2

CAPACITY UTILISATION AND PERFORMANCE

APPRAISAL OF PAPER MILLS OF KUMAUN

Efficient or optimum utilisation of capacity is desirable both for

society and management. In production the concepts used

regarding capacity are as under-

A) THEORETICAL OR MAXIMUM PLANT CAPACITY:

Maximum capacity or the ideal capacity is the

capacity for which plant is designed to operate. It is only

theoretical capacity. It does not give allowance for

waiting, delays and shutdown. The capacity is significant

for designing the plant mechanically. Ideal capacity is

never used to determine overhead rates for its disregard

to even necessary interruptions in production process.

B) PRACTICAL CAPACITY :

When this capacity is determined, allowance is

given for unavoidable interruptions like time lost for

repairs, in-efficiencies, breakdown, delay in delivery of

raw materials and supplies, labour shortages and

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absence, Sundays, holidays, vacation, inventory taking,

etc. In this way, practical capacity is the maximum

theoretical capacity with minor unavoidable interruptions.

These unavoidable interruptions are based mostly on

internal influences and do not consider main external

causes like lack of customers’ orders. The practical

capacity is determined with reference to nature of

industry and circumstances in which a particular factory

is situated. Normal unavoidable interruptions account for

15% to 25% of the maximum capacity. The practical

capacity, thus, ranges between 75% and 85% of

maximum capacity after giving allowance for normal

unavoidable interruptions.

C) NORMAL CAPACITY:

Idle capacity due to long term sales trend only is

reduced from practical capacity to get normal capacity.

Calculation of normal capacity of a plant presents

considerable problems. Normal capacity is determined for

the business as a whole. For normal capacity

determination, prime considerations are physical capacity

and average sales expectancy. It should be noted that

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average sales expectancy to be considered for this

purpose takes into account a period enough to level out

cyclical fluctuations. The determination of normal capacity

helps in (i) the preparation of flexible budgets and

computation of predetermined factory overhead rates. (ii)

the use of standard costing, (iii) estimating sales price etc.

(iv) scheduling production, (v) inventory valuation, (vi)

determination of break even point, (vii) controlling costs.

CAPACITY UTILISATION: -

The capacity utilisation depends upon several

factors like availability of raw material, working capital,

skilled labour , power, technical know-how, managerial

efficiency and so many other factors. The cost structure

and degree of variability in costs and the capacity

utilisation collectively affect the cost of production. Higher

is the capacity utilization, lower is the cost of production.

The following table shows capacity utilisation in paper

mills of Kumaun Division of Uttaranchal:

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Table 2.1

CAPACITY UTILISATION IN PAPER MILLS OF KUMAUN

Name of Paper Mill Capacity

Utilisation in

% age

M/s Cheema Duplex Ltd. 72.4

M/s Banwari Paper Mills Ltd. 68.8

M/s Multiwal Pulp and Board Mills Ltd. 84.6

M/s Siddhartha Papers Ltd. 82.6

M/s Siddheswari Paper Udyog Ltd. 70.8

M/s Shri Shyam Pulp and Board Ltd. 64.3

M/s Naini Papers Ltd. 84.7

M/s Goraya Straw and Card Board Mills (Pvt.) Ltd. 64.2

M/s Vishwakarma Paper and Boards Ltd. 88.2

M/s Multiwal Duplex Board Pvt. Ltd. 92.2

M/s Naini Tissues Ltd. 75.8

M/s Shri Ram Straw Board 72.4

M/s Cheema Paper Mill Ltd. 78.6

M/s Manorama Paper Mills Ltd. 71.2

M/s Prakash Straw Board Mills Ltd. 64.8

M/s Khatima Fibres Ltd. 74.8

M/s Century Pulp & Papers Ltd. 92.6

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Sources : Based on Survey results (On average basis)

By the analysis of the above table it is obvious that the

capacity utilisation in paper mills of Kumaun Division of

Uttaranchal ranges between 64.2 to 92.6 percent. The highest

percentage of capacity utilisation is in M/s Century Pulp &

Papers Ltd., Lalkuan which is the giant paper unit not only in

Uttaranchal but all over India. This unit is based on wood so

there is no competition with other paper mills of the region.

The wood is eucalyptus, bamboo and poplar are easily available

to this mill as the mill pays remunerative price to the growers

who in turn sell these items to the mill. Other mills too do not

depend on local resources only, they manage nearly 60 percent

of their raw material requirements through imports. Till date no

restriction has been imposed by Government of Uttar Pradesh or

Delhi or Haryana on the supply of wheat straw, waste paper,

rice straw etc. to these mills. But at local level there is pressure

on the supply of wheat straw being it main fodder. As the

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number of paper mills is on growth in the region there is

pressure on the supply of raw materials. The second reason

behind low capacity utilisation is shortage of power supply.

Capacity expansion also led to pressure on raw materials.

PERFORMANCE APPRAISAL

The paper mills are playing important role in the

economy of Uttaranchal. Their contribution may be viewed

under the following heads:

PRODUCTIVE INVESTMENT

The following table reveals capital investment in crores of

rupees in paper mills of Kumaun Division of Uttaranchal:Estelar

Table 2.2CAPITAL INVESTMENT IN PAPER MILLS OF KUMAUN

(Rs. In crores)

Name of Paper Mill C a p i t a lInvestment

M/s Cheema Duplex Ltd. 37.78

M/s Banwari Paper Mills Ltd. 5.50

M/s Multiwal Pulp and Board Mills Ltd. 4.15

M/s Siddhartha Papers Ltd. 5.18

M/s Siddheswari Paper Udyog Ltd. 6.15

M/s Shri Shyam Pulp and Board Ltd. 22.70

M/s Naini Papers Ltd. 9.28

M/s Goraya Straw and Card Board Mills (Pvt.) Ltd. 4.50

M/s Vishwakarma Paper and Boards Ltd. 3.20

M/s Multiwal Duplex Board Pvt. Ltd. 3.76

M/s Naini Tissues Ltd. 50.00

M/s Shri Ram Straw Board 18.00

M/s Cheema Paper Mill Ltd. 6.89

M/s Manorama Paper Mills Ltd. 3.65

M/s Prakash Straw Board Mills Ltd. 2.85

M/s Khatima Fibres Ltd. 26.19

M/s Century Pulp & Papers Ltd. 350.00

Total 559.78

Total Industrial Capital Investment in KumaunDivision

1608.22

Share of Paper Mills (in % age) 34.81

Source : Based on Personal Survey

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It is obvious that the share of paper mills in total capital

investment is significant. It counts nearly 1/3 rd of the total. As

we are aware of the fact that the small savings form huge

capital. Capital is the amount invested in productive activities

which results in increase in the quantum of goods and services.

The production and sale of goods and services does not occur

income to Government in the form of excise duty, trade tax and

income tax only but also elevates the standard of living of the

society. Increase in supply helps in many ways tending to

economic development and prosperity. This huge investment

also incurs social liability too. As the capital investment in the

industries too is the end result of public funds, the seed capital

as well as the working capital provided by the financial

institutions and the commercial banks are indirectly money of

the general masses. This is why scarce national resources must

be utilized at their optimum.

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PRODUCTION PERFORMANCE

Production is the end result of planning and decision

making. It is the production upon which progress of a business

enterprise depends. So there is need to resort to production

planning and control. The amount of sales depends upon

market price of the goods and services which is affected by

exogenous factors. But the production volume is affected by

endogenous factors. The volume and quality of goods and

services are the true indicators of the performance of a business

enterprise. The following table shows production in tonnes of

the paper mills of Kumaun Division of Uttaranchal :Estelar

Table 2.3PRODUCTION BY THE PAPER MILLS OF KUMAUN

(In MT.)Name of Paper Mill A n n u a l

ProductionM/s Cheema Duplex Ltd. 48,600

M/s Banwari Paper Mills Ltd. 12,600

M/s Multiwal Pulp and Board Mills Ltd. 39,600M/s Siddhartha Papers Ltd. 23,400M/s Siddheswari Paper Udyog Ltd. 27,000M/s Shri Shyam Pulp and Board Ltd. 48,600

M/s Naini Papers Ltd. 27,000

M/s Goraya Straw and Card Board Mills (Pvt.) Ltd. 19,800M/s Vishwakarma Paper and Boards Ltd. 19,800M/s Multiwal Duplex Board Pvt. Ltd. 23,400M/s Naini Tissues Ltd. 39,600

M/s Shri Ram Straw Board 23,400

M/s Cheema Paper Mill Ltd. 19,800M/s Manorama Paper Mills Ltd. 12,600M/s Prakash Straw Board Mills Ltd. 16,200M/s Khatima Fibres Ltd. 48,600

M/s Century Pulp & Papers Ltd. 99,000

Total 5,49,000

Source : Based on personal survey

By the analysis of the above table it is clear that the total

production of all types of boards papers and rayon grade pulp

accounts for 5,49,000 MT. The share of M/s Century Pulp &

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Papers Ltd. Lalkuan stands to be 18.03 percent. Actual

production is nearly 60 percent higher than that of mentioned

by the paper mills in their records. During personal survey it

has been noticed that all the paper mills are working above

their licensed capacity. The big paper mills are allowed to be

operated only in two shifts but they are operating in three shifts

i.e. 24 hours. There is nexus between the tax authorities and

the mill owners who grease their palm and cause huge loss to

public exchequer. The different departments collecting different

types of taxes are causing loss to the Government in indirect

way. According to our estimate only 60 percent of the

production is on records. In this way the seriousness of tax

evasion may be understood. (Based on the facts disclosed by

senior executives of some paper mills.)

SALES PERFORMANCE

The profitability of a business enterprise depends upon the

volume of sales. Volume of sales itself depends upon the selling

price which is determined by market forces. The difference of

selling price and the total cost is the amount of profit. Hence,

the amount of profit is directly related to volume of sales. Higher

is the volume of sales, higher is the amount of profit. The

following table reveals sales performance of the paper mills of

Kumaun Division of Uttaranchal:-

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Table 2.4SALES PERFORMANCE OF PAPER MILLS OF KUMAUN

(Rs. In Lakhs)Name of Paper Mill Average Sales

(For last 4years)

M/s Cheema Duplex Ltd. 8,748

M/s Banwari Paper Mills Ltd. 3,780

M/s Multiwal Pulp and Board Mills Ltd. 9,504

M/s Siddhartha Papers Ltd. 4,212

M/s Siddheswari Paper Udyog Ltd. 5,130

M/s Shri Shyam Pulp and Board Ltd. 14,580

M/s Naini Papers Ltd. 4,050

M/s Goraya Straw and Card Board Mills (Pvt.) Ltd. 3,564

M/s Vishwakarma Paper and Boards Ltd. 2,970

M/s Multiwal Duplex Board Pvt. Ltd. 4,446

M/s Naini Tissues Ltd. 11,880

M/s Shri Ram Straw Board 4,446

M/s Cheema Paper Mill Ltd. 2,970

M/s Manorama Paper Mills Ltd. 2,268

M/s Prakash Straw Board Mills Ltd. 3,078

M/s Khatima Fibres Ltd. 8,748

M/s Century Pulp & Papers Ltd. 34,650

Total 1,29,024

Source : Based on Personal Survey

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During the year 2005-06 and 2006-07 the rates for

different products have been recorded as under:-

Name of Product Rate Per Kg(In Rs.)

Kraft Paper 15

Writing & Printing Paper 28-32

Duplex Board 17-21

Media Paper 12-13

Grey Board 10-12

Rayon Grade Pulp 40-50

The price of the product varies with its specification and

quality. The range as shown above is the combined result of

quality, product differentiation and the trade cycle as well. The

whole stock is sold because there is ready market for all the

products manufactured by these paper mills. These products

are required by different offices of the Government as well as

the offices of private sector enterprises, students, publishers

and industrial units. The position of stock piling does not occur,

the products are even produced on order. So there is vast

demand of the manufactured items supplied by these paper

mills.

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REPAYMENT OF BORROWED FUNDS

The paper mills of Kumaun Division of Uttaranchal have

been financed by UPFC, PICUP, State Bank of India. Punjab

National Bank and Bank of Baroda. On account of under

utilization of capacity uneconomic size of the plant, shortage of

raw materials, low equity base, higher transportation cost etc.,

these units have witnessed hard days. Consequently there has

been delay in the payment of instalments. About 75 percent of

the total capacity investment is from borrowed funds. Our

personal discussions and survey results reveal that 35 percent

of the total paper mills failed to repay their instalments in time.

Eventually, it may be concluded that the overall

performance of these paper mills has been poor barring some

positive symptoms. Hence, there is need of coordination among

different Government agencies directly/indirectly concerned

with the development of paper mills in this region.

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HYPOTHESIS NO. 1

"The volume of agricultural production in Kumaun Division

and production of paper mills are independent of each other."

To assess relationship between agricultural production

and production of paper mills, Karl Pearson's Coefficient of

correlation (r) has been calculated as under by Product Moment

Method:-

Year AgriculturalProduction

Index

x

Paper MillsProduction

Index

y

x2 y2 x.y

2002 100 100 10,000 10,000 10,000

2003 102 108 10,404 11,664 11,016

2004 104 117 10,816 13,689 12,168

2005 107 126 11,449 15,876 13,482

2006 110 136 12,100 18,496 14,960

N=5 Sx=523 SY=587 SX2= 54,769 SY2=69,725 SXY=61,626

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Here, it is important to mention that to establish

relationship between two statistical series having quantitative

data, Karl Pearson's coefficient of correlation is the appropriate

measurement. The value in the present case (r=+0.997) shows

high degree positive correlation between the volume of

agricultural production and production of paper mills. It may be

concluded that the hypothesis stands false and shows that

production of paper mills depends upon the agricultural

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production in the region being these agro-based industrial

units. This value of r does not mean that the whole raw

material requirements of these paper mills are met from locally

available resources. Huge quantity of raw material is imported

from nearby areas like U.P., Delhi and Haryana and even

imported from overseas countries.

In computing Karl Pearson's coefficient of correlation, the

volume of production has been converted into fixed base index

number so that both the statistical series (X and Y) may be

reduced to lowest figure resulting in easy calculation. Here, the

volume of all types of raw materials and finished products has

been combined together so that fixed base index number may

be calculated easily.

HYPOTHESIS NO 2

"The profitability of paper mills and the income of

workers are independent of each other."

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To establish relationship between profitability of paper

mills and the income of workers, rates of growth have been

taken as X and Y series. As the data are quantitative, Karl

Pearson's Coefficient of Correlation (r) is the appropriate

measurement calculated as under by Product Moment Method:-

Year Rate ofGrowth in

Profitability

x

Rate ofGrowth inWorker’sincome

y

x2 y2 x.y

2002 8 4 64 16 32

2003 10 5 100 25 50

2004 11 5 121 25 55

2005 12 6 144 36 72

2006 14 5 196 25 70

N=5 Sx=55 SY=25 SX2= 625 SY2=127 SXY=279

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Karl Pearson's coefficient of correlation is the

measurement of relationship between independent and

dependent variables. The value of r (i.e.+0.632) in the present

case shows moderate positive correlation between profitability

of the paper mills of Kumaun Division of Uttaranchal and the

income of workers employed in these mills. The increase in the

income of workers is the result of increase in the profitability of

the paper mills under study. But the value of r shows that the

rates of growth in the income of workers are lower than rates of

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growth in the profitability of the paper mills. However, it may

be put that the mill owners get increase the wages or salaries

of their workers only if they earn profits. But the due proportion

of profits is not transferred to the workers as the bargaining

power of the workers is weak and may not force the mill

owners to increase the wages or salaries.

HYPOTHESIS NO 3

"The establishment of paper mills and the income of

farmers supplying raw materials in direct or indirect manner

are independent of each other."

Here, 100 farmers were selected randomly who supply

raw materials to paper mills and the other 100 farmers were

also selected at random who supply their raw materials to the

persons other than paper mills. The data available are:-

Category

Effect of Income

Increase Decrease No Effect

Suppliers 82 6 12

Non-Suppliers 64 20 16

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Frequency Observed Table (fo)

Category

(B)

Effect on Income (A)

Increase

A1

Decrease

A2

No Effect

A3

Total

Suppliers (B1) 82 6 12 100(B1)

Non-Suppliers (B2) 64 20 16100

(B2)

Total 146 (A1) 261 (A2) 25 (A3) 200 N

Frequency Expected Table (fe)

Category

(B)

Effect on Income (A)

Increase A1Decrease

A2

No Effect

A3

Total

Suppliers (B1) 100(B1)

Non-Suppliers

(B2)10 (B2)

Total 146 (A1) 26 (A2) 28 (A3) 200 N

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Computation of Chi-square (c2)

Combination O E (O-E) (O -E )

2

(O-E)2 ÷ E

A1B1 82 73 +9 81 1.11

A1B2 64 73 -9 81 1.11

A2B1 6 13 -7 49 3.77

A2B2 20 13 +7 49 3.77

A3B1 12 14 -2 4 0.29

A3B2 16 14 +2 4 0.29

Total O=200 E=200 c 2=10.34

df=n-1=6-1=5

The table value of c 2 for 5 d.f. at 5 % significance level is

11.07 while the computed value of c 2 is 10.34 which is less

than table value. Hence our hypothesis is true. It may be

concluded that the income of the farmers supplying raw

materials to the paper mills has nothing to do with the

establishment of these paper mills. The farmers supply wheat

straw to the cattle rearers too and get handsome price of the

same. Similarly rice straw also has many other uses.

afFA

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