Mysore Paper Mills Ltd

OVERALL REVIEW :

This has been covered in detail in the Directors’ Report.

PAPER :

The per capita consumption of paper in our country is currently 8 Kgs, against an Asianaverage of 28 kgs and the world average of 58 Kgs. Currently there are about 515 number ofmills in the country with an installed capacity of 91 lakh MTs. In the case of WPP andBoard the capacity has grown by 4% CARG (Compound Annual Rate of Growth). The demand aswell as production of WPP and Board in the country has grown up by 7.0% whereas theimports of same by 20% and export by 20%. In the case of Newsprint the demand has grownfrom 14 lakh tonnes in 2008-09 to 20 lakh tonnes in 2010-11 and consequently the importsof Newsprint have increased from 7 lakh tonnes to 10 lakh tonnes in 2010-11.

SUGAR :

The sugar production in the country for the year 2010-11 season was 242 lakh tonnes ascompared to 188 lakh tonnes in 2009-10 season. In the case of MPM, the sugar productionwas 27400 MTs in the financial year April to March 11 vis--vis April to March 10 whichwas about 8000 MTs. The higher production in 2010-11 was mainly due to better caneavailability and increase in the sugar growing area.

OUTLOOK, OPPORTUNITES AND THREATS :

The low per capita consumption of paper coupled with strong economic growth inpacking/printing industry and environmental restrictions on the usage of plasticvis--vis paper, presents excellent growth prospects for paper industry in the country.The demand for paper is likely to grow at CARG of 7% in 2011-12. The high growth varietiesin WPP segment are branded copier, coated paper and specialty paper (tissue/security)which will grow at rates faster than other varieties of paper. In the case of Newsprint,the demand growth is expected to be 8% in 2011-12. In the case of MPM since business ismore Newsprint oriented rather than WPP, the company was exposed to the vagaries in theinternational market for Newsprint.

In the year 2010-11, in view of the better contribution by WPP vis--vis Newsprint,the company continued production of combination of Newsprint and WPP and marketing ofCreamwove Elegant from PM-IV along with higher quantities of value added products such asNote books, copier paper, customized computer stationery etc. Our sales of WPP from PM-IVcould have been better but for the shortage of procured pulp in the market coupled withincreasing pulp prices. The Company exported Writing & Printing Paper during the leanseason when the domestic demand was low.

The outlook for Newsprint in 2011-12 indicates that there would be an increase in theinternational prices of Newsprint from 2^nd quarter of 2011-12 in which case thecompany may go in for more production of Newsprint as compared to WPP in PM-IV subject toreasonable contribution by Newsprint vis--vis WPP. In Newsprint, the company hadproduced and marketed more of 45 GSM in 2010-11 and the trend for more usage of 45 GSMNewsprint would continue in the coming years.

THREATS :

In the Writing & Printing Paper sector there has been an additional creation ofcapacity by our competitor mills like Tamilnadu Newsprint Ltd, West Coast, Andhra PradeshPaper Mill etc to the tune of about 6 lakh MTs. With this the availability of WPP in thedomestic market is much higher than the domestic demand. Also the export prices beinglower than the domestic prices, mills are reluctant to export higher quantity of WPP, withthe result all the mills are trying to sell more quantity in the domestic market resultingin prices being slashed. It will take almost 2 to3 years for the additional availabilityto be absorbed in the market.

SEGMENT-WISE AND PRODUCT-WISE PERFORMANCE :

The Company produces Newsprint, Writing and Printing Paper and Sugar. The detailedsegment-wise information is furnished by way of notes to accounts.

RISKS AND CONCERNS :

The plant and machinery of MPM is old, the age varying from 35 years to 65 years. Also,no major modernisation has been done, and no additional plants & machinery has beeninstalled. In view of this, the variable cost (imported pulp, chemicals and power etc) aswell as the fixed cost of production (large labour force) have been going up steadily.These disadvantages limit the potential to contain variable cost of production. Added tothis the large labour force with high overheads. In addition to these inherentdisadvantages, the company is also concerned with the liberalized policies of the CentralGovernment, which have adversely affected the operations of the Company. Despite all this,the Company has been able to withstand these adverse market conditions due to its goodwillon account of long presence in the market. Nevertheless, efforts are being made to furtherreduce costs and improve the quality of our products.

INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY :

The company has set up an in-house internal audit system, and is also availing theservices of auditors to review the internal control systems and its adequacy. The companyhas over the years been successful in implementing proper systems in internal controls inorder to ensure that all the assets and properties of the company are economicallyutilized. The internal control system is devised in such a way that the financial andother records are reliable for preparing financial statements and other data formaintaining accountability of assets. The reports of both in-house internal audit andauditors are reviewed by the Audit Committee from time to time.

DISCUSSION ON FINANCIAL PERFORMANCE WITH REFERENCE TO OPERATING ACTIVITIES :

This has been dealt with, in the Directors’ Report.

INDUSTRIAL RELATIONS AND HUMAN RESOURCES DEVELOPMENT :

The MPM’s HR policies are continued to focus on providing need based ‘on thejob training’ to its employees to develop their knowledge, skills and attitude tomeet the market requirement. M/s NPC, who were appointed to assess the optimum workforcerequirement, have submitted their report and it is under evaluation by the Management.

The Company has well defined Health and Safety policy Periodical training programmes onsafety, fire fighting, etc., are being conducted. Health Check-ups, Health awarenessprogrammes by Specialised Doctors are being held from time to time. The Company hasHospital to cater to the immediate health needs of its workforce. The Company has alsoadopted the principle of workers participation in Management by inducting workers invarious Committees. A monthly magazine by name ‘KAGADA’ is being brought outevery month to educate and update the information about Company affairs for the benefit ofits workforce. The Company has Employees’ Award Scheme to identify and recognizeinnovative ideas of employees in bringing about changes in machinery and equipmentmanufacturing process, etc. With the overall Management strategies and employeescooperation, the Company is looking forward for better performance.