ICRA upgrades TNPL's CP Rating

THE INVESTMENT Information and Credit Rating Agency (ICRA) has upgraded the rating assigned to the Rs. 35 crore commercial paper programme of Tamil Nadu Newsprint and Paper (TNPL) from A1 to A1 plus (A one plus) indicating highest safety. The prospect of timely payment of debt/ obligation is the best.

TNPL is engaged in the manufacture of newsprint and printing and writing paper (PWP) and its performance is closely linked to the movement of international pulp, paper and newsprint prices. The outlook for the paper industry has improved with international prices of paper and newsprint increasing sharply in recent times.

It is expected that prices would be sustained at the existing levels in the medium term due to the consolidation in the international newsprint industry and also recovery in demand from the East Asian economies. Prices in the domestic PWP segment are also expected to remain firm due to steady growth in demand and a stagnant supply base, which has resulted in a more favourable demand supply situation. TNPL has the operational flexibility to switch between newsprint and PWP, which would, to some extent, protect the company's cash flows during adverse price movements in individual segments.

The company has, last year, broad-based its product mix to include value added products such as copier and maplitho papers, where demand growth and realisations are higher than in its traditional products. This has allowed the company to establish its brand equity, and reduce its dependence on the creamwove segment for note-book applications, where the extent of unorganised competition is higher.

The company has also considerably increased its export sales, which has been aided by firm international prices and depreciation in value of the rupee. The growth in export sales in the financial year 2000, and also in Q1 of 2000-01, has partially mitigated the foreign exchange risks associated with the servicing of the large World Bank forex loan. The company is undertaking a mill development project and also setting up a captive power generating facility, which is expected to improve the cost structure of the company.

Considerable improvement in working capital management has allowed TNPL, to fund a large part of its capital expenditure and loan repayments through internal cash generation, despite average profitability. The company is utilising the strong operational cash flows in the current year to prepay a part of its foreign currency borrowings, which would result in lower gearing levels, savings in interest costs and a reduction in forex risks.

Corporate Bureau

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