Disha's Weekly Wisdom: Acquisitions, imports, malpractice

After Printmann announced a minority investment from Somerset Indus Capital partners, there is some more news in the mono carton actor. A top player with four factories in Mumbai, Daman, Sarigam and Baddi has acquired 100% shareholding in a facility in Pondicherry.

This gives the top player pan-India clout thanks to a toehold in South India. This means access to a roster of FMCG and pharma customers in territories like Vizag, Pondicherry, Hyderabad and Chennai.

With this move, India has a new entrant in the top ten ranking in the mono carton and labels pecking order.

Watch this space for more on acquisitions that shake the industry!

Meanwhile, one thing everyone is talking about is cheaper imports of paper. A paper industry guru told me that “Going forward, imports into India are expected to accelerate in view of the economic slowdown in China, trade restrictions and import duties imposed by the US and European Union to protect their own domestic markets, and large new paperboard capacities coming up in Indonesia and China.”

Who will it impact? Users of paper as well as the 800 paper mills in India, of which 60% are running. The reason: Imports are growing at a fair clip as opposed to domestic production. This is leading to the underutilisation of installed capacity.

Indian Paper Manufacturers Association (IPMA) has requested the government to take measures to ensure the supply of quality paper products to Indian consumers and prevent the import of sub-standard products. Also, IPMA has urged the issuance of quality control orders (QCOs) for various grades of paper.

Will the government levy anti-dumping duty on paper imports?

All this is fine, but one of the problems with the paper industry is “alleged malpractices and irregularities”. In other words, a scam.

The way it works is “interference” in awarding contracts for the supply of raw materials like pulp and lime, manipulation of prices of the materials and the yearly loss due to patronising one lobby of suppliers.

A tech expert said, “Some of the paper mills would be able to effect a turnaround in their fortunes through managerial expertise and adoption of international standards but the rot is total.” When probed further he said, “Usually inflated prices ensure irregularities in the procurement of pulp for producing paper. The system is foolproof with people in operations and finance; as well as contractors and subcontractors. There are all kinds of agreements and fixed royalty which are impossible to trace to the main brain of the scam. Even things like cutting of grass and transporting of materials, plus supply rates and warehouse costs have a 1-2% commission.”

Situation is grim. Lots of corruption and scams. As someone senior remarked, “The entire thing is super-efficient. If only these people showed the same efficiency to run their factories.”

Touche!