Microe Anal Ballarpur Lim “Microeconomics is the study particular firms, particular hous individual industries particular c theory or price theory thus is the economy. In microeconomic a analysis ( derive the market dem production function and the ma firm” GROWTH EXECUTION ANALYSIS R SUSTAINABILITY 2005-201 economic lysis of r Industries mited y of specific individual units; seholds, individual prices, wages, commodities. The microeconomic e study of individual parts of the analysis we study the demand mand for a good), cost analysis, arket structure of an individual Submitted By: REPORT 10 November 15 2011 Demand Analysis Cost Analysis Production Analysis Market Structure Nipun Goyal I st Semester, MBA - Gen Section A University Business School
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Microeconomic Analysis of Ballarpur Industries Limited
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Microeconomic
Analysis of
Ballarpur Industries
Limite
“Microeconomics is the study of specific individual units;
particular firms, particular households,
individual industries particular commodities. The microeconomic
theory or price theory thus is the study of individual parts of the
economy. In microeconomic analysis we study the demand
analysis ( derive the market demand for a g
production function and the market structure of an individual
firm”
GROWTH
EXECUTION ANALYSIS REPORT
SUSTAINABILITY 2005-2010
Microeconomic
Analysis of
Ballarpur Industries
Limited
“Microeconomics is the study of specific individual units;
individual industries particular commodities. The microeconomic
theory or price theory thus is the study of individual parts of the
economy. In microeconomic analysis we study the demand
analysis ( derive the market demand for a good), cost analysis,
production function and the market structure of an individual
� � �
�
Submitted By:
ANALYSIS REPORT
2010
November 15
2011
Demand Analysis Cost Analysis Production Analysis
Market Structure
Submitted By: Nipun Goyal
Ist Semester, MBA - Gen
Section A
University Business School
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 1
I�TRODUCTIO�: I�DIA� PAPER
I�DUSTRY
he Indian Paper Industry is a booming industry and is expected to grow in the years
to come. The Indian Paper Industry is among the top 15 global players today, with
an output of more than 6 millions tones annually with an estimated turnover of Rs.
150,000 millions. (approx. USD 3400 million).Paper Industry in India is riding on a strong
demand and on an expanding mood to meet the projected demand of 13 million tonnes by
2020.A large number of expansion programme & expansion of capacities with an outlay of
Rs. 10,000 crores have been announced covering the various sectors like paper, paperboard,
newsprint etc.
The paper industry is regarded as one of the core sectors in India. The industry is estimated to
grow at 7-8% compounded rate until 2010. With over 600 mills in India, only few are
government owned, making it a largely private sector. Currently, the total paper market is
worth around RS 200 billion. Nineteen companies members of Indian Paper Manufacturer's
Association (IPMA), who control over 55% of the total aggregate industry revenue will
conjointly commit Rs 2.5 billion in the next two or three years to expand additional 2 million
tonnes of capacity and improve cost competitiveness.
The new millennium is going to be the millennium of the knowledge. So 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.
Government has completely delicensed the paper industry with effect from17th July, 1997.
The Paper industry is a priority sector for foreign collaboration and foreign equity
participation upto 100% receives automatic approval by Reserve Bank of India. Several fiscal
incentives have also been provided to the paper industry, particularly to those mills which are
based on non-conventional raw material.
The usage of paper cannot be ignored and this awareness is bound to bring about changes in
the paper industry for the better. It is a well known fact that the use of plastic is being
objected to these days. The reason being, there are few plastics which do not possess the
property of being degradable, as such, use of plastic is being discouraged. Excessive use of
non degradable plastics upsets the ecological equilibrium. (Indian Paper Industry/Paper
Watch n.d.)
T
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 2
What keeps the Indian Paper industry
rolling?
n order to keep the Indian Paper industry rolling, the foremost thing which must be kept
in mind is the availability of the raw materials. Every possible effort is to be made to
take India at par with the other paper industries of the world. Application of paper is
varied and one cannot think of a life without paper. The raw materials need to be of good
quality. There should be enough modernized techniques to carry out production. Reducing
costs should be accompanied by low cost of production. Policies should be implemented to
bring about optimum production.
Softwood producing wood fibers make up the main raw material in the manufacturing
process worldwide. China and India are excluded from this category. The reason being wood
products availability is meager. Instead, straw, bagasse which are obtained as residues from
the agriculture industry are used for the production of paper. Indian paper industry uses used
paper for the manufacturing of paper after recycling. It has been estimated that around 40%
of paper used is recycled.
BILT: Ballarpur Industries Limited
allarpur Industries Limited (BILT) is a flagship of the US$ 4 bn Avantha Group and
India's largest manufacturer of writing and printing (W&P) paper. The current
chairman of the company is Gautam Thapar.
BILT's subsidiaries include Sabah Forest Industries (SFI), Malaysia's largest pulp and paper
company, and BILT Tree Tech Limited (BTTL), which runs BILT's farm forestry programme
in several states in India.
BILT has six manufacturing units across India, which give the company geographic coverage
over most of the domestic market. BILT has a dominant share of the high-end coated paper
segment in India. The company accounts for over 50% of the coated wood-free paper market,
an impressive 85% of the bond paper market and nearly 45% of the hi-bright Maplitho
market, besides being India's largest exporter of coated paper.
BILT’s acquisition of SFI in 2007 was a watershed event – it was the first overseas
acquisition by an Indian paper company. This acquisition transformed BILT into a major
regional player, and elevated the company's ranking among the global top 100. (Ballarpur
Industries Limited n.d.)
I
B
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 3
DEMA�D A�ALYSIS
Determinants of Demand for Paper
a) Advent of Global Business Houses: The advent of more and more global business
houses in different sectors has created more and more need of communication needs.
Paper being one of the strongest pillar of any communication, needs have increased
many times. Varied applications of the fine paper for annual reports, CSR reports,
catalogues, brochures, business cards, carry bags and packaging etc, makes this
product extremely important for the corporate world.
b) Changing lifestyles: With improving domestic living standards, demand for
speciality paper (tissue paper, fine art paper, business card paper and greeting card
paper) has increased. Moreover, the bent of young generation towards reading habit
has increased the demand of paper.
c) Increasing presence of modern retail formats: Opening of realty and retail sectors,
have increased the demand of paper and its uses in various type of communication
application. Following reasons have also contributed the growing demand for fine
paper.
• The advent of more and more branded paper.
• The growing acceptance of specialty paper.
d) Government Educational Policies: Demand for writing and printing paper is
expected to grow owing to the opening of more schools and colleges, driven by the
government’s thrust on education sector and overall economic growth. Example:
“Sarva Shiksha Abhiyaan”.
e) Packaging industry: The Indian paper industry has close linkages with economic
growth as higher industrial output leads to increased demand for industrial paper for
packaging, increased marketing spend benefits the newsprint and value-added
segments, and increased education and office activities increase demand for writing
and printing paper.
f) Low per capita consumption: India’s per capita paper consumption grew 10.6% in
2009-10 (from 8.3 kg in 2008-09 to 9.18 kg) compared with 42 kg in China and 350
kg in developed countries (Source: Assocham), implying a large scope for demand.
g) Population growth: According to 2011 census of India, India’s population accounts
for 17.5 % of the world’s population. India added 181 million to its population since
2001 and it is expected to grow at a very high rate. With the increasing population
more paper and paper products will be needed to satisfy the needs of the people.
Moreover the average age per person of India is around 26 years which clearly
indicates that there would be more demand for education which would further boost
the demand for paper.
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 4
h) Level of literacy: According to 2011 census of India, literacy rate increased to a total
of 74.04% from 64.83% in year 2001, which further indicates that with the increased
level of literacy, the demand for paper is expected to rise.
i) Growing economy: With the growing economy of India, there will be more demand
for paper products as consumers will have higher paying capacity.
j) Growing circulation and readership: Owing to the increased level of literacy, the
newspaper circulation and readers are also growing at a very high rate. Thus the
demand for paper is likely to rise.
k) Export opportunity: A number of European and US paper mills are shutting down
owing to overcapacity and cost issues, an attractive export opportunity for Indian
paper mills. Besides, Indian paper manufacturers, utilising agriculture-based raw
material, possess a sustainable growth opportunity on account of growing
environment consciousness.
For more details please refer to the below:
S.�O
PAPER
TYPE USES VARIETIES DEMA�D DRIVERS
1 Writing and printing paper
Writing, printing, stationery
Creamwove, maplitho, paperboard, copier and coated paper
Population growth, level of literacy, public and private spending on education, level of business activity, increasing presence of modern retail formats and growth in the printing industry
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 19
Ballarpur Industries Limited (Consolidated Data)
Cost Analysis: Raw Material Cost to Income
Year Income Raw Material Cost Raw Material Cost
Income Percentage
2005 2026.48 740.54 0.365431684 36.54316845
2006 2169.56 810.04 0.373366028 37.33660281
2007 2557.6 1029.52 0.402533625 40.25336253
2008 3188.62 1285.21 0.403061513 40.30615125
2009 3009.42 1343.3 0.44636508 44.63650803
2010 4031.55 1920.78 0.476437102 47.64371024
36.54 37.34
40.25 40.31
44.64
47.64
0
5
10
15
20
25
30
35
40
45
50
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2005 2006 2007 2008 2009 2010
Income RAW MATERIAL COST Ratio: Raw Material Cost to Income(in %)
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 20
The cost/income ratio is (operating expenses/operating income). The cost income ratio is
most commonly used in the financial sector. It is useful to measure how costs are changing
compared to income - for example, if a bank's interest income is rising but costs are rising at
a higher rate looking at changes in this ratio will highlight the fact. The cost-to-income ratio
shows a company's costs in relation to its income. To get the ratio, divide the operating costs
(administrative and fixed costs, such as salaries and property expenses, but not bad debts that
have been written off) by operating income. The ratio gives investors a clear view of how
efficiently the firm is being run - the lower it is, the more profitable the organization will be.
Changes in the ratio can also highlight potential problems: if the ratio rises from one period
to the next, it means that costs are rising at a higher rate than income, which could suggest
that the company has taken its eye off the ball in the drive to attract more business.
� From the data, we can clearly see that the Raw Material Cost w.r.t. Income of the
company is increasing at a very excessive or exorbitant rate. The raw material cost for
the year 2005 accounts for around 36.5% of the total Income of the company and
accounts for around 37.3% for the year 2006. This increase in percentage tells us that
the raw material costs are increasing at a higher rate than income. Similarly, for the
year 2007 & 2008, the cost/income ratio (in %) is 40.25% & 40.3% i.e. for the period
from 2007 to 2008 the cost/income ratio is almost constant. The cost/income ratio for
the year 2009 (44.63%) is increasing at a very high rate as compared to previous
years. From the year 2008-2009 the cost/income ratio increased from 40.3% to
44.63%, showing around 11% increase in the cost to income ratio and in the year
2010 the cost/income ratio again increased from 44.63% to 47.64%.
Therefore, considering the above figures, we can conclude that the company has taken its
eye off the ball and there is a need to control the raw material costs of the company
because the income is not growing/increasing at the same rate as costs are.
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 21
Ballarpur Industries Limited (Consolidated Data)
Cost Analysis: Power/Fuel/Water costs to Income
Year Income Power, Fuel &
Water Charges
Power/Fuel/Water Costs
Income Percentage
2005 2026.48 225.17 0.111113853 11.11138526
2006 2169.56 246.81 0.113760394 11.37603938
2007 2557.6 326.35 0.127600094 12.76000938
2008 3188.62 446.17 0.139925736 13.99257359
2009 3009.42 441.85 0.146822311 14.68223113
2010 4031.55 546.49 0.135553323 13.55533232
11.11 11.38
12.76
13.9914.68
13.56
0
2
4
6
8
10
12
14
16
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2005 2006 2007 2008 2009 2010
Income(in Rs. crs...) Power, Fuel & Water Charges(in Rs. crs.....)
Ratio: Power,Fuel & Water costs to Income (in %)
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 22
From the data given on the previous page, we can analyze that the Power, Fuel & Water Cost
w.r.t. Income of the company is increasing at a moderate/reasonable rate. From year 2005-
2009 the Power, Fuel & Water cost w.r.t. Income increased from 11.11% to 14.68% which
shows percentage increase of around 32%. From year 2008 to 2009, the company took some
effective measures that resulted in decrease in power, fuel and water costs from Rs. 446.17
crs to Rs. 441.85 crs. Some of the measures taken by the company, during the period 2008-
2009, to reduce the power, fuel and water costs are:
� Installation of VFD's at various locations. � Installation of energy efficient pumps. � Installation of energy efficient motors. � Installation of electronic chokes in place of conventional chokes in lighting system of
mills, CFLs in place of incandescent lamps and Metal Halide Lamps in street lighting system of mills & colony.
� Power Sensors in street Lighting � VFDs in various equipment. � Optimisation in water consumption by optimising the operation of Disc Filter at PM 1
for recycling of base water. � Optimising water consumption across the mill for reduction in intake pump operating
hours. � Improvement in power factor 0.999 by addition of capacitors. � Reduction in the idle running hrs of equipments. � Maximisation of the utilization of bamboo dust consumption in boiler to save the coal. � Use of CFL to conserve the lighting energy. 13.0ptimize the thermal losses by
promptly attending the steam/condensate leakages. From year 2009-2010, the power, fuel, water costs increased from Rs. 441.85 crs to Rs.546.49 crs, showing increase of 23.7% and Income increased around 34% which resulted in decrease, in the power, fuel, water costs to income ratio, from 14.68% to 13.56%. Therefore, considering the above figures, we can conclude that the company has taken
effective measures to control the power, fuel and water costs of the company during the
period from 2008-2009 but has taken its eye off the ball during the period 2009-2010. So
there is a need to control the power, fuel and water costs of the company which would
gradually result in increase in Income of the company.
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 23
Ballarpur Industries Limited (Consolidated Data)
Cost Analysis: Indirect Taxes to Income
Year Income Indirect Taxes Indirect Taxes
Income Percentage
2002-2003 1699.14 116.5 0.068564097 6.856409713
2003-2004 2281.43 173.02 0.0758384 7.58383996
2004-2005 2300.59 195.2 0.0848478 8.484779991
2005-2006 2026.48 211.41 0.104323754 10.43237535
2006-2007 2169.56 215.41 0.099287413 9.928741312
2007-2008 2557.6 207.79 0.081244135 8.124413513
2008-2009 3188.62 198.22 0.062164824 6.216482365
2009-2010 3009.42 120.67 0.040097427 4.009742741
2010-2011 4031.55 104.7 0.02597016 2.597016036
Indirect taxes w.r.t. income are continuously increasing from the period 2002-03 to 2005-06
and then it is continuously decreasing from the period 2005-06 to 2010-11.
Magnum Ventures 17.11 368.48 83.58 0 134.08 118.07 173.1 -28.44
TOTAL 5,097.67 12,300.40 5,726.89 1,385.29 8,443.36 6,872.19 8,443.58 340.79
4ote: Above data is taken from www.moneycontrol.com as on October 15, 2011.
There are approximately 600 paper mills in India, with capacity ranging from 3 to 700
TPD, of which above mentioned sixteen are major players.
Microeconomic Analysis of Ballarpur Industr
Characteristic
(i) A fairly large number of sellers
competition is fairly large. Each firm produces a small portion of industry, output; each buyer
also purchases a very small part of the industry output.
relatively competitive with very little market control over price or quantity.
produces or sells a close substitute for the product of other firms in
industry.
There are approximately 600 paper mills in India
Market Capital: BILT vs Others
11%
11%
8%
5%
1%1%
1%1%
1%
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005
Characteristics Of Monopolistic Competition
(i) A fairly large number of sellers and buyers: The number of firms in
Each firm produces a small portion of industry, output; each buyer
also purchases a very small part of the industry output. This ensures that all firms are
relatively competitive with very little market control over price or quantity.
or sells a close substitute for the product of other firms in the product group or
There are approximately 600 paper mills in India, of which sixteen are major players.
32%
68%
Market Capital: BILT vs Others
32%
13%
13%
1%
0%
0%0%
Market Capital
Limited, Year: 2005-2010 38
Of Monopolistic Competition
The number of firms in monopolistic
Each firm produces a small portion of industry, output; each buyer
This ensures that all firms are
relatively competitive with very little market control over price or quantity. Each firm
the product group or
which sixteen are major players.
BILT
Others
BILT
Tamil Newsprint
AP Paper Mills
Rainbow Papers
JK Paper
West Coast Paper
Seshasayee Paper
Sirpur Paper
Pudumjee Pulp
Rama Newsprint
Star Paper
Pudumjee Ind
Shreyans Ind
Malu Paper
Ruchira Papers
Magnum Ventures
Microeconomic Analysis of Ballarpur Industr
It is quite evident from the chart representing market capital of the
there are very large number of firms producing the same product i.e. paper, with each firm’s
product a fairly close substitute for the products of the other firms in the same product group.
Since numbers of sellers are very large
the market capital of Indian Paper Industry, it can be clearly seen from the chart that BILT,
which accounts for 32% of the total market capital, dominates all the other companies/firms.
On the other hand, buyers are also very large in number.
products/goods are being offered, where the goods are being sold, all differentiating
characteristics of the goods, the good's price, whether a firm is making a profit and if
much. It can be clearly seen that the sales of the companies like BILT (Rs. 1059.12 crs),
Tamil Newsprint (Rs. 1184.45 crs), JK Paper (1233.29 crs) and West Coast Paper
(Rs. 1068.59) are almost uniformly distributed i.e. buyer’s/consum
among these companies. If a particular company decides to charge a price higher than the
existing market price, its demand will certainly decline because the products are slightly
differentiated which makes consumers indifferent
companies as the consumer is price conscious.
7%
4%
3%
4%
BILT
JK Paper
Pudumjee Pulp
Shreyans Ind
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005
It is quite evident from the chart representing market capital of the Indian Paper Industry that
there are very large number of firms producing the same product i.e. paper, with each firm’s
product a fairly close substitute for the products of the other firms in the same product group.
Since numbers of sellers are very large, there is competition among all the firms. Comparing
the market capital of Indian Paper Industry, it can be clearly seen from the chart that BILT,
which accounts for 32% of the total market capital, dominates all the other companies/firms.
On the other hand, buyers are also very large in number. Buyers know exactly what
goods are being offered, where the goods are being sold, all differentiating
characteristics of the goods, the good's price, whether a firm is making a profit and if
It can be clearly seen that the sales of the companies like BILT (Rs. 1059.12 crs),
Tamil Newsprint (Rs. 1184.45 crs), JK Paper (1233.29 crs) and West Coast Paper
(Rs. 1068.59) are almost uniformly distributed i.e. buyer’s/consumers are equally distributed
among these companies. If a particular company decides to charge a price higher than the
existing market price, its demand will certainly decline because the products are slightly
differentiated which makes consumers indifferent towards the products offered by different
companies as the consumer is price conscious.
13%
14%
9%
5%
15%
13%
3%
4%
3%
1%3%
2%
3%
2%Sales Turnover
Tamil Newsprint AP Paper Mills Rainbow Papers
West Coast Paper Seshasayee Paper Sirpur Paper
Rama Newsprint Star Paper Pudumjee Ind
Malu Paper Ruchira Papers Magnum Ventures
Limited, Year: 2005-2010 39
Indian Paper Industry that
there are very large number of firms producing the same product i.e. paper, with each firm’s
product a fairly close substitute for the products of the other firms in the same product group.
, there is competition among all the firms. Comparing
the market capital of Indian Paper Industry, it can be clearly seen from the chart that BILT,
which accounts for 32% of the total market capital, dominates all the other companies/firms.
uyers know exactly what
goods are being offered, where the goods are being sold, all differentiating
characteristics of the goods, the good's price, whether a firm is making a profit and if so how
It can be clearly seen that the sales of the companies like BILT (Rs. 1059.12 crs),
Tamil Newsprint (Rs. 1184.45 crs), JK Paper (1233.29 crs) and West Coast Paper
ers are equally distributed
among these companies. If a particular company decides to charge a price higher than the
existing market price, its demand will certainly decline because the products are slightly
towards the products offered by different
Rainbow Papers
Sirpur Paper
Pudumjee Ind
Magnum Ventures
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 40
(ii) Differentiation in products or Heterogeneous Products: Under monopolistic
competition, the firms sell differentiated products. Product differentiation may be real or
imaginary. Real differentiation is done through differences in the materials used, design,
color etc. Imaginary differences may be created through advertisement, brand name, trade
marks etc. The firms producing similar products in .this imperfectly competitive world cannot
raise the price of product much higher than their rivals. If they do so, they will lose much of
their sale, but not all the sale. In case, they lower the price, the total sale can be increased to a
certain extent. How much will the sale increase or decrease by lowering or raising the price
will depend upon the product differentiation of the different firms.
If the product of the various firms are very close substitutes of one another and no imaginary
or real difference exists in the mind of the buyers, then a slight rise or fall in the price of the
product of one firm will appreciably decrease or increase the demand for the product. If the
product of one firm differs from that of other firm, (though the difference may be an
imaginary one) a slight rise in the price of the product of one firm will not drive away all its
customers. A few faithless buyers may be attracted by the low price of the other rival product
but not all the buyers.
COMPA�Y PRODUCT �AME
BILT
Sunshine Super Printing, BILT Classic, Magna Print, Wisdom Print, BILT TA NSD, Easy Print, BILT Copy Power, BILT Image Copier, BILT Matrix and BILT Ten on Ten
ITC PSPD Digi Art, Perma White, HiZine, Alfa Zap
JK PAPER LIMITED Notepad, JK Printerblank, JK Prisitne Cote, JK IV Board, JK Endura, Cedar
TAMIL NEWSPRINT Ace Marvel, Perfect Copier, Commander A4
CENTURY PULP & PAPER Century Green, Century Elanza,
AP PAPER MILLS Andhra Royal Silk, Andhra Primavera, Andhra Star White & Reflection
The names of the firms/sellers/producers mentioned in the above table produces the same
generic product i.e. “Paper”, but they differentiate their product on the basis of design, color,
packaging, quality, brand name and advertising etc.
For example:
� ITC launched the product called Alfa Zap: a woodfree paper with unique shade and
higher opacity
� BILT launched the new shades in sack craft paper and it also introduced the retail
segment products like colored matrix grades in 5 colors.
Microeconomic Analysis of Ballarpur Industr
(iii) Selling Costs: Every producer or
types of expenditures, such as attractive packaging, higher commission to distributors, sales
promotion, advertisements, and other incentives.
occupies almost the position of a monopolist. It is, thus, in a position to raise
product without losing its customers.
41%
9%
13%
0%
0%
0%
0%0%
0%
Selling & Admin Expenses
79%
Selling & Admin Expenses: BILT vs Others
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005
Every producer or seller tries to promote its own product through different
types of expenditures, such as attractive packaging, higher commission to distributors, sales
promotion, advertisements, and other incentives. When it succeeds in its object
most the position of a monopolist. It is, thus, in a position to raise
product without losing its customers.
21%
0%
11%
0%41%
0%
0%
2%
1% 2%
Selling & Admin Expenses
21%
79%
Selling & Admin Expenses: BILT vs Others
Limited, Year: 2005-2010 41
seller tries to promote its own product through different
types of expenditures, such as attractive packaging, higher commission to distributors, sales
When it succeeds in its objective, the firm
most the position of a monopolist. It is, thus, in a position to raise-the price of the
BILT
Tamil Newsprint
AP Paper Mills
Rainbow Papers
JK Paper
West Coast Paper
Seshasayee Paper
Sirpur Paper
Pudumjee Pulp
Rama Newsprint
Star Paper
Pudumjee Ind
Shreyans Ind
Malu Paper
Ruchira Papers
Magnum Ventures
Selling & Admin Expenses: BILT vs Others
BILT
Others
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 42
The charts on the previous page shows us the distribution of Selling & Administration
Expenses across Indian Paper Industry. Selling & Administration expenses includes the
advertising expense, marketing expense and distribution expense. It is quite evident from the
charts that many of the firms do not spend on the advertising and marketing operations.
Whereas the top leaders in the industry spent considerable amount on the advertising and the
marketing operations of the firm which resulted in the overall peak performance in sales
turnover as compared to the other players in the industry.
Above figures in the chart tells us that the JK Paper spent Rs. 152.59 crs on the advertising,
marketing and distribution operations of the company which resulted in the overall sales
turnover of Rs. 1233.29 crs, and is clearly dominating the whole industry in terms of sales. In
monopolistic competition, the firms make every effort to win over the customers. Other than
price cutting, the firms may offer after sale service, a gift scheme, discount etc.
iv) Free entry and exit: In the long run there is free entry and exit. There are numerous
firms waiting to enter the market each with its own "unique" product or in pursuit of positive
profits and any firm unable to cover its costs can leave the market without incurring
liquidation costs. This assumption implies that there are low start up costs, no sunk costs and
no exit costs.
792.64 1059.12 1233.29 574.52 1068.59
42.79
80.65
152.59
47.9
33.03
0
20
40
60
80
100
120
140
160
180
0
200
400
600
800
1000
1200
1400
AP Paper
Mills
BILT JK Paper Seshasayee
Paper
West Coast
Paper
Sales (in Rs. crs)
Selling & Administration Expenses
Microeconomic Analysis of Ballarpur Industr
v) Independent decision making
for its product. The firm gives no consideration to what effect its decision may have on
competitors. The theory is that any action will have such a negligible effect on the overall
market demand that an MC firm can act without fear of prompting heightened competition. In
other words each firm feels free to set prices as if it were a monopoly
oligopoly.
Net Profit:BILT vs Others
30.16
148.99
44.9437.1
106.42
90.08
-145
-95
-45
5
55
105
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005
Independent decision making: Each MC firm independently sets the terms of exchange
for its product. The firm gives no consideration to what effect its decision may have on
competitors. The theory is that any action will have such a negligible effect on the overall
market demand that an MC firm can act without fear of prompting heightened competition. In
other words each firm feels free to set prices as if it were a monopoly
9%
91%
Net Profit:BILT vs Others
90.08
65
-15.32
8.11
-140.29
-10.15-1.56
4.72
-2.98
�et Profit
Limited, Year: 2005-2010 43
Each MC firm independently sets the terms of exchange
for its product. The firm gives no consideration to what effect its decision may have on
competitors. The theory is that any action will have such a negligible effect on the overall
market demand that an MC firm can act without fear of prompting heightened competition. In
other words each firm feels free to set prices as if it were a monopoly rather than an
BILT
Others
4.01
-28.44
Net Profit
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 44
CO�DUCT
onduct means what firms do to compete with each other. It includes pricing,
advertising, research and development investment, decisions on product dimensions,
merger and acquisition, etc. Conduct also can include collusion both explicit or tacit.
Conduct is influenced by market structure since firm strategies differ with competition.
Inversely, conduct can influence market structure because firms can make entry cost
endogenous by choosing different levels of quality, advertising and so on, thus affect the
potential entrant number. Conduct is related to performance. For example, advertising
expenditure is usually higher in highly profitable industries, because firms with more profits
can afford higher advertising costs, and in order to keep their profits and prevent new entrants
into the profitable market, these firms would use advertising investments as endogenous sunk
costs. Econometric studies linking profit to market structure often conclude that measured
profitability is correlated with the advertising-to-sales ratio and with the R&D expenditures-
to-sales ratio. Following are the major parameters on the basis of which conduct of BILT:
Ballarpur Industries Limited can be studied:
1. Slogan: “Growth, Execution and Stability”.
2. Vision: “Our aspiration is to become a leading creator of Shareholder Value in the Paper
Industry”.
3. Mission: “To consistently outperform expectations and deliver superior value to both our
Customers and Stakeholders”.
4. Objective: At BILT, management has adopted a well calibrated growth strategy that lays
equal stress on revenue growth and profit growth. Over the last few years, company has
focused on acquisitions; on systematically growing capacities; on strengthening the
balance sheet; and on organizing production facilities to maximize value addition. While
stressing on these objectives two critical elements has become inherent to company’s
operations. These are: The stress on in Productivity: In an industry like pulp and paper,
which is highly commoditized across segments, cost competitiveness is critical. In this
endeavour, while there are some big ticket gains, the challenge is to continuously focus
on innovations and productivity improvement programmes that keep generating
incremental benefits. There has been a focused change initiative on this front over the last
few years and it has become an integral part of the operational culture at BILT across its
units. The stress on going up the value: BILT continued to find opportunities to provide
value addition across the pulp and paper value chain. In some cases, being the market
leader, these initiatives centre on creating new market segments for value added products.
It is this focus that has made BILT, India's leading player in the coated segment. The
Company's foray into the retail business is also a prime example of a stress on grabbing
opportunities for value addition in an industry that is otherwise highly commoditized.
During 2008-09, there were several developments on this front where the product mix
was altered to meet the demands of the market with products that offer better margins.
C
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 45
5. Forestry Project: BILT has always focused on being a good corporate citizen stressing
on sustainable growth and community development. While this is a key element of the
Company's value system, it is also important for its business given that units are located
in deep hinterlands and use natural resources like wood. 2008-09 has been a landmark
year in terms of recognition of BILT's focus on business practices that promote
'sustainability'. As a recognition of its efforts on sustainable use of forest resources, BI LT
became the first Indian paper Company to receive the Forest Stewardship Council-Chain
of Custody (FSC-COC) certification for three of its manufacturing units at Ballarpur,
Bhigwan and Ashti. This certification recognizes BILT's commitment to environmentally
appropriate, socially beneficial and economically viable management of the world's
forests. This allowed BILT to use the FSC label for its products that gives it a credible
link between responsible management of forests and the production, manufacturing and
marketing of wood-based products, including pulp and paper. This differentiated BILT in
the market place and aid consumers and businesses to make purchasing decisions with a
view on how it benefits people and the environment. The Company is in the process of
extending the above certification to remaining Indian units.
6. Value Proposition: BILT goal is to enhance long-term value for their shareholders
through the following initiatives: Integrated manufacturing that matches economies of
scale with an efficient capital structure, the effective integration of cutting-edge
technologies and operational discipline, a wide range of products to meet varied customer
requirements, a widespread distribution system to reach customers with speed, a
pioneering branding emphasis leading to a distinct differentiation in the marketplace, a
far-sighted investment in people and competencies to create a knowledge-led work place,
a responsible commitment to society and environment.
7. Corporate Social Responsibility: BILT has always focused on delivering value to all its
stakeholders and strived to be a marquee corporate citizen. A key element of this
endeavour is the Company’s structured corporate social responsibility (CSR) programme,
which is intrinsic to its business strategy. As the Indian economy grows rapidly, the
critical challenge is to create inclusive development. To meet this challenge, it is very
important to provide equal opportunities to all the country’s citizens. As stakeholders in
the economic prosperity of the country, the Indian corporate sector has to play a vital role
in this very crucial task. In this light, BILT has focused on ‘affirmative action’ as a key
element of its CSR programme. ‘Affirmative action’ is about giving everybody the equal
opportunity to achieve their potential without any discrimination. BILT’s operations are
located in remote and backward areas of the country where access to resources is very
limited. Most people in the community around these operations come from marginalised
backgrounds – a large number of whom belong to Schedule Castes and Tribes. As the
Company’s CSR activities are largely focused on these communities, there is
considerable scope of ‘affirmative action’. BILT recognises that the empowerment based
model of development needs strong community institutions to sustain the initiatives.
Keeping this in view, Self Help Groups (SHGs) of women belonging to the
underprivileged sections of society both in the rural areas as well as slum pockets in the
urban areas have formed the base of all the Company’s CSR activities. So far, 622 SHGs
have been created, which have worked directly with more than 9,500 women.
Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 46
Adolescents, especially girls, are an important group as they are the country’s future
generation. BILT has always been working with the youth since the inception of its
structured CSR programme. More than 100 youth groups have been engaged in the
process. 8. Employee Training Programs: BILT conducted a series of training and capacity
building programmes to enable these community based organisations (CBOs) to take up a
larger role. These include vocational training and entrepreneurship training on various
skills. Training to the youth included skills related to motor driving, electrical repair,
motor winding, screen printing and plumbing. These trained youth have secured gainful
employment and are earning incomes ranging from Rs. 1,500 per month to Rs. 7,500 per
month. Rural girls have undergone full time training on tailoring and embroidery (both
hand and machine). This enabled them to supplement their family incomes. BILT
conducted employability training to the urban youth in the new emerging sectors of the
economy. Specifically, training was provided to more than 600 educated youth in the
areas of retail marketing in BPO sector, customer relations service in the retail marketing
sector and hospitality management in the service sector industries. The employability
training programme called ‘Ek Mouka’ for the unemployed SC and ST youth was
undertaken through 2009-10.
9. Farmer’s Training Program: Most of the areas where BILT is working follow
traditional agricultural practices. To bring a positive change in socio-economic conditions
of the rural population it is important to expose farmers to improved agricultural
practices. BILT provided these farmers with training on improved agricultural practices
through exposure visits, demonstration plots, classroom/ field trainings on crop/ variety
iii. Interest Coverage Ratio: A ratio used to determine how easily a company can pay
interest on outstanding debt. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.
I�TEREST COVER = PBIT
I�TEREST EXPE�SE
The interest coverage ratio for BILT is computed as follows:
All figures in Rs. crores 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06