The current rise in price is keeping in line with the buoyancy seen on all paper scrips. The scrip's buoyancy has also got a booster from the company's foray into information technology. TNPL has proposed a subsidiary, TNPL Infotech Ltd, which aims to develop a vertical portal for the paper industry. It would also develop software for other industries. The subsidiary was registered with an authorised share capital of Rs 10 crore with STPI on March 31. Operating from Taramani in Chennai, the company can rest assured for supply of qualified manpower.

It has already established a track record by implementing the Online Integrated Information System (OIIS), a package developed by TNPL and CMC. The package is also being implemented at another paper project in Egypt to which TNPL is providing consultancy. Paper industry being capital-intensive, it is important to go for high margins. While TNPL is successful in this, there is always bound to be pressure on working capital, especially during the sugar crushing season. The company recently entered into a raw material supply arrangement with Sakthi Sugars for a 17-year period covering 50 per cent of the bagasse requirement.

Recently, the company went in for a Rs 35-crore commercial paper programme. The fact that a pending litigation went in favour of the company resulting in sizeable cash inflow has helped the balance sheet. There was a profit of Rs 30 crore as the company won suit against Andhra Bank Financial Services and TNEB. These pertain to some inter-corporate deposits and sliding adjustment for power tariff. The court judgement however was subject to appeal.

TNPL is both into newsprint and printing and writing paper (PWP). Newsprint faces lower realisation due to low level of duty protection. TNPL is making a conscious attempt to shift towards a higher share of PWP, which enjoys higher tariff protection. TNPL enjoys cost efficiency due to baggasse being the raw material and also its manufacturing facility having the flexibility to switch between newsprit and PWP.

The attempt to move towards a better product mix is significant, considering the company's past. Capacity utilisation in TNPL has moved up from 85 per cent in 1996-97 to 98 per cent in 1998-99. This growth was driven by increase in production of newsprint. However, it is imperative that the company reduces its risk by moving to a better product mix. All said and done paper industry is a cyclical one and it is, therefore, important that units operation here have a safety cushion. Not only can that cushion come for TNPL from shift to PWP, but it would also help to tap the profits when the going is good.

TNPL has initiated a capital expenditure programme for mill upgradation and has raised Rs 35 crore through CP. It plans to cut back 50 per cent of newsprint output and shift to PWP. The realisation in PWP has been improving. Quite likely newsprint prices will improve in the later in the year, when the company can again shift as necessary. Good management, a robust strategy and rising paper prices augur well for the scrip.

In 1997-98 TNPL posted a net loss of Rs 3.57 crores compared to a profit of Rs 17.38 crores in 1996-97. This was mainly due to a 40 per cent drop in operating profit margins. FY 1998-99 turned out better with TNPL posting a net profit of Rs 13.56 crores on a net sales of Rs 454.60 crores.

This turnaround was helped with further rise in capacity utilisation moving to 98 per cent from 95 per cent. Cost reduction and quality upgradation resulting in better margin realisation completed the process. With paper prices continuing to be buoyant, TNPL scrip would continue to find investor who bet on a turaround story in a cyclial industry. The equity capital stands at Rs 68.65 crore and book value at Rs 67.69. EPS is Rs 1.91.