“ECONOMIC VALUE ADDED FOR BALLARPUR INDUSTRIES LTD.” EXECUTIVE SUMMARY Ballarpur Industries (BILT) is India’s largest exporter of paper with a significant presence in the manufacturing of various types of paper like writing and printing paper, industrial paper and specialty paper. The company is backward integrated and produces most of the raw materials required for manufacturing paper. It is India’s largest paper company, ranks among the top 200 paper companies in the world. The project tries to measure the economic value added at BILT. It also tries to compare the unit’s performance with the group. the comparison helps to ascertain the difference between the performances and gives an insight for the improvements. The project has been divided in to three parts and each part play an important role. The first part e deals with the company profile its potentialities and plans. The second part of the project deals with the calculation of the economic value added for the unit as well as the group. Babasabpatilfreepptmba.com Page 1
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“ECONOMIC VALUE ADDED FOR BALLARPUR INDUSTRIES LTD.”
EXECUTIVE SUMMARY
Ballarpur Industries (BILT) is India’s largest exporter of paper with a significant
presence in the manufacturing of various types of paper like writing and printing paper,
industrial paper and specialty paper.
The company is backward integrated and produces most of the raw materials required for
manufacturing paper. It is India’s largest paper company, ranks among the top 200 paper
companies in the world.
The project tries to measure the economic value added at BILT. It also tries to compare
the unit’s performance with the group. the comparison helps to ascertain the difference between
the performances and gives an insight for the improvements.
The project has been divided in to three parts and each part play an important role. The
first part e deals with the company profile its potentialities and plans.
The second part of the project deals with the calculation of the economic value added for
the unit as well as the group.
The third and the final phase deals with the comparison of EVA and the findings and suggestions.
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“ECONOMIC VALUE ADDED FOR BALLARPUR INDUSTRIES LTD.”
TABLE OF CONTENTS
SL NO. PARTICULARS PAGE NO.
1 INDUSTRY SCENARIO 1
2 COMPANY PROFILE 2
3 UNIT BHIGWAN 11
4 ECONOMIC VALUE ADDED 19
5 COMPARISON OF EVA 45
6 INTERPRETATION & FINDINGS 47
7 SUGGESTIONS 48
INDUSTRY SCENARIO OF THE YEAR
The global paper markets remained stable during the first three quarters of the financial year and in the
last quarter, followed the surge in pulp prices to end at a higher level.
The major global focus in terms of new capacities has been China, where additional capacities at an
average of nearly a million metric tonnes are being created every year. This capacity creation is largely
aimed at domestic demand and substitution of current imports into China.
The domestic paper & paperboard market was firm and maintained a healthy price level throughout the
year as a result of the overall economic growth. The price levels were also helped by only marginal
increases in capacities and domestic production. During the first half of the year, the prices remained
largely stable, with demand also being stable. The second half registered a significant price
increase where the Company took the lead by undertaking two general across the board price increases
and a few other selective increases.
Indian paper industry is the 15th largest in the world and provides employment to 1.3mn people in the
country contributing Rs25bn to the Government. It recorded a volume growth of 6%, in line with the
GDP growth. Indian paper industry has a 1:1 correlation with the economy. With the expected GDP
growth of 6.9% for FY05 and 7-8% for FY06 as per RBI, the paper sector is expected to record a similar
growth rate.
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“ECONOMIC VALUE ADDED FOR BALLARPUR INDUSTRIES LTD.”
The domestic market has been growing at a healthy rate of 6% with the supply side lagging with a
growth of 2.5%. This widening gap of demand and supply will turn India into growing import market.
Looking at this opportunity and in order to leverage its superior marketing and distribution reach, the
Company has initiated an outsourcing program for strategic tie-ups with overseas manufacturers of
paper and boards for sourcing value added products for Indian markets.
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BALLARPUR INDUSTRIES LIMITED (BILT).
Ballarpur Industries (BILT), India’s largest paper company, ranks among the top 200 paper
companies in the world. It is India’s largest exporter of paper with a significant presence in the
manufacturing of various types of paper like writing and printing paper, industrial paper and
specialty paper. The company is backward integrated and produces most of the raw materials
required for manufacturing paper.
In recent years, BILT has evolved as a more dynamic, knowledge driven organization focused
towards creation of stakeholder value. In the process, it has also transformed the paper industry
from its traditional 'commodity market' mindset to a branded one.
The company has 6 manufacturing units across the country.
BILT basically has two business segments – paper and chemicals. However, the paper division
contributes the major chunk of revenues (over 60%).. A concerted program of innovation and
technological excellence helps it proactively respond to the needs of each individual segment.
Today, BILT not only has the range, but also a well-entrenched distribution network that enables
it to reach customers, any time, any place.
BACKGROUND OF BILT
It was incorporated in 1945 under the name of Ballarpur Straw Board Mills, which was later
changed to Ballarpur Paper & Straw Board Mills. The paper mill was commissioned at
Ballarpur(Maharashtra) in 1953. In June 1969, Shree Gopal Paper Mills manufacturing paper,
stationery and vanaspati, was merged with it.The caustic soda/chlorine plants went into
production at Yamunanagar(1973), Ballarpur(1974) and Karwar(1975) The name was changed to
Ballarpur Industries Ltd. in 1975.
STRATEGIC INTENT OF BALLARPUR INDUSTRIES
BILT, in the recent years has evolved as a more dynamic, knowledge-driven organization with a
singular focus on creating stakeholder value. Aimed at making the organization more market-
oriented and customer-centric, the following initiatives are to drive BILT forward in the rapidly
changing business environment:
Consolidation
A continuous streamlining of capacities and products in our core business area - Paper. BILT
has been coming on the path of strategic movement. Its acquisitions, takeovers & tie ups prove
the point. Consolidation has given good fruits to the organization as the statistics show the same.
Brand Building
Increasing brand involvement for the products amongst customers to reduce market
fragmentation and attain 'generic-brand' status for BILT via strategic branding. It is continiously
trying to convert the commodity to the brand.
Wider product range
Adding high value-added products to BILT's portfolio expanding it to cover the widest range
of basic to high-end usage paper products. BILT is coming with a wide range of new products
like cream vowe, computer peripherals, office supplies,etc.
Product-mix rationalization
Maintaining an intelligent product-mix based on value and demand curves to maximize
returns.
Exploring global markets
Reaching out to international markets with world-class products while maintaining leadership
in India.
Operational Improvements & Cost-competitiveness
To attain higher efficiency levels and world-class quality in production processes.
Increasing capacities
Expansion of manufacturing and processing capabilities across product range, in line with
market dynamics.
Sound Investments
Accelerate growth by way of investments into focused, synergetic acquisitions.
Captive Market Share
Sustaining and strengthening BILT's leadership position in its market segments way ahead of
competitors.
Extending 'Touch-Points'
Building a wider and 'intelligent' distribution network that enables BILT to serve its markets
in a customized and localized manner and attain higher penetration, without losing the economies
of scale.
WHAT BILT OFFERS
BILT services its customers' needs for quality Paper - both in India as well as overseas.
Our paper touches our customers' lives everyday. In more ways than they even know. Stationery,
playing cards, high quality coated paper for brochures and magazines, currency notes, copier
paper… We service these everyday instances across the length and breadth of the nation with our
wide product portfolio ranging from basic to high-end specialty paper.
Coated Wood Free Paper
Uncoated Hi-bright Paper (Maplitho)
Business Stationery
Copy Paper
Speciality & Fine Paper
While these indicate our broad product segments, BILT also continuously focuses on serving
customers with customised, value-added products to suit specific applications.
CORPORATE MILESTONES
BILT has demonstrated a tradition of leadership across six decades and three generations. Over
the years, it has only emerged as a more dynamic, focused corporate leveraging its vast asset and
knowledge pool to enhance shareholder value. Its pathway through the history can be summarized
as follows:
1945 - Ballarpur Paper and Straw Board Mills Limited incorporated. First brand names 'Three
Aces' for paper and 'Wisdom' for stationary
1969 - Shree Gopal Paper Mills Limited merges with Ballarpur Paper and Straw Board Mills
Limited.
1975 - Entity name changed to Ballarpur Industries Limited.
1983 - Modernization of Ballarpur and ShreeGopal mills initiated
1988 - Entry into industrial paper segment
1989 - Inception of BILT TreeTech Limited. Reinforcement of commitment to Farm Forestry
1990 - Sewa Paper Mills acquired
1992 - Choudwar unit acquired
1994 - US $ 35 million FCCB Issue launched
2000 - Business portfolio restructuring completed
2001 - Sinar Mas Pulp and Paper (India) Limited acquired and renamed Bilt Graphic Papers
Limited (BGPL).
2002 - New Corporate Identity initiative. Genesis of BILT
2003 - BILT Graphic Papers Limited merged with BILT
BILT’S REACH
With the customer at the center of our business activities, we have pioneered the transition of the
traditional 'transaction-based' model to a 'relationship-based model' in the Indian paper industry.
This relationship is built by constantly leveraging our physical proximity to the markets, further
enhanced by intelligent systems offering a strong emotional proximity to our customers even at a
micro-level.
Physical Proximity
Our distribution network and understanding of local requirements is unmatched in the Indian
paper industry. Over the decades, BILT has transitioned from the 'metro' concept to cross country
distribution. While our five manufacturing facilities for paper and pulp are strategically spread
across the country, we have assiduously brought our products within physical proximity of the
customers. Our network of 126 dealers - the largest within the industry in India - is present
across the principal consuming centers of the country and is the key fulcrum to this proximity.
CONCERN TOWARDS SOCIETY
BILT has achieved the honour of getting 2005’s prestigious TERI National Award for
Corporate Social Responsibility. Mr Kamal Nath, Hon’ble Union Minister for Commerce
and Industry, presented the awards. This year’s awards were in two categories –
Environment Excellence and Corporate Social Responsibility and were selected from
among 178 entries by an eminent jury chaired by Justice J S Verma, Former Chief Justice
of India.
As the industry leader, BILT is committed to developing its business towards ecological, social
and economic sustainability. Community development and upliftment of the marginalized class
have been identified as focus areas. BILT has joined hands with Pratham, an NGO that runs
primary education programs all over the country. A key initiative in environmental accountability
is the BILT Farm forestry program that has covered more than 7500 farmers since 2001.
BILT’s POSITION
The Ballarpur Industries Ltd has significant domestic market position and the positive growth
prospects for the domestic uncoated writing and printing paper market.
Ballarpur is a leading player in the Indian writing and printing paper (WPP) segment, with an
18% market share, and the coated paper market, with about 45% market share. BILT’s favorable
market position is attributable to its relatively large and integrated production capacities
compared with other domestic manufacturers. A wide product mix and well-established
distribution network reinforce the company's market position.
BILT is looking for the expansion. The expansion will increase its installed paper manufacturing
capacity to 650,000 tons per annum (tpa), from 387,000 tpa currently. The program is essential to
sustain its strong market position and to modernize its production facilities. A mixture of debt and
internal cash generation will fund the capital expenditure.
The stable outlook reflects Ballarpur's ability to maintain its leading market position, improving
operations, and competitive cost position, which could mitigate potential margin pressures from
increasing competition and volatile price cycles.
BILT’s PLANS
BILT is planning to expand its branded office product line by targeting a 300 per cent jump in its
retail business. At present, the turnover from our retail business is Rs 25 crore. It aims to increase
the figure to Rs 100 crore in the next couple of years. The company will add new products in the
non-paper category like computer peripherals, office supplies and stationery to strengthen its
retail section. It would source the new line of products from a third party and add the BILT
branding to it. BILT brand name is important to project themselves from a pure commodity
supplier to a trusted brand name in paper and office products.
The retail business of the company is currently carried out through its 110 exclusive wholesalers,
110 retail distributors and over 10,000 stationers. The company also plans to increase its number
of stationers from 10,000 to 25,000 and to make its presence felt in around 3,000 cities across the
country in the next few years.
Currently the company has three products in the BILT branded category product range, which
includes royal executive bond paper and matrix multi-purpose paper. BILT is also looking to
enter the high volume segment of “cream wove”, a special kind of paper used by the writing
industry. Out of a total paper market size of 2.5 million tonnes, “cream wove” alone accounts for
1.1 million tonnes, which amounts to Rs 2,600 crore annually.
This is one segment where BILT’s presence is relatively less.
BILT’s STRATEGIES
BILT has launched a $60-million foreign currency convertible bond offering on 21/06/2005. The
bonds will be listed on the Singapore Stock Exchange and bondholders have an option of
converting them to equity shares.
The offering comprises zero coupon premium redemption bonds aggregating to $60 million,
convertible at Rs 180 a share, which is 52.47 per cent premium to the stock price of Rs 118.05 on
the NSE on June 17. The bonds have a maturity of five years, with a yield to maturity set at 6.3
per cent.
Proceeds from the issue would be used for capital expenditure and repayment of existing FCCBs.
LINKSRegistered Office &
Factory
P O Ballarpur Paper Mills
Chandrapur District , Maharashtra - India
PinCode :
Factory/plant Unit Bhigwan, 105 Milestone, Pune - Solapur
Highway,
Pune District , Maharashtra - India
Factory/plant Unit Shree Gopal, P O Yamunanagar
Yamunanagar , Haryana - India
Factory/plant Unit Choudwar, P O Daulatabad
Cuttack District , Orissa - India
Factory/plant Unit APR, Kamalapuram, Township
Warangal District , Andhra Pradesh – India
Corporate Office First India Place, Tower - C, Block - A,
Gurgaon , Haryana - India
PinCode :122002
Phone :2804242/ 2804243,,,
Fax :2389495,
UNIT BHIGWAN
A consolidation in the highly fragmented paper industry, Ballarpur Industries clinched the deal to
buy paper major, Sinar Mas Pulp & Paper India for over Rs 500 crore.
This news flash has made a great change in paper scenario of the country.This acquisition helped
Ballarpur Industries strengthen its position as the largest paper manufacturer in India.
Sinar Mas Pulp & Paper (India) Ltd located along the Pune-Solapur highway near village
Bhadalwadi of district Pune, Maharashtra, was set up by the Indonesian company. The project
plan started in the year 1993. the project was implemented in the year 1995. the production was
trailed and started in the year 1997. the company stared the generation of the power through its
own thermal plant in the year 1998.
As the project was in its inception stage, it didn’t make its profits till the year 2000. In the year
2003 BILT took over the major stake and became the holding company.
BGPL has a state-of-the-art paper manufacturing plant with a capacity of 115,000 tpa and is the
market leader in the high-end coated paper and art board segments in India. Post the acquisition,
BILT commands a 50% share of the coated paper market.
The unit was started as an export oriented unit. The unit bought the plant and machinery with a
nil custom duty on the condition of exporting the finished goods amounting to $ 165 million
dollars. The unit is able to export only a half of it.
PRODUCTION CAPACITY - 300 T.P.D. (tonnes per day)
TOTAL PLANT AREA - 750 acres & Colony area 250 acres.
MAJOR SUPPLIERS
COAL
BHATIA INTERNATIONAL
ARIHANT SALES CORPORATION
GUPTA
ENGINEERING
IBS
SONOCO
MGM Motoro
A P Enterprises
CENT Co International
PALLETS
Sanghvi Pallets & Drums
CHEMICALS
Taiwan hopex – Indonesia
CIBA specialty Chemicals
BASF – Indonesia
BASF - INDIA
IMERY’s NewQuest Pvt Ltd – Thailand
IMERY’s Onik – Malaysia
PULP
Qumica speciality – Thailand
Tapioca development corporation – Indonesia
Quality Minerals – Germany
J.M. Huber corporation – USA
Kolin International – USA
Diamond DICEM – INDIA
VARALAKSHMI STARCH – INDIA
Anil products Ltd. – INDIA
DOW chemicals – USA
L G Chemicals USA
JPN Chemicals
MAJOR CUSTOMERS – INDIA
Anil agency
Ajanta papers delhi
Standard press Chennai
Form prints Mumbai
Sham traders
Shambhu traders
MAJOR CUSTOMERS – ABROAD
Dye papers – USA
Dye papers – AUSTRALIA
European paper - UK
Vital solution pte – SINGAPORE
Paper com traders – SRILANKA
Oriental press – USA
Necron B V – NEWYORK
TYPES OF PRODUCTS
Art board
Chromo
Emperor
Print plus
DEPARTMENTS
1. ADMIN
-HR
-administration
-PDC
2. COMMERCIAL
-purchase
-logistics
-stores
-engineering
-chemical
-pulp
-coal
-pallet
-warehouse
3. ACCOUNTS & FINANCE
4. POWER PLANT
-turbine / boiler
-DM(de-mineral) water plant
-EPC(environment pollution control)
-WTP(water treatment plant)
-ETP(effluent water treatment plant)
5. WORKSHOP
-roll grinding
-vehicle maintenance wing
6. MECHANICAL
7. ELECTRICAL
8. INSTRUMENTATION
9. DRAWING
10. QUALITY ASSURANCE & QUALITY CONTROL
11. PRODUCTION
Stock preparation
OMC(on machine coating) plant
Paper machine plant
Color kitchen IMERY’s NEW QUEST
Rewinder
Sheet cutter
Finishing
Dispatch
PRODUCTION PROCESS
LANDMARKS
Project Conceived in July 1993.
Land Acquisition started in 1995.
Construction started in March 1995.
Trial production started in Jan 1997.
Commercial production started in July 1997.
Power Plant started in 1998.
Power export started in February 1999.
Profit posted in year 2000
BOILER
CFBC Boiler : 175 TPH
Oil Boiler : 50 TPH
TG Set : 30 MW
Self Power cons. : 17 MW
Power Export : 10.7 MW
Paper m/c Off m/ccoater
FinishingHouse
Warehouse
Pallet yardChemicalstorage
Color Kitchen
Workshop& Engg.Stores
PowerPlant
CR
StockPrep.
Effluent Treatment
WaterTreatmentPLANT LAYOUT
ECONOMIC VALUE ADDED
The basic objective of any entity (business) is to maximize shareholders’ wealth or value of the
business. There are many traditional measures through which the performances are evaluated, but
they are falling short of achieving the objective of value maximization. Some of the traditional
measures to analyze the performances are
Net profit margin
Operating profit margin
Return on investment etc.
It is said that shareholders wealth or value increases automatically when the value of the business
increases.
Economic Value Added is increasingly popular corporate performance measure one that is often
used by companies for evaluating the performance
Economic Value Added (EVA)
The concept of EVA was introduced by a New York based consulting firm STERN
STEWART & Co in early eighties.
STERN STEWART & Co defines EVA as
“Economic Value Added is the financial performance measure that comes closer than any other to
capturing the true economic profit of an enterprise. EVA® also is the performance measure most
directly linked to the creation of shareholder wealth over time. Stern Stewart & Co. guides client
companies through the implementation of a complete EVA-based financial management and
incentive compensation system that gives managers superior information - and superior
motivation - to make decisions that will create the greatest shareholder wealth in any publicly
owned or private enterprise.”
EVA
Bonus To Employees
Extra Remuneration to Management
Remuneration To management
Incentive Remuneration To Preference share
holders
Remuneration To managementBonus Share To Equity Share Holders
Remuneration To management
Stern Stewart developed EVA to help managers incorporate two basic principles of
finance into their decision-making. The first is that the primary financial objective of any
company should be to maximize the wealth of its shareholders. The second is that the
value of a company depends on the extent to which investors expect future profits to
exceed or fall short of the cost of capital. By definition, a sustained increase in EVA will
bring an increase in the market value of a company. This approach has proved effective
in virtually all types of organizations, from emerging growth companies to turnarounds.
This is because the level of EVA isn't what really matters. Current performance already is
reflected in share prices. It is the continuous improvement in EVA that brings continuous
increases in shareholder wealth.
EVA is a corporate surplus, which is shared by the employees, management and the
shareholders. Efficiency bonus, profit sharing schemes, managerial remuneration over
and above a minimum sustenance salary, issue of onus shares and incentive dividend to
equity and preference share holders respectively can be linked to EVA.
NEED FOR EVA
To provide customers with high-quality products and services
To provide secure employment for the employees
To make its lenders i.e., the banks happy
To provide the government with tax revenues
To create value for its share-holders
OLD/ CONVENTIONAL FINANCIAL
MANAGEMENT SYSTEM
EVA IN FINANCIAL MANAGEMENT
SYSTEM
Incomplete measurement. Measures economic profit
No accountability for invested capital. Accountability for bothprofit maximization &
capital usage.
No focus on current operations rather than long-term
competitiveness.
Balanced focus on current operations and
long-term investments.
Often inconsistent with the goal to increase share
holder value.
Consistent with goal to increase shareholder
value.
CALCULATION OF EVA
EVA is the excess of net operating profit after tax over the capital charge. In other words eva is a
company’s net operating profit after tax after deducting th cost of capital employed or total
investment in the business.
NOPAT
Nopat is the profit derived from the company’s operations after taxes but before financing costs
and non cash book-keeping entries.
Formula
NOPAT= EBIT (1-t)
CAPITAL EMPLOYED
Invested capital or capital employed refers to total assets in the business (net of revaluation) after
deducting non-interest bearing current liabilities. From operating view point, invested capital may
be described as Net Fixed Assets, plus investments, plus net investments plus net current assets.
WACC
WACC represents overall cost of capital employed in the business (i.e., debt plus equity).
The cost of each source of capital is calculated separately and then weights are assigned
to each source on the proportion of a particular source in the capital invested.
EVA= Profit – (capital * cost of capital)
EVA
Operating decisions (profit)
Investment decisions (capital)
Financing
decisions
(cost of
capital)DRAWBACKS OF EVA
Though EVA seems to be a good measurement of the efficiency with which the entire capital is
used by an enterprise, it has got some limitations:
1. A flat rate of total cost of capital may not be appropriate, as it does not consider the ‘rate
advantage’ enjoyed by an enterprise, by raising cheap funds.
2. EVA does not consider the ‘appreciation in the price of fixed assets’, on account of
market variables.
3. EVA does not give a correct, specific computation of the ‘net real growth’ in the owner’s
wealth. This is because; ‘total cost of capital at a blanket rate’ also includes ‘cost of
owners fund’.
4. Computation of segmental or divisional EVA depends on accurate division of assets
among the various segments. Division of ‘common assets’ used for ‘common corporate