South India Paper is in the business of manufacturing paper/paper boards for packagaing and the cultural segment (i.e. non-newspaper). The company has reported reasonably stable revenues and operating profits over the last five years – generating about 25cr in operating profits on 167cr of revenues. It operated with minimal net debt of 13cr as at 31 st March, 2010. The business is primarily exposed to the risks of government tariff flip flops (particularly lowering of import tariffs) and emphasis on small scale industry development. Moreover, it is difficult to integrate across the value-chain in the paper industry due to arbitrary government policies at each segment. This also makes it difficult to expand capacities since it generates low expected returns on capital and hence, is not remunerative. Furthermore, the paper industry as a whole is expected to grow at below-average rates of 7% per annum (at best).
An Individual Investor's Perspectives On The Indian Financial Markets