. Those paper industries, which have
capacity above 24,000 tonnes per annum are designated as large-scale paper industries. India is
self-sufficient in manufacture of most varieties of paper and paperboards. Import is confined
only to certain specialty papers. To meet part of its raw material needs the industry has to rely on
imported wood pulp and waste paper.
 Background of the topic

Paper manufacturing is a continuous process industry where Power and Steam are the major
contributors to the total cost of production. To optimize the cost of production, Co-Generation
Power Plant offers a viable option that helps in minimizing production losses that occur due to
frequent interruption of power supplied by the State Electricity Boards.

First high pressure and temperature Steam is generated in a Boiler. This high pressure and
temperature Steam goes into the Condensing-Cum Steam Extraction Turbine (Turbine is the
Steam engine which works on the basis of Steam velocity and its Enthalpy) causing the Turbine
to develop mechanical energy, which acts as the prime mover of the connected AC Generator
thereby generating electrical power. This AC Generator provides the required electrical power
for the process plant at a much lower cost in comparison to the present tariff of State Electricity
Boards due to the added fact that the residual low pressure Steam from the Turbine is passed into
the manufacturing plant for process purposes.

The technology for the Co-Generation Power Plant is now proven and widely adopted in India
being a reliable source to achieve maximum economy in the industry under an extremely
competitive market scenario. Pursuant to its lower net cost, the Co-Generation power plant has
become a necessity of the PAPER MANUFACTURING INDUSTRY. In fact it has now become
a need of the hour. The Company proposes to install a Power Plant using coal as it is the
cheapest option. We recommend company to think of using residual fuels such as rice husk,
which shall bring about savings in Power Cost. Due to the reduced cost of production the
Company shall have an improved bottom line
 EXECUTIVE SUMMARY

I have a done a Project report on Siddeshwari Paper Udyog Ltd.(SPUL) a sister concern of
Sidharth Group of Paper Industries one of the largest paper manufacturing group in private
sector in India and still growing to reach the top. As title of my project was project
management so under this I have analyzed the companies new power project financial
aspects in terms of its estimated cost, it’s estimated profit after the projects starts. My main
aim of the study was to gain knowledge & get a first-hand experience of how an industry
functions and manages its finance.

As for me I want to enter into a manufacturing business & become an industrialist. So, it was
very significant for me to understand how the company arranges for its finance this was
another objective of mine to know the means or mode of finance. The research methodology
used is primary & secondary data that I have collected through the companies staff & senior
managers and also by undergoing the training process.

Major findings under this project were: I have seen how a company estimates the cost of the
project and what expected output out of the project is. Each company has got its own
procedures & structure of managing its finances. Thus we need to understand the structure
and pick up the positive points in each company’s functioning so as to manage our company
well.
 Company Profile

Name of Industrial Concern : SIDHESHWARI PAPER UDYOG

LIMITED

Constitution : Non Listed Public

Company

Year of Incorporation : 1990

Year of Commencement of Business : 1991

Sector : Private Sector

Capacity : Existing – Kraft Paper 20000 TPA

Proposed – Co-generation Power
Plant – 6 MW

Registered Office : 432 Sita Ram Apartments

Plot No 102, Patparganj
IP Extension
Delhi

Works Location 7th KM, Moradabad Road,kashipur

Distt Udham Singh Nagar
Uttranchal
220 KM from Delhi
on State Highway

SIDDHESHWARI PAPER UDYOG LIMITED (SPUL) is a closely held Non Listed Public
Limited Company registered under Companies Act, 1956 started on 20/02/1990 for
manufacturing of Kraft Paper. The commercial production of the Company was started in
17/11/1991 with an installed capacity of 7500 MTA. After some time looking at the increasing
competition and various incentives declared by the Uttaranchal Government in terms of Capital
Subsidy, Excise exemption, Income Tax exemption and reduction in rate of power the promoters
decided to enhance the capacity of the plant from 7500 MTA to 27000 MTA in the year 2003.
Besides this major expansion, several investments were made from time to time to improve the
quality and productivity so as to maintain the viability and competitiveness of the products as per
the need of the hour.
The management consists of four majors Persons as the managing directors of the company and
they hold its major shares i.e. 1195800 shares 100% holding.
The Promoter Directors belongs to a highly reputed business/industrial family of Muzaffarnagar
having very vast experience of manufacturing & marketing of Kraft Papers.
As stated above, the company is presently manufacturing Kraft Paper by using agro-based raw
material. The promoters had initially decided to set up a plant for manufacture of Kraft Paper
with annual capacity of 20000 MT. The new segment of Kraft Paper has a good demand in the
packaging market and the margins are better. By setting up certain additional machineries in the
proposed Kraft Plant & the proposed power plant will add to the final capacity of the plant and it
will increase from 20000 MTA to 27000 MTA. This increased capacity will result in reduced
cost of production and increased productivity and profitability of the company.
DETAILS OF GROUP / ALLIED / ASSOCIATE FIRMS

SIDHARTH PAPERS LIMITED (UNIT-1) -: Established in the year 1990 is a closely held
Non Listed Public Limited Company registered under Companies Act, 1956 for manufacturing
of Kraft Paper.

SIDHARTH PAPERS LIMITED (UNIT-1) (SPL-2) is a closely held Non Listed Public
Limited Company registered under Companies Act, 1956 established in the year 2008 for
manufacturing of duplex Paper.

BHAGESHWARI PAPERS PRIVATE LIMITED

The company was established in 1997, at Bhopa Road, Muzaffarnagar, for manufacturing of
Kraft Paper.

SIDDHESHWARI INDUSTRIES PRIVATE LIMITED

The company was established in 2002, at Jansath Road, Muzaffarnagar, for manufacturing of
Kraft Paper.
 Objective of Study
To understand the concept of Project financing, it’s various components, methods and
nature of project financing.
To know economic viability of the proposed project i.e. estimated cost, it’s estimated
profit after the projects starts.
To gain knowledge & get a first-hand experience of how an industry functions. This was
very important opportunity that was available to me which has made me learn many
things that should be kept in mind while we focus on establishing our own industry.
To understand how the company arranges for its finance i.e. modes or means of finance.
What are the various sources available to company to borrow funds from and finance its
project other than the bank.
To know the basis for Bank finance in the sense of various components of project
financing, which is specifically used in borrowing the finance for the small-scale industry
and large-scale industry. It focuses on the requirement and the procedures applied by the
banks for assessing and sanction the term loan that the company demands for. It also
studies the various guidelines issued and recommended by various RBI committees from
time to time that the banks have to keep notice of and need to meet while giving the Term
loan. It may consists of documents , various statements etc that the company may need to
submit.
PAST PERFORMANCE OF THE COMPANY

(Rs. In Crores)
31.3.07 31.3.08 31.3.09
Particulars
Audited Audited Audited
Gross Sales 34.21 37.75 45.02
- Domestic -- -- --
- Export -- -- --
% Growth 16.72% 10.35% 19.26%
Other Incomes -- -- --
PBIT 7.41 7.49 6.59
Operating Profit 6.45 6.33 5.06
Profits Before Tax 6.48 6.38 5.09
Profits After Tax 5.74 6.25 4.46
Cash Profit 6.55 7.15 5.30
Paid up Capital 1.31 1.31 1.31
Reserves & Surplus Excluding Revaluation 21.42 27.74 32.28
reserve
Misc. Exp. Not Written off -- -- --
Accumulated Losses -- -- --
Deferred Tax Liability / Assets 0.47 0.39 0.32
Tangible Net Worth 23.20 29.44 33.90
Investments 4.38 7.82 9.62
Unsecured Loan -- -- --
Net Working Capital 10.44 12.39 13.74
Current Ratio 6.31 4.19 5.04
Debt Equity Ratio 0.30 0.26 0.19
Operating Profits / Sales 18.85% 16.77% 11.24%

31.3.07 31.3.08 31.3.09

Audited Audited Audited
TOL / TNW 0.39 0.39 0.30
Fund Flow: -- -- --
Long Term Sources 30.33 37.10 40.53
Long Term Uses 19.90 24.72 26.71
Short Term Sources 1.95 3.87 3.32
Short Term uses 12.38 16.25 17.14
Existing and Proposed Banking Facilities

(Rs. In Crorores)
Nature Amount
Siddheshwari Paper Udyog Ltd. (Kraft Paper)
Fund Based 6.00
Non Fund Based 9.25
Term Loan
(i) Waste Paper Street & Soda 7.50
Recovery 5.00
(ii) Disperser 19.37
(iii) Turbine Projects
Total Commitment 47.12

COLLATERAL SECURITY

 All Working Capital facilities are secured by personal guarantee of the Directors.
 Further Secured by Charge on Company’s fixed assets.
 INFRASTRUCTURE AVAILABLE

POWER :

The power requirement for the project has been estimated to 6000 KVA out of
which 2750 KVA, for which the Company has applied for power load from
Uttaranchal Power Corporation, which is already sanctioned.

WATER :

The total water requirement would be around 47 KL. Per ton of Paper which shall be met from
own tube wells of 6”-8” diameter being installed at the site.

POLLUTION CONTROL :

The Existing unit is equipped with ETP & other equipments as approved by Pollution Control
authorities. The ETP for the proposed paper unit will be installed as per latest technology so as to
ensure release of water within the desired standard as described by Pollution Board.

MAN POWER :

Kashipur is developing fast industrially and all types of skilled / unskilled labour is easily
available.

OTHER INFRASTRUCTURAL FACILITIES

The Kraft Paper Manufacturing plant is already running on this site for the last 19 years and all
the infrastructure facilities are easily available.
 PRODUCTION PROCESS

The manufacturing process for Kraft Paper can be broadly categorized into following
steps :

 Pulping

 Stock Preparation Section

 Sheet Formation

 Sheet Jointing

 Drying

 Glazing
 PROPOSED POWER PROJECT
 CONCEPT

It is a known fact that any paper product-manufacturing unit is power intensive as substantial
power is consumed for the operations. In recent times due to the huge overheads of Electricity
Boards and increase in other input costs, the power tariff cost has been increasing steadily.
Therefore day-by-day it is becoming increasingly difficult for paper manufacturing units to
control manufacturing cost due to high incidence of power cost resulting in decreasing profit
margins. Presently, Uttaranchal Electricity Board supplies power bears a tariff of Rs. 4.49 per
Kwh. On the other hand, the cost of power obtained from D.G. sets is Rs. 10.00 per unit
including maintenance costs. The Company has no option in terms of the vagaries of increasing
power costs and therefore it has concluded that it is now essential to reduce long term power
input cost by installing Steam based Co-Generation Captive Power Plant. For this purpose, after
in depth study and obtaining advise from experts in this field the Company has decided to install
the 6.0 MW condensing cum Steam extraction turbine Co-Generation Power Plant which is
considered most ideally suited for Company's requirements.

There is a dual purpose for installing this Power Plant. The first and foremost purpose is to
generate adequate uninterrupted power for present operations and the second purpose is to make
use of low pressure exhaust steam from the turbine for the manufacturing process in the paper
plant. With these dual advantages the Company will not only be saving on power input cost but
also on cost of process steam which otherwise would have to be supplied by a stand alone boiler.
COST OF PROJECT & MEANS OF FINANCE:

(Rs in cr)

Cost of Project Means of finance

Amount Amount
Item Item
Building 4.51 Term Loan 20.50

Plant & Machinery 20.71 Internal cash 5.42

accruals

Contingency 0.50 Subsidy 1.20

Pre-operative Expenses 0.25

Interest During 1.15

Construction period

Total 27.12 Total 27.12

Details of Cost of the project

Observations-:
 Directors of the company already have a past experience in setting up a turbine as they
have setup a Power project in the company sister concern Siddharth Papers ltd. (UNIT 2)
of 6 MW.

 The total cost of the project have been estimated by the help of Sister concern Sidharth
paper Ltd. which is presently operating a power project of 6 MW. It has provided the
Siddeshwari Paper Udyog Ltd. with the details of the machinery that will be required for
setting up a Power project.

 Various quotations have been obtained from the top companies for the items mentioned
in the list as the price was expected to rise due to inflation.

 Then the total cost for the project is estimated by the help of quotations obtained

 The cost for civil & other works have been estimated on the basis of contactor whom the
work has been given

 The company have estimated the cost for contingencies, pre-operative expenses, interest
during construction period etc. as well as the other necessary expenses during
construction.

Analysis-:

Land & Building: RS. 4.51 crore:

The company has 3.40 Acres of land which is sufficient for construction of building for
installation of Turbine and building construction cost has been estimated at Rs. 4.51 crore and
the details of item and their cost is as under:

The estimate of building construction has been prepared by M/S Shakti Associates, Kashipur and
as per the estimate , the cost of building construction is Rs 4.51 crores.

The details of additional building to be constructed are as under. The additional building is
required for the turbine, raw materials shade, boiler, RO plant etc and are necessary for the
present expansion.

(Rs. In Crores)
S.NO AMOUNT
PARTICULARS
. MEASUREMENT RATES (Rs. in Crore)
1 Site Development, Earthfilling,    
Levelling & Roads 0.11
2 Boundary Wall (with RCC with 300m Length, 3
Piller 100 Nos.) Mtrs Hight, 1.5
 
Mtrs. Foundation 0.25
etc.
3 Building Turbine Double Story
480 Sq.m 6000
(1st Floor & 2nd Floor) 0.58
4 Building Boiler
600 Sq.m 5000
0.30
5 Raw Material Shed for 9000 MT
Husk (1000 Mts 2 Feeding Sheds, 5000 Sq.mt.
2.00
3000 Mtrs. Raw Material Shed)
6 Foundation of Turbine 9000/Cu.
200 Cu.m
m 0.20
7 Foundation of Boiler & Plateform 9000/Cu.
150 Cu.m
Seat. m 0.20
8 Other Foundation of pumps &
   
condensor etc. 0.05
9 R.O. Plant Room
   
0.02
10 Electrical Panel Room
   
0.02
11 In Charge Office
   
0.02
12 Cooling Tower Tank (Compare 4000/Cu.
250 Cu.m
with SPL - IInd Tank) m 0.10
13 Condensate Water Tank
12 Cu.m  
0.03
14 Complete Tubewell
2 Nos. 9 Lac
0.16
15 Sums K & pith
   
0.02
16 Fire Fighting Equipments & Pipe
   
Line 0.35
17 Electrification (Drawings)     0.10
    Total (A)   4.51
Plant and Machinery: Rs. 20.71 crore:
The total cost of plant and machinery with details of each item and cost thereof is as under which
have been calculated by the help of quotations obtained from the top manufacturers of a
particular product :

DETAILS OF MACHINES :

S.NO AMOUNT
PARTICULARS
. (Rs. in Crore)
A. TURBINE  

1 Turbine Set 3.90

2 Water Storage Tank (1 Storage for R.O. to Feed 6 Lac & 1
0.18
Storage for From R.O. Ruberised 8 Lac)
3 R.O. Plant 0.35
4 Cooling Tower (38 TPH) 0.20
5 Compressor 0.03
6 D.G. Set 0.15
7 Pipe Line & Valves (Steam Piping) Including structure 0.75
8 Water Pump (Cooling Tower) 0.22
9 Switch (5 VCB) 0.30
10 Transformer (3500 + 3500 + 1000) Drive Duty @ 7.50 Lac /
0.50
KVA
11 Cable (L.T.) 0.20
12 Panel (One Cooling Tower) 0.05
13 H.T. Lines (240 Sqmm x 1000 Mtr) 0.18
14 Crane in Turbine Room 0.15
15 Instrumentation of Boiler 0.10
16 Routing Design for Piping & Support 0.10
17 Distribution Header (Steam) L.P. & H.P. 0.25
18 Oil Centrifuse 0.08
19 Earthing Pit and Earthing 0.02
20 First fill of Oil (8000 Ltrs.) 0.12
21 PLC Electrical Controller (Optional) -
   Total Rs. : 7.83
     
 B. BOILER
S.NO AMOUNT
PARTICULARS
. (Rs. in Crore)
1 Boiler (45 TPH 65 Kg./Cm2g) 5.00
Boiler Structure for Steel for Plateforms, Hopers, Ducting &
0.75
Ledgers etc.
2 Fire Brick of Furnace 0.25
3 Pipe Line & Valves (Steam & Water) 0.85
4 Electrical Panel & Motor (1300 H.P.) 0.45
5 V.F.D. for Boiler Motor (3 Nos.) 0.25
6 Feed Conveyor (3 Nos.) Husk 0.30
7 Screen of Raw Material (4 Nos.) 0.15
8 Coal Crusher 0.15
9 Coal Conveyor 0.10
10 Condensate Return Line from SPI & SPUL 0.08
11 P.R.D.S. 0.20
12 Drawings & Support 0.15
13 Motorised Vent Valve 0.03
14 N.R.V. (8") 0.05
15 Bunkar Fuel Feeding (100 Cum)
16 Rotary Air Lock Valve (7 Nos) ESP + Ash Collection 0.04
17 Chimney with Ducts 0.30
18 L.T. Cable 0.20
19 Start up, Material for Boiler
20 Air Conditioning for Pannel Rooms 0.05
21 Lighting & Fittings in Boiler House 0.02
22 Insulation of Steam Line & Turbine 0.30
23 Feed Water Tank to be added 0.05
    9.72
   Total :- 17.55
   
  Add: @ 18% Exice duty, Tax, freight & Installation & Erection etc.
3.16
   Total Rs. 20.71

The quotation for these items have been obtained from the reputed manufacturers (Triveni
Engineers) and copies thereof is held on record.
Contingencies: Rs. 0.50 crore.

An amount of Rs. 0.50 crore i.e. 1.84% of the project cost has been estimated towards
unforeseen contingencies during the implementation period of the project, which is reasonable in
view of the size of project. Sometimes the calculated cost may not be as accurate there may be
rise in the cost due to unforeseen circumstances this has also been taken into account by the
company.

Pre-operative Expenses: 0.25 Crore

Certain pre-operative expenses have also been considered by the company that may arise before
the actual operation of the industry may start. Rs. 0.25 crore has been estimated as cost of pre-
operative expenses in the project.

Interest during construction period: Rs.1.15 crore:

Bank is sure to levy interest as soon as it gives loans so certain amount of interest will also be
levied for the time when the final project is in the construction stage. An amount of Rs. 1.15
crore has been estimated during implementation stage of the project considering the ROI of
11.00%. This interest will be payable as soon as the project starts or on its expected date to start
whichever is before.
 MEANS OF FINANCE:

Term Loan:

The company has requested for sanction of a term loan of Rs 20.50 crore from their Bank on the
basis of the collateral security given by them.

ANALYSIS OF TERM LOAN:

The company has requested to sanction term loan for the construction of the building, to
purchase the plant and machinery & other fixed assets. Hence the term loan has been
assessed as under

Building under construction Rs 4.51 crore

Cost of Plant & machinery Rs 20.71 crore
Escalation & contingency Rs 0.50 crore
Total Rs 25.72 crore
Less : margin @ 20 % Rs 5.14 crore
PBF Rs 20.58 crore

Hence a term loan of Rs 20.50 crore may be sanction in favor of the unit.

INTEREST :-On the basis of Credit risk rating of the account / being considered by the
bank at present.

SECURITY

1. EM of Land & Building of the paper mill.

2. Hyp. Of land & Machineries & other fixed assets to be financed by the Bank.
 REPAYMENT

Proposed TL: Rs. 20.50 crore:

The Term Loan is repayable in 25 quarterly installments to start after a moratorium period of
24 months from the completion of the project or Oct. 2011 which ever is earlier. The
proposed installed are as under:-

1st quarterly installments Rs. 10.00 lac each

2nd to 5th quarterly installment Rs. 10.00 lac each

6thth to 9th quarterly installment Rs. 15.00 lacs each

10th to 13th quarterly installment Rs. 20.00 lacs each
14th to 17th quarterly installment Rs. 25.00 lacs each
18th to 20th quarterly installment Rs. 70.00 lacs each
(Interest to be paid as and when due)

Internal Cash Accruals:

An amount of Rs. 5.42 crore shall be raised by the company themselves from their internal
sources either through relatives or unsecured loans or from any other source available to them.
However, the company had undertaken

Subsidy-:
Balance of Rs. 1.20 crore shall be available as subsidy from the Uttaranchal Government as a
part of their scheme for setting up a POWER PROJECT.
TECHNICAL DATA AND COST & BENIFIT ANALYSIS

i. Power Requirement: - The Company's peak hour power demand for the proposed
24000 MT Kraft Paper Unit is estimated at 6000 KVA/Hr. The proposed Co-
Generation Power Plant would have a designed capacity of 6000 KW per hour.
Included 400 KW per hour electric power will be consumed for operation of Power
Plant itself to run the turbine auxiliaries & boiler of power plant. The spare capacity
shall be reserved for operation of additional machinery to be installed in the plant in
future. The company keeps replacing existing machinery by modern ones and by
adding certain equipment to improve quality on a regular basis in the form of normal
capital expenditure. As such, there would be no difficulty in consuming the balance
available power.

ii. High pressure Steam Boiler: - The Company shall be installing one multi grade
rice husk fired 45 TPH steam boiler to generate high pressure (65Kg/cm2g) and
superheated (490°C) steam. The entire quantity of the generated Steam will be first
supplied to the Steam Turbine at the above said pressure and temperature, which shall
generate 6000 KW per hour electric power as well as low pressure and temperature
steam for paper manufacturing process. The exhaust steam from turbine shall have a
pressure of 5 Kg/Cm2g and temperature of about 240°C. However, for actual process
temperature requirement is 151°C and therefore the exhaust steam from this turbine
has to be cooled down by passing it through a De- Super heater station and is then
supplied to the plant. A part of this steam can also be used for preheating of the water
supplied to the Steam Boiler, which again can result in further cost savings.

iii. Power generation and distribution: To meet the power requirement of the
Kraft Paper Manufacturing continuous process plant the co-generation unit shall
generate 6000 KW power at 6 KV, star connection and at 50HZ. It will be
 connected to two-step down transformers. One a 1500KVA, 6 KV/400 Volts and
another 4000 KVA, 6 KV/400 Volts according to plant circuit of low voltage
power requirement in various sections through power control centers to motor
control centers through various sizes of cables.

iv. Costing & Benifits : In brief, the proposed Co-Generation Power Plant shall
be versatile in nature and will be operated most efficiently. The cost estimated
for power generation is worked out and given below which is self-explanatory.
The power generation cost will be Rs. 2.82 Per Unit. The company would have
had to pay Rs. 4.49 per unit to the State Electricity Board and Rs. 10.00 per unit
for compulsory stand-by DG Sets (So the weighted average cost works out to be
Rs. 4.60 per unit). Consequently, there is net saving of Rs. 1.78 per unit on the
assumption that 98% of the consumption would be from the Electricity Board
and the balance from stand-by sources. On an average gross consumption of
38707200 units per annum, the total saving per annum would be Rs. 688.98816
Lakhs . This is one of the main reasons why the company has decided to install
the 6 MW per hour Co-Generation Power plant.
Other advantages of cogeneration power plant are as here under:

1. There will be uninterrupted power supply as compared to the frequent power failure and
load shedding by State Electricity Board.
2. There will be no major variation in voltage and frequency and stable power factor can be
maintained.
3. After obtaining continuous quality electric power from Co-generation plant the
production and quality of Paper shall be further enhanced.
4. Plant & Machinery will be more protected and safe. The regular maintenance burden will
also reduce.

ELECTRIC POWER GENERATION COST AT BUS BAR BY EXTRACTION

CUM COMMISSIONING STEAM TURBINE

(a) Cost of Steam Per Unit :

Super Heated Steam Cost at 65 Kg/Cm2g, 490°C Temperature.

 Steam Enthalpy = 809.9 Kacl/Kg

 Feed Water Inlet Temp. = 105°C + 5°C
 GCV/Rice Husk = 3200 Kcal / Kg (Average)
 Boiler Efficiency = 82% + 2%
 Heat requirement to make steam 105°C water to 490°C
Steam Temperature 809.9 – 105.0 = 704.9 Kcal / Kg.

Net Heat Transferred in to the Water at the 82% efficiency

 3200 x 82
= ------------------------- = 2624 Kacl / Kg.
100

Steam Generation Per MT. of Rice Husk

2624
= ------------------------- = 3.73 Tonne Steam
704.9

44 Tones Steam is required per hour to generate 6000 KW as well as 36 TPH Steam
extraction at 5 Kg./Cm2 and 230°C Temp. for paper Processing.

44.00
Per Hour Rice Husk Consumption = ------------------ = 11.8 MT.
3.73

Rice Husk Price F O R at Site = Rs. 3000/- Per Ton

Per Hour inlet Steam Cost = 11.8 x 3000

= Rs. 35400/-

Steam Generation Cost of Process Steam at 5 Kg/Cm 2g 151°C Temperature Feed

Water Temperature 60°C (L.P. Boiler)

Steam Enthalpy = Rs. 657.9 Kacl/Kg.

Heat Requirement to Make Steam 5 Kg/Cm2 at 60°C Saturate Steam (151°C)

= Rs. 657.9 – 60 = 597.9 Kacl/Kg.

Steam Generation Per Mt. of Rice Husk (Process Steam)

2624
= ------------------ = 4.39 Tonne
597.9
Per Hour Husk Required for Process Steam
36 MT.
= -------------- = 8.20 MT.
4.39
Per Hour Process Steam Cost
= 8.20 x 3000 = 24600/- Rs.
Actual One Unit Cost at 6000 KW Power Generation :
= 35400.00 – 24600.00 = 10800/-

10800
= ---------- = 1.80, Rs.1.80 Per KWH
6000

(B) Power Generation Unit from the Plant :

Per Hours Power Generation at 80% Average Load

6000 x 80
= ----------------- = 4800 Kw/HR
100

Per Month Power Generaton = 4800 x 24 x 28 = 3225600 Units.

(28 Days running in a month)

Yearly Power Generation = 3225600 x 12

= 38707200 Units.

(C) Other Operation Cost :

Annual Approval & AMC Charges = Rs. 7.30 Lakhs

Chemical Cost Per Annum = Rs. 7.30 Lakhs

Salary for Annum = Rs. 43.80 Lakhs

Ash disposal & Rice Husk feeding = Rs. 16.80 Lakhs

Contractor Charges Per annum
= Rs. 75.20 Lakhs

Taking only 60% of above expenses for Power Generation (Believe Balance 40%
already require for Process Steam generation if we not generate our own power)
75.20 x 60
Actual Expenses = ---------------- = Rs.45.12 Lakhs
100

Current Minimum State Electricity Board Demand Charges Per annum

At 80%  4800 KVA x Rs. 220 / KVA x 12 Months) = Rs. 126.72 Lakhs
 Cost of Boiler Project = Rs. 1296.00 Lakhs
Cost of Turbine Project = Rs. 1416.00 Lakhs
Total Complete Power Project = Rs. 2712.00 Lakhs

Term Loan Amount = Rs. 1937.00 Lakhs

Annual Interest @ 11.50% = Rs. 222.75 Lakhs

Total Over Heads on 3,87,07,200 Units

( 45.12 + 126.72 + 222.75 Lakhs ) = Rs. 394.60 Lakhs

39460000
Total Over Heads on one KWH = -------------------
38707200

= Rs. 1.02 / KWH

Net Unit Price = Rs. 1.80 + 1.02

= Rs. 2.82 Per KWH.

Now we take 36 TPH Steam at 5 Kg/Cm2g 151°C

(D) Cost Saving :

Present State Electricity Board Cost

(Average) = Rs. 4.49 Per KWH.

Cost DG Set = Rs. 10.00 Per KWH.

Weighted Average Cost

(4.49 x 98%) + (Rs. 10.00 x 2%)
4.40 + .20 = Rs. 4.60 Per KWH.

Hence Net Saving Per unit = Rs. 4.60 – 2.82 Per Unit.

= Rs. 1.78 Per KWH.

*Annual Saving on Power Plant = Rs. 1.78 x 38707200 Units

(Rs. 68898816)
= Rs. 688.98816 Lakhs Per Annum.
 Benefits of Proposed Machine:
Sidheswari Paper Udyog Ltd is situated at Kashipur ( Uttranchal State). Due to various
incentives declared by the state government, Uttranchal has become a hub by Installation of
various type of industries. Uttranchal has its own capacity of generating 13-14 Million MW
power. The state also having a central quota of 6 million MW. Before the development of Pant
Nagar Industrial Area, the average consumption of the state was ranging from 18-20 million
MW, which has now increased to 25-26 million MW. As such, there are almost power cuts of
25% normally 5-6 hours in day.

Moreover, the quality of power supplied through Grid also deteriorated on the increased demand.
The company has to bear huge damange of its product under process. Further, the machines
could not generate optimum production/quality produce in such power supplies. The power cost
supplied by the Grid is around Rs. 4.00 per unit.

The average cost of producing power from the turbine shall range between Rs. 3.00 to Rs. 3.25
per unit. To over come the shortage and cost factor of power and to produce the quality paper,
the company has intended to install 6 MW power for its own captive consumption with a total
cost estimated at Rs. 27.12 crore and has applied for sanction of Term Loan of Rs. 20.50 crore.

The company has further informed that due to use of rice husk based fuel in the proposed boiler,
they shall be eligible to obtain the Carbon Credit, which shall be an added advantage to the
company.
 Basis of Bank finance
Term loans are allowed for asset expenditures and operational concerns. Under this I will be
covering various factors on the basis of my observation which are required to be known by
company when it applies for a loan i.e. various things that banks look into before granting a loan
to a company these are -:

1. Finance-: The bank only finances for 75 to 80% of the loan rest the company arranges
for itself through its own sources or means of finance. So, you need to be mentally
prepared before asking a loan and should first arrange for your finances.

2. Viability-: Second step in a project financing is that the Bank or a technical consultant
hired by the Bank will prepare a feasibility study showing the financial viability of the
project. This is very necessary in order to invest in a project.

3. Contents-: The feasibility study should analyze every technical, financial and other
aspect of the project, including the time-frame for completion of the various phases of the
project development, and should clearly set forth all of the financial and other
assumptions upon which the conclusions of the study are based upon is Description of
project, Project site, Governmental arrangements, Source of funds, Management of
project, Working capital, Debt sourcing, Market study etc.

4. Security or Collateral-: Banks needs some security from the borrowers against the
credit facilities extended to them to avoid any kind of losses. Banks provide credit on the
basis of the following modes of security from the borrowers either by the way of
Hypothecation, lien, pledge and mortgage.

5. Documentation-: Documentation forms an integral part of lending by banks. It

establishes legal relationships between lender and the Bank. All the documents need to be
kept safely & secrecy of all the documents need to be maintained so as to avoid any
 discrepant documents not in compliance with the terms and conditions of the agreement.
Some of the documents that needs to be maintained are general conditions-applicable to
term/demand loan, Credit facility agreement for term/demand loan, Corporate guarantee
etc.

6. Credit Monitoring Assessment (CMA)-: It is one of the most important documents that
each & every company needs to provide to the bank in order to get a loan. The analysis of
balance sheet in CMA data is said to give a more detailed and accurate picture of the
affairs of a corporate. This format was prescribed by RBI in the year 1974 so that they
could obtain the necessary data from borrowers to assess working capital requirement
under the (CMA) in the year 1988.

It consisted of Three methods of lending

a. First method of lending which was suitable only for small borrowers i.e. less than
10 lacs.
b. Second method of lending were the ones that enjoyed fund based credit facilities
of more than Rs. 10 lacs.
c. Third method of lending was not accepted for implementation thus it is only of
academy interest.

The CMA consisted of 6 statements that needed to be prepared. They are-:

Statement I: - It contains particulars of existing credit from the entire banking system including
term loan facilities

Statement II:- Known as the operating statement, it contains data relating to gross sales, net sales,
cost of raw materials, power and fuel, etc. it gives the operating profit and the net profit figures.
Statement III: - A complete analyses of various items of last year’s balance sheet, current year’s
estimates and following year’s projection are given in this form.

Statement IV: - Details of various items of current assets and current liabilities are given. The
figures in this form must tally with those in Form III.

Statement V: - The calculation of MPBF(Maximum Permissible Bank Finance) is done in this

form to obtain the fund based credit limits to be granted to the borrower.

Statement VI: - It provides the details of fund flow from long term sources and uses to indicate
whether they are sufficient to meet the borrower’s long-term requirements.

Once the MPBF is arrived at on the basis of inventory and receivables norms by the appropriate
method of lending, banks decide the various funds and non-fund limits based limits. The fund-
based limits should not exceed the MPBF. The cash credit component should not be more than
20% for borrowers having working capital limit more than Rs. 100 million from the banks. The
balance may be 80% provided as demand loan.
Once we are through all the formalities and in order that the loan is approved we must know that
your business plan should be rock solid as well as well presented & laid out. You should have a
major stake in your business as Banks like to see that you have a stake in your own business. A
term loan for equipment or the business as a whole will be more likely to be approved if you
have at least a good stake in the business. Thus all such factors are kept in mind by the company.
This helps them to get a loan.
 Overall Implications of the Project
Under this I have considered and presented the profit of the company as a whole i.e. when the
company has set up its power project what will be the projected benefits the company will obtain
after the plant has finally started. I will be presenting the data in the form of various statements
such as balance sheet, profitability statements, ratios etc. as a whole. This all needs to be
submitted by the company for obtaining a loan from the bank. So, that the bank can analyze
whether it is profitable to give such loan, and what will be the return to them & in what time i.e.
it is the CMA of the company.

Assumptions under CMA-:

1. The Installed Capacity of the 1st Unit is 20000 MTA. The Capacity utilization is assumed
120% in 1st year and subsequent years.
2. Raw Material is calculated @ Rs. 3700/- P.M.T. in first and subsequent years.

3. Chemicals are calculated @ Rs.3280/-P.M.T. in Ist and subsequent years.

4. Power & Fuel is calculated @ 3000/- P.M.T. in Ist and subsequent year.

5. Consumable Stores is calculated @ 625/- P.M.T in Ist & subsequent years.

6. Packing Material is calculated @ 130/- P.M.T in Ist & subsequent years.

7. Salary & Wages is estimated to Rs. 65.00 Lacs in Ist year and subsequent years.

8. Administrative expenses is estimated to Rs. 80.00 Lacs in Ist year and subsequent years.

9. Selling expenses is calculated @ 350/- P.M.T. in first year and subsequent years.

10. Depreciation is calculated on W.D.V. Basis.

11. Interest on loans is calculated as follows:-

Term Loan 11.50% P.A.

Bank Borrowings 11.00% P.A.

12. Selling Price is calculated to Rs.15250/- P.M.T. in first year and subsequent year of Paper
exclusive of excise duty.

CAPACITY OF THE PLANT:

Particulars Projection

  Year Year Year Year Year Year Year Year Year

2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017-
10 11 12 13 14 15 16 17 18
Installed Capacity 20,000 20,001 20,002 20,003 20,004 20,005 20,006 20,007 20,008
Capacity 100% 100% 100% 100% 100% 100% 100% 100% 100%
Utilisation
Sales 48.85 50.46 51.66 51.66 51.66 51.66 51.66 51.66 51.66
Profit after Tax 4.32 4.34 1.61 2.29 2.98 3.69 4.32 4.84 5.39
Cash Profit 5.84 5.91 7.99 8.02 8.15 8.39 8.61 8.80 9.06
 
PROJECTED BALANCE SHEET
LIABILITIES
2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017-
PARTICULARS 2009-10 11 12 13 14 15 16 17 18
SHARE CAPITAL 1.31 1.31 1.31 1.31 1.31 1.31 1.31 1.31 1.31
RESERVE SURPLUS 36.60 40.95 42.55 44.84 47.82 51.51 55.83 60.67 66.06
DEFERRED TAX 0.32 0.32 0.32 0.32 0.32 0.32 0.32 0.32 0.32
SECURED LOANS 19.90 28.75 26.10 22.45 17.80 13.30 9.30 4.50 0
BANK BORROWINGS 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00

CURRENT LIABILITIES &

PROVISIONS
SUNDRY CREDITORS 0.25 0.26 0.26 0.26 0.26 0.26 0.26 0.26 0.26
EXPENSES PAYABLE 0.16 0.17 0.14 0.15 0.16 0.10 0.10 0.10 0.10
INCOME TAX PAYABLE 0.89 0.89 0.33 0.47 0.61 0.76 0.88 0.99 1.10

TOTAL Rs. 65.43 78.64 77.01 75.80 74.28 73.56 74.00 74.15 75.16

ASSETS
2009 2010 2011 2012 2013 2014 2015 2016 2017
PARTICULARS -10 -11 -12 -13 -14 -15 -16 -17 -18
FIXED ASSETS
GROSS BLOCK 46.03 61.03 63.03 65.03 67.03 69.03 71.03 73.03 75.03
LESS: DEPRECIATION 11.32 12.88 19.27 25.00 30.17 34.87 39.17 43.13 46.79
34.71 48.15 43.76 40.03 36.86 34.16 31.86 29.90 28.24

INVESTMENT 9.62 9.62 11.62 13.62 15.62 17.62 19.62 21.62 23.62
CURRENT ASSETS, L &A

CLOSING STOCK 8.43 8.65 8.65 8.65 8.65 8.65 8.65 8.65 8.65
SUNDRY DEBTORS < 6
MONTHS 8.14 8.41 8.41 8.41 8.41 8.41 8.41 8.41 8.41
SUNDRY DEBTORS > 6
MONTHS 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20
CASH & BANK BALANCES 0.09 0.13 1.44 1.82 1.33 1.16 1.77 1.77 2.33
F.D.R. 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
LOANS & ADVANCES 1.75 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
ADVANCE INCOME TAX 0.89 0.89 0.33 0.47 0.61 0.76 0.88 0.99 1.10
SECURITY 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60
TOTAL Rs. 65.43 78.64 77.01 75.80 74.28 73.56 74.00 74.15 75.16

PROJECTED PROFITABILITY STATEMENT-: Rs. In Crores

 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017-
PARTICULARS  10 11 12 13 14 15 16 17 18
YEAR (2009-10) Ist 2nd 3rd 4th 5th 6th 7th 8th 9th
PRODUCTION (IN 00
M.T.) 240 240 240 240 240 240 240 240 240
ADD: OPENING
STOCK 3 5 5 5 5 5 5 5 5
LESS: CLOSING
STOCK 5 5 5 5 5 5 5 5 5
SALES 238 240 240 240 240 240 240 240 240
CAPACITY
UTILISATION 120% 120% 120% 120% 120% 120% 120% 120% 120%

Raw Materials 15.60 23.28 26.50 26.50 26.50 26.50 26.50 26.50 26.50
Chemicals 8.64 1.68 1.68 1.68 1.68 1.68 1.68 1.68 1.68
Consumable Stores 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24
Power & Fuel 11.76 11.76 6.00 6.00 6.00 6.00 6.00 6.00 6.00
Salary & Wages 1.05 1.10 1.16 1.21 1.27 1.34 1.40 1.47 1.55
Selling Expenses 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66
Administrative
Expenses 1.15 1.21 1.27 1.33 1.40 1.47 1.54 1.62 1.70
Excise Duty 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.06
Depreciation 1.51 1.56 6.38 5.73 5.17 4.70 4.30 3.96 3.66
Interest on Bank
Borrowing 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66 0.66
Interest on Term Loan –
I 0.69 0.55 0.41 0.28 0.14 - - - -
Interest on Term Loan –
II 0.41 0.54 0.50 0.43 0.34 0.23 - - -
Interest on Term Loan –
III - - 2.26 2.17 1.99 1.73 1.46 1.02 0.50

Cost of Production 44.44 45.31 49.78 48.95 48.12 47.27 46.52 45.88 45.22
Add: Opening Stock 0.35 1.10 1.12 1.12 1.12 1.12 1.12 1.12 1.12
Cost of Production 44.79 46.40 50.90 50.07 49.24 48.39 47.64 47.00 46.34
Less: Closing Stock 1.10 1.12 1.12 1.12 1.12 1.12 1.12 1.12 1.12
Total Cost of Production 43.69 45.28 49.78 48.95 48.12 47.27 46.52 45.88 45.22
Cost of Sales 43.69 45.28 49.78 48.95 48.12 47.27 46.52 45.88 45.22

Sales Manufacturing 48.85 50.46 51.66 51.66 51.66 51.66 51.66 51.66 51.66

Other Income 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05
Profit before tax 5.21 5.23 1.94 2.76 3.59 4.44 5.20 5.83 6.50
Provision for Income
Tax 0.89 0.89 0.33 0.47 0.61 0.76 0.88 0.99 1.10

Profit after tax 4.32 4.34 1.61 2.29 2.98 3.69 4.32 4.84 5.39
Cash Flow
Statement
SOURCES OF FUNDS 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017-
 10 11 12 13 14 15 16 17 18
                   

Net Profit after tax 4.32 4.34 1.48 2.19 2.89 3.61 4.25 4.79 5.35
                 
1
Term Loan 0.00 20.50 - - - - - - -
                   

Working Capital Limit - - - - - - - - -

                   

Depreciation 1.51 1.56 6.53 5.86 5.28 4.79 4.38 4.02 3.72
                   
1
TOTAL Rs. (A) 5.84 26.41 8.02 8.04 8.17 8.40 8.63 8.81 9.07
                 
1
Capital Expenditure 3.00 16.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
                   
Increase in Current
Assets - - - - - - - - -
                   
Derease in Term Loan –
I 1.25 1.25 1.25 1.25 1.25 - - - -
                   
Derease in Term Loan –
II 0.10 0.40 0.60 0.80 1.00 2.10 - - -
                   
Derease in Term Loan -
III - Add. - - 0.80 1.60 2.40 2.40 4.00 4.80 4.50
                   
1
TOTAL Rs. (B) 4.35 17.65 4.65 5.65 6.65 6.50 6.00 6.80 6.50
                   
1 1
C. Opening Balance 0.20 1.69 10.44 3.81 6.20 17.72 19.62 22.25 24.26
                   

D. Net Surplus (A-B) 1.49 8.76 3.37 2.39 1.52 1.90 2.63 2.01 2.57
                   
1 1
E. Closing Balance 1.69 10.44 13.81 6.20 7.72 19.62 22.25 24.26 26.83
DEBT SERVICE COVERAGE RATIO-:
It is calculated on the base of future projections of the company. This ratio indicates the rate at
which the debt that has been taken by the bank is being repaid to them. This ratio is very
important and needs to be calculated before taking any loan. Now if we analyze this ratio it
shows that the debt coverage is almost twice the debt to be paid i.e. the bank is assured that its
Loan will be fully paid off.

Particulars Projections
  2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017-
10 11 12 13 14 15 16 17 18
PAT 4.32 4.34 1.61 2.29 2.98 3.69 4.32 4.84 5.39
Add Depreciation 1.51 1.56 6.38 5.73 5.17 4.70 4.30 3.96 3.66
Add Interest 1.10 1.09 3.16 2.87 2.47 1.96 1.46 1.02 0.50
A. Total Cash 6.94 6.99 11.15 10.89 10.62 10.35 10.08 9.82 9.55
accrual
TL Installments 1.35 1.65 2.65 3.65 4.65 4.50 4.00 4.80 4.50
Interest on TL 1.10 1.09 3.16 2.87 2.47 1.96 1.46 1.02 0.50
B. Total 2.45 2.74 5.81 6.52 7.12 6.46 5.46 5.82 5.00
DSCR (A/B) 2.83 2.55 1.92 1.67 1.49 1.60 1.84 1.69 1.91
Average DSCR 1.82

Detailed Sensitivity Analysis:

Sensitivity analysis has been carried out to gauge the impact of the following adverse scenarios
on the projected performance of the project:
 
Scenario I : Decrease in selling price by 5%.
Scenario II : Increase in raw material cost by 5%.
In the above scenarios, the overall DSCR for the company will be as follows:
 
Particulars Base Case Scenario I Scenario II
Overall DSCR 1.82 1.74 1.66

ASSESSMENT OF WORKING CAPITAL LIMIT:

The company has submitted the CMA data and as per the CMA data , the company has
requested to consider the MPBF on the basis of projected inventory holdings . The proposed
inventory holding are as per the past trends and trends of the industry.

Hence the MPBF has been worked out as under-:

Rs. In crores

Item Current year estimates Accepted for

2009-10 assessment year
2009-10
Chargeable Current Assets 16.57 16.57
Other current assets 2.73 2.73
Total current assets 19.30 19.30
Working Capital Gap 18.00 18.00
Net Working Capital at 25% of Total 4.83 4.83
current Assets less export receivables
Projected net working Capital 12.00 12.00
Permissible Bank finance 6.00 6.00

ASSESSMENT OF NON FUND BASED LIMITS:

Particulars ILC/FLC
Total purchases during the year 24.24
Purchases proposed against LC (76.24% of total purchase) 18.48
RM requirement against LC per month 1.54
Usance Period in months 5.00
Lead Period in month 1.00
Total period in months 6.00
LC requirement (3 X 6) 9.24
LC recommended 9.00

IMPLEMENTATION SCHEDULE:
Under this we will we considering how a project is implemented in terms of acquisition of land,
civil works, plant & machinery, trial run & ultimately the final production. We estimate the time
that the project is expected to take as per our calculation so that we could start the project within
its stipulated period. This schedule also needs to be provided to the bank along with the CMA
data so that the bank can know from when they will start getting the return.

Activity  
Commencement Completion
Acquisition of Land Already acquired Already acquired
Civil Works Oct 2009 Dec 2010
Plant & Machinery    
- Order Placement Oct 2009 Dec 2009
- Arrival Jan 2010 Dec 2010
- Erection & Jan 2010 Feb 2011
Commissioning
Trial Runs (Balancing March 2011 March 2011
Equipments)
Commercial Production Already in commercial production
 SWOT ANALYSIS
Strength

 The promoters are having rich experience in paper manufacturing.

 The product is having demand from all segments. The per capita
consumption as well as paper production & consumption in the country
are going to increase in the coming year
 The financial status of the company is very good.

Weakness
 Availability of Agro fuel/material is seasonal. The company will have to
ensure uninterrupted supplies in off season. The company will need to
arrange for Agro fuel during off season to run the machine. But as, the
area is surrounded by a number of sugar mills, and being a agricultural
belt, no problem is foreseen in getting agro based raw material. In addition
to this Company is exploring the possibilities of using the waste paper to
overcome with the above problem.

Opportunity
 SPUL has good opportunity to grow as it is supplying the kraft paper to
major reputed suppliers.
 SPUL is installed in the Utranchal Zone, where company is getting the
benefits of excise & income tax exemption.
Threats
 The product may have face tough competition from other manufactures.
 Any adverse change in Govt. rules & regulation may affect the business.
 SUMMARISED STATUS OF THE PAPER INDUSTRY

As we demand for loan from the bank it becomes very necessary for us to provide the bank with
the details of the paper industry where we are setting up the power plant. As it is very necessary
for the bank to understand what benefit the company will receive in case it sets up the power
plant and what will be its future requirements whether the increase in the production capacity
will help. They need to understand the demand for the product in the future because if they don’t
see any future in this industry they won’t invest in the project.
The Paper Industry, like any other industry, depends largely on market forces as the situation has
become very dynamic with customers seeking out best quality at very competitive prices.
Consequently, the company has aligned its strategy to be as market friendly as possible. The
Company has the philosophy of continuous improvements in manufacturing practices and
evolving market oriented strategies to sell the huge quantity it produces. The paper
manufacturing is continuous process industry, electrical power and steam is its back-bone. Hence
to obtain the both uninterrupted electrical power and steam at minimum cost Co-Generation
Power Plant is the only option for the survival of the Paper Industry. Energy Scenario is fast
changing in the country where the Grid Power Supply is unable to keep with the increasing pace
of energy demand from the industries and other consumers. Moreover, the paper industry is on
Energy intensive industry. The unit is located in a hilly State and all power generation is through
the Hydro generation units in winter season when there is a snow fall at upper hills and
temperatures fall down. The rivers of in the State go dry which impacts power generation due to
which the State Electricity Board has to put checks on power supplies which hamper production
schedules. Indian Paper Industry is producing approximate 7 to 7.2 million tones of paper per
year. The industry is by and large fragmented in nature almost 500 – 600 mills produce this
quantity of paper.
The Industry can be divided into three major segments of its players :

1. Mills using conventional raw materials like a wood and bamboo.

2. Mills using agriculture residue like wheat straw, rice straw, grass and bagasse.
3. Mills using recycle fibers i.e. waste paper.

All three segments contribute almost one third each to the total paper production in the
country. Almost all these mills are equipped with chemical recovery systems and have
significant co-generation capacity, thereby generating electricity with more than the
captive requirement through own power generation. However, most of the mills in Agro
and recycled sectors are still dependent on Grid Power. However, many of these mills
have already put up or are in process of putting up of captive co-generation power plant.

Domestic paper demand has increased from 3.05 mn MT paper annum in 1997-98 to around
8.56 mn MT per annum in 2010-2011. The industry is characterized with a closed or dead
capacity of 3.1 mn MT. The weighted average capacity utilization of the industry is presently
67%.

KRAFT PAPER-:
Demand for paper is strongly correlated with trends in GDP growth and increase in per capita
consumption (PCI). According to studies conduct by the UN, the demand for paper increases
by around by 1.5% - 2.5% every year for every 7.0% increase in PCI. This holds good even
for India in the higher range in spite of year on year variations in demand growth.

Demand for paper is also influenced by other factors like literacy rate, growth of service
sector, advancement of printing technology in the country, develop-ment of paperless
transaction, development of packaging industry, acceptability of substitutes etc.
The domestic paper demand in the past has increased from 3.05 mn MT in 1997-98 to 8.56
mn MT in 2010-2011 at a CAGR of 11.60%.

The correlation between growth in GDP and paper demand is used to arrive at demand
for paper industry. The paper consumption in India is expected to reach 6.9 mn MT
by the year 2010 with the assumption that the GDP will grow at the rate of 5% to 6%
for the corresponding period.

Establishment of new business areas such as telecom and power will lead to
increasing literacy levels, thus improving the low per capita consumption (PCI) of
paper, which is at 5 Kg per annum as compared to 50 Kg per annum for Japan and
about 150 Kg per annum for USA. Besides rapid growth in population, enhanced
literacy levels, growing quality consciousness and changing consumer preferences
will drive paper demand.

Certain user industries like FMCG, pharmaceuticals etc., are expected to grow at a
relatively higher rate. The increasing usage of packaged and branded consumer goods
is expected to add momentum to the use of paperboard packaging. The demand for
paperboard is therefore expected to grow at between 10% to 11% i.e. much higher
than the overall industry growth rate.
 Paper and paperboard capacity increased only 0.60% in 1999 and 1.3% in 2000
compared with an annual average of 2.1% during the 1991 to 2000 period. The 41 st
Annual Survey of Paper, Paperboard and Pulp Capacity and Fibre Consumption
projected capacity to rise at an annual average rate of 0.7% in the next three years,
specifically 0.7% in 2001, 0.9% in 2002 and 0.5% in 2003.

The major players in different types of papers are given below. Some of the players
have created a very strong brand name within a particular segment and are able to
command a premium price for their products as compared to their competitors e.g. in
bond papers.

Type of Paper Major Companies

Cream Wove HPC, Orient, BILT, AP Paper, TNPL
Kraft Paper ITC Bhadra, Orient, Nath Pulp, Rama Pulp, and Paper
Maplitho BILT, JK Corp., AP Paper, west Coast
Speciality Paper BILT, Padumjee Pulp, Shree Vindhya
Coated Kraft Paper Balakrishna Industries, N R Agarwal, Rollatainers
LWC Kraft Paper N R Agarwal, Jayant Paper, Rohit Paper
Uncoated Kraft Paper ITC Bhadra, Orient, Seshayee

Recommendations
 SPUL should check its supply & distribution channels. The company should aim at
improving the supply of Raw Materials to the mill so that there is no shortage of
 materials at any time. Further, the company should improve its distribution channel by
speeding up the clearance of finished goods. According to my analysis the company
maintains too much of finished stock.

 Company should focus on its management. As, part of my analysis I further noticed that
there is less check kept by the directors of the company.

 There should be internal communication among the various units. Further, during my
research I noticed that there is lack of communications between the various plants. As
various directors aren’t aware what’s going on in their other plant.

 Global market demands corrugation in different colors & different patterns. So company
could go into further installing of such equipments through which they could produce
such papers and then go into further exporting of such papers.

 Company should search different markets rather than just India.

 Conclusion
Indian paper industry is currently in the midst of a transformation with major capital expenditure
(capex) underway and improving operating efficiencies is the major concern of the all players.
All players are committing a large amount of investment, focusing on:

– Improving the operational efficiencies through rightsizing pulping capacities

– By adopting technology advancements
– Going further into setting up of power plant for continuous supply of electricity
leading into uninterrupted power supply.
– Adherence to pollution norms by chemical recovery

This training has proved to be very beneficial & knowledgeable to me. It has broadened my
horizon of looking at the things that previously I didn’t notice. The two months training have
brought me many learnable experiences and I have learned quite many things such as estimation
of the cost of the project, means of finance of a company, basis for getting a loan & various
statements company needs to maintain and present at the bank in order to get the loan approved.

Further, what I have noticed is that there is a huge scope of paper in the coming year its demand
will keep on increasing as the time passes by because as we know the government has take
severe measures to Ban plastic since the use of plastic is decreasing the paper will only be its
replacement. Due to which it is estimated that in future the demand of paper will only increase
leading to higher profits for a company and good growth prospects for a company. Thus we see
that it is very right decision for a company to go in for self generation of power.