Global economic overview
In CY2022, global economies reeled under the impact of numerous
headwinds in the wake of mounting inflationary pressures and the Russia-Ukraine conflict
in Europe. The sustained hike in interest rates by Central Banks to tame inflation and the
ongoing food and energy crises in Europe are impeding economic activity.
Throughout the course of FY23, a stronger boost from pent- up demand in
several economies or a sharp fall in inflation is anticipated. The emerging and developing
economies of the world are gaining ground and are likely to play a crucial role in
accelerating global economic growth in the years ahead.
According to the IMF, India and China are expected to contribute more
than 50% of the global growth in CY2023. As the headwinds in the Asia-Pacific region start
to fade, the Emerging Market & Developing Economies (EMDEs) are set to clock a growth
rate of 5.3% in CY2023.
Global economic output is expected to witness a slow yet steady
rebound, driven by stabilising inflationary trends, reviving consumer sentiment and
increasing investor confidence. The employment scenario in the US as well as other
advanced economies has been promising when compared to pandemic levels and higher
disposable income is also anticipated to facilitate the economys growth in the
upcoming years.
Indian economic overview
Indias economy remained relatively shielded from the gloomy
global outlook and emerged as the fastest-growing major economy in the world. The domestic
economy demonstrated remarkable resilience to global headwinds during FY 2023. The second
advance estimate by the National Statistical Office (NSO) reveals that the Indian economy
is on track to clock a growth rate of 7% in FY 2023.
Based on sectoral analysis, it can be reported that this growth is
driven by robust construction activity facilitated by robust infrastructure investment
both by the Central Government and state governments, which is paving the way for
large-scale employment opportunities as well.
A sustained hike in GST collections, electronic toll collections and
the volume of E-Way bills generated during FY 2023 signify encouraging momentum.
Indicators of the services sector (UPI transactions, high credit demand) also indicate
sustained expansion.
While the post-pandemic private investment recovery is still at an
early stage, there are tentative signs that indicate that India is poised for a stronger
investment upcycle in both the manufacturing and services sectors.
Overall, demand conditions in India remain conducive to economic
growth. India remains bullish about the new fiscal year, bolstered by underlying and
overall macroeconomic stability, while remaining cautious of emerging geopolitical and
geo- economic concerns.
Union Budget 2023-2024
The objectives of the FY 2023-24 Union Budget are aligned with Indias
ambitions for the ‘Amrit Kaal era, which is the period leading up to its 100th
year of Independence. The Union Budget for FY 2023 is expected to foster equitable growth
and strengthen Indias position as the leading fast-growing large economy globally.
The Budget reinforces the goals of fostering Indias self-reliance,
encouraging investment across multiple sectors, and strike a balance between borrowing and
spending. Reductions in personal taxes are anticipated to boost consumption across all
consumer segments.
Saptarishi- 7 priorities
Inclusive development
Infrastructure and investment
Reaching the last mile
Unleashing the potential
The Government has announced an enhanced capex of INR 10 lakh crore for
the third consecutive year, which is aimed at bolstering economic growth, creating job
opportunities, pitching in private investments and protecting the economy from global
challenges. The effective capital expenditure of the Central Government will be INR 13.7
lakh crore in FY 2023-24. Additionally, the Government has established a new
Infrastructure Finance Secretariat to promote and facilitate private investment in
infrastructure projects.
The Indian government has offered an enhanced impetus to the Defence
Sector by allocating INR 5.94 lakh crore for the current fiscal year, as compared to last
years INR 5.25 lakh crore. Out of this, INR 1.62 lakh crore has been earmarked for
capital expenditure, which includes the procurement of new weapons, aircraft, warships and
other military hardware.
The Government has set a target of reducing the fiscal deficit to below
4.5% by FY 2025-26. Additionally, a revamped credit guarantee scheme for Micro, Small and
Medium Enterprises (MSMEs) is set to be executed on April 1, 2023, with an allocation of
INR 9,000 crore in its corpus. This scheme aims to provide additional collateral-free
guaranteed credit of INR 2 lakh crore and lower the cost of credit by approximately 1%.
Furthermore, the Government will roll out the Pradhan Mantri Kaushal Vikas Yojana 4.0, a
scheme to upskill the youth for capitalising on international opportunities. Towards this
end, 30 Skill India International Centres will be established across various states in the
country.
The Indian government has designated INR 35,000 crore as priority
capital for the transition to renewable energy. A green credit programme will be notified
under the Environment Protection Act to support this initiative. Additionally, the
Government has launched the National Green Hydrogen Mission, which will receive an outlay
of INR 19,700 crore. This Mission aims to facilitate the countrys transition to a low
carbon economy (LCE), reduce dependence on fossil fuel imports and enable the country to
gain technology and market leadership.
The Union Budget for 2023-24 allotted an enhanced outlay of INR 2.70
lakh crore for the highways sector. The allocation for the National Highways Authority of
India (NHAI) has increased by 13.90% to INR 1.62 lakh crore for FY 2023-24. Moreover, the
scope of services provided by DigiLocker is set to be expanded, offering greater
accessibility and convenience to users. Additionally, 100 labs for creating applications
that use 5G services will be developed in engineering institutions, further promoting the
countrys technological advancement.1
Financial sector
Green growth
Youth power
https://www.pib.gov.in/PressReleasePage.aspx?PRID=1895315
Industry overview
Global paper industry
The global market for pulp and paper was worth USD 387.6 billion in
2022 and is expected to reach USD 477.7 billion by the year 2028, with a compound annual
growth rate (CAGR) of 3.5% between 2022 and 2028.2 Higher demand for eco-friendly
packaging products, as well as developments in recycling infrastructure within the pulp
industry are projected to drive this growth. Moreover, the demand for pulp-based packaging
is anticipated to witness a surge in the near future owing to growing public aversion to
plastic and government initiatives aimed at limiting the use of single-use plastics. These
factors are likely to contribute to the global pulp and paper markets expansion.
The ever-growing demand for paper from the chemical and industrial
processing industries in both advanced and emerging economies has boosted the pulp and
paper market. Additionally, diversifying the range of applications for paper and pulp in
packaging materials, particularly in developing nations, coupled with the growth of varied
end-user sectors, is driving market growth.
Challenges faced
The global paper industry has confronted several headwinds that have
contributed to the present all-time high pulp prices. One of the key concerns is the
geopolitical conflict in the West, which has led to trade tensions and higher tariffs on
certain products. This has made importing pulp from certain regions more challenging and
expensive for paper manufacturers.
Apart from the trade tensions, the resurgence of COVID in China
affected the global supply chain for pulp and paper products. The geopolitical conflict
between Russia and Ukraine led to disruptions in raw material production and shipping,
particularly pulp. This further exacerbated the already strained supply chain, leading to
shortages and inflated pulp prices. These high pulp prices have had a ripple effect
throughout the paper industry, with manufacturers battling to sustain profitability due to
rising raw material costs.
Notwithstanding these challenges, the global paper industry has
demonstrated sheer resilience by adapting to evolving market trends. Many businesses are
exploring alternative sources of pulp, such as recycled materials and sustainably managed
forests, to reduce their reliance on imported raw materials. Additionally, technological
advancements and enhanced production processes are assisting manufacturers to improve
efficiency and reduce waste, thereby helping offset the higher costs of pulp.
Indias paper industry
The paper industry in India is expanding at a phenomenal pace, which is
one of the swiftest observed worldwide. Between 2022 and 2028, the Indian paper market is
projected to grow at an 8%
Compound Annual Growth Rate (CAGR). This growth trajectory is predicted
to persist in the upcoming years, owing to the Indian economys sound macroeconomic
fundamentals and its ability to withstand the consequences of global disruptions.
The paperboard and industrial packaging paper markets, as well as the
newspaper print markets, are estimated to account for over 70% of the total paper market
share. However, the stationery paper and speciality paper sectors are predicted to
experience an upward trend in annual market growth in terms of volume, while the growth of
the stationery paper market in terms of value is likely to decline. At present, the
growing demand for environment-friendly products is driving manufacturers to seek
effective ways to meet this emerging demand. The paper industry is benefiting from
technological advancements, which have resulted in improved production capacity and
reduced fuel costs, among other advantages, thus enabling the industry to scale new
heights.3 The pandemic adversely impacted paper consumption, leading to a sharp decline.
However, demand has recuperated strongly in the current fiscal year, surpassing pre-
pandemic levels.
The lockdown of the Chinese economy caused mills in China to flood the
Southeast Asian market with their paper goods, significantly affecting paper businesses in
India, which relies on this market for its exports. As a result, Indian companies saw a
drop in their market share and profitability. Furthermore, an energy crisis in the Euro
region posed a severe threat to the industry.
However, the industry has made great strides in limiting various
consumption parameters, such as power and water consumption, as well as other
environment-related factors. Specifically, water consumption has decreased by 75% compared
to its previous levels and energy consumption has also declined by 30%. 4
Packaging paper industry
Fast-Moving Consumer Goods (FMCG), pharmaceuticals and e-commerce
sectors are anticipated to contribute to Indias packaging paper industrys
substantial growth in recent years. Moreover, the pandemic has expedited the growth of the
packaging industry owing to the higher consumer preference for online shopping, which has
resulted in a surge in demand for corrugated boxes and alternative packaging materials.
The packaging paper industry encounters a significant obstacle in terms
of sourcing raw materials such as pulp and wastepaper, which often pose availability and
cost-related challenges. The Government is adopting measures to tackle this concern by
promoting the use of agro-based raw materials and introducing several policies to
encourage wastepaper recycling. Another factor that is likely to propel the packaging
paper industrys progress is the greater emphasis on eco-friendly packaging
solutions. Businesses are dedicating their resources to investing in sustainable packaging
alternatives, particularly paper-based options to replace plastic packaging.
2https://www.researchandmarkets.com/reports/5661719/global-pulp-and-paper-market-volume-value
3https://www.researchandmarkets.com/reports/4593544/india-paper-market-overview-2022-28
4https://papermart.in/indias-paper-industry-towards-global-competitiveness-sustainability/
It is expected that the paper packaging sector in India will sustain
its growth trajectory, with revenues projected to improve by 14- 16% during FY 2022-23,
following a growth rate of approximately 35% in FY 2021-22.5 This growth can be attributed
to increased volume, which is likely to drive the utilisation levels of industry players
to near-optimal levels, consequently stimulating capacity expansion through the removal of
supply chain bottlenecks and the establishment of new manufacturing facilities.
As per CRISIL Ratings, the paper packaging industry accounts for
approximately 40% of the total revenue generated by the paper sector. This underscores the
crucial role played by paper packaging in the overall paper packaging industry. The
capacity of the paper sector is largely dominated by paper packaging, accounting for
approximately 55-60% of the total capacity.
Writing and printing paper industry
The growth of the printing and writing materials market is being
propelled by the increasing demand for printed catalogues. Retailers are executing
multi-channel marketing strategies that integrate both online and physical marketing
channels. The distribution of printed catalogues has emerged as a vital sales and
marketing tactic to reach customers in the offline segment.
The writing and printing segment holds a considerable share of
approximately 25% in Indias paper industry, whereas the newspaper segment accounts
for nearly 10%. 6
Packaging sector growth to drive printing paper market
Considering the widespread use of tissue and packaging materials,
global demand for printing papers has climbed immensely. The higher demand for
containerboards has boosted the need for printing materials used in tissues and packaging.
However, the Companys operations may be impeded by the stringent environmental
regulations that govern the paper and pulp industry. Nonetheless, the adoption of
innovative packaging solutions is likely to provide a major impetus to the printing paper
industrys growth.
Company overview
Since its inception in 1981, Emami Paper Mills Limited has emerged as a
leading Indian manufacturer of writing and printing paper, newsprint and packaging boards.
The Company has undertaken rapid product range diversification, augmented production
capacities and achieved a strong foothold in both domestic and international markets. The
Company is committed to sustainability and has incorporated precise measures to safeguard
the environment in its current as well as future operations. The Companys
innovation-led strategy has also contributed to its success. Furthermore, the
Companys resolute focus on customer-centricity and its robust reputation have
enabled it to reinforce its leading position in the Indian paper industry.
Manufacturing location
Opportunities
Rising focus on sustainable packaging
The Government and consumers are increasingly focusing on
environmentally sustainable packaging solutions, which presents an opportunity for the
Company as paper-based packaging is a more eco-friendly alternative to plastics and other
non-biodegradable materials. The Company can capitalise on this opportunity by investing
in research and development to create innovative and sustainable packaging solutions.
Increasing demand for paper products
The increasing demand for paper products in the country presents a
significant opportunity for the Company to grow and expand its operations. The growth in
demand is driven by several factors, including the expansion of the Indian economy,
population growth and increasing awareness among the people.
Growing e-commerce sector
With the expansion of e-commerce businesses, an increase in the demand
for packaging materials, specifically those made of paper and paper-based products, is
projected. The Company can capitalise on this opportunity to capture a substantial portion
of the growing e-commerce packaging market, thereby ensuring sustained growth and success.
Expansion of the digital printing industry
Digital printing is gaining popularity due to its high-quality output
and fast turnaround times; however, it requires a range of specialised papers. As a
leading paper manufacturer, the Company can tap into this growing demand for digital
printing papers and cater to the needs of this expanding industry.
https://www.crisilratings.com/en/home/newsroom/press-releases/2022/11/paper-packaging-cos-set-to-up-capacity-on-demand-prospects.html
6https://www.crisilratings.com/en/home/newsroom/press-releases/2022/11/paper-packaging-cos-set-to-up-capacity-on-demand-prospects.html
Threats
Intense competition
The paper industry in India is highly competitive, with a large number
of players operating in the market. There are many established players in the paper
industry, as well as new entrants and smaller companies trying to capture a sizable market
share. This creates competition, with businesses vying for customers and striving to
maintain their market position. Moreover, competition from imported paper products is also
a significant threat to the domestic paper industry in India. This can lead to price wars
and reduced profit margins for the Company.
Digitalisation
The higher prevalence of digital devices and the shift towards a
paperless society can impact the demand for paper products. With the advancement of
technology, people are increasingly relying on electronic communication and storage,
resulting in reduced demand for paper products. Additionally, e-books and e-magazines are
gaining popularity, resulting in a decline in demand for physical paper books and
magazines. This can result in reduced sales and profits for the Company.
Volatile raw material costs
The Company relies heavily on raw materials such as pulp and other
chemicals to manufacture its products. With rising global demand and supply chain
disruptions, the cost of these raw materials is expected to increase significantly,
thereby affecting the Companys profit margins.
Fluctuations in foreign currency rates
The Company is involved in the import and export of raw materials and
finished products, which exposes the Company to the risks of foreign currency
fluctuations. Any significant variation in the value of the Indian rupee against major
currencies can potentially affect the cost of raw materials, the pricing of finished goods
and ultimately the profitability of the Company.
Risk management
The Company is exposed to varied risks, both within and outside its
operational domain. To proactively track, control and alleviate these risks, the Company
has implemented a range of systems, procedures and review mechanisms.
Risk management committee
Risk
Category Risk Description Mitigation |
Asset
utilization risk |
Erratic
demand could affect asset utilization. |
The company
possess a fungible capacity between newsprint as well as writing & printing paper,
responding flexibly to market movements that ensured that its capacity was adequately
utilized, empowering the company to amortise fixed costs effectively. |
Raw
material risk |
The
Companys operations depend on the procurement of pulp from overseas
entities, as it is an essential ingredient in the production of paper.
The accessibility of pulp significantly affects the Companys paper manufacturing
business. |
The Company
is continuously exploring alternative sources of raw materials to mitigate the impact of
imported raw material costs.
The companys purchase department keeps a careful eye on the
market. In addition to making strategic purchases in the event of supply shortages,
effective hedging strategies are implemented based on market knowledge to balance
increases in raw material costs. |
Talent risk |
The Company
faces the risk of talent attrition. |
The company
strengthened its people-facing initiatives, enhancing a pride of association. The company
provided an exciting workplace that was delegated, empowered and incentivised. The result
is that people retention was a high during the year under review. |
Regulatory
compliance risk |
The Company
operates in a highly regulated industry and non-compliance with regulations can result in
legal penalties and damage to the Companys reputation. |
The Company
instituted a team to monitor compliances, ensuring that this was done promptly and
comprehensively. |
Risk
Category Risk Description Mitigation |
Currency
risk |
The Company
exports a significant portion of its products and fluctuations in foreign exchange rates
can affect its profitability. |
All outgo in
foreign currency including loans are hedged by way of Forward contracts. |
Economic
risk |
Economic
downturns can affect the demand for paper products and adversely impact the Companys
revenue. |
The Company
had broad-based its product mix to moderate an excessive dependence on any one segment,
though the packaging segment accounted for the largest revenue proportion. |
Quality risk |
The
Companys failure to provide customers with high-quality products may have
an adverse effect on the demand for its products. |
The
companys certifications (ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018) show
that it complies with modern quality, environmental, and safety standards. |
Liquidity
risk |
The
occurrence of substantial debt may have an adverse impact on both the liquidity and
profitability of the Company. |
The company
continued to make value-added paper varieties, enhanced capacity utilization,
negotiated competency for resources (terms of trade), and moderated
debt through timely repayment, strengthening its liquidity. |
Cyber
security risk |
Serious
cyber-attacks can lead to the compromise of crucial information, thereby causing
substantial financial repercussions for the overall operations of the Company. |
The company
has an IT Security Policy, and the
in-house IT Team ensures that internal data breaches do not occur by
adopting in-place data backup with Microsoft OneDrive and Bit locker encryptions.
Access control and firewall security also safeguard endpoint systems
from Malware, virus, Trojan, and Ransomware. |
Significant changes in key financial ratios
Particulars |
Key
financial ratios |
Change in ratio |
Explanation |
2022-23 |
2021-22 |
Debtors Turnover |
9.61 |
9.35 |
0.26 |
Improvement as a result of
increased turnover. |
Inventory Turnover |
8.51 |
10.94 |
(2.43) |
Increased cost of inputs and
consequential increase in FG/SFG stock value has caused fall in this ratio. |
Interest Coverage Ratio |
3.10 |
3.62 |
(0.53) |
19% reduction in interest cost
has not been reflected in this ratio because of lower profitability during 2nd half of the
financial year. |
Current Ratio |
0.92 |
0.83 |
0.09 |
Despite year on year basis
improvement through optimization, it is yet to achieve the benchmark, since the company
has high repayment obligation. |
Debt Equity Ratio |
1.23 |
1.20 |
0.03 |
Long-term debt obligations
have been repaid but short-term debt increased to support working capital need. |
Operating EBITDA Margin (%) |
10.28% |
16.45% |
(6.17%) |
Reduced
profitability of paperboard during 2nd half of the year leads to fall in
profitability/margin ratios. |
Operating Profit Margin (%) |
8.68% |
13.86% |
(5.18%) |
Net Profit Margin (%) |
3.00% |
5.86% |
(2.87%) |
Return on net worth |
10.23% |
19.25% |
(9.02%) |
Human resource
The Company values its human capital and has always acknowledged them
as key to its success. It has implemented numerous measures to nurture a productive and
engaged workforce. The Company endeavours to foster a safe and healthy work culture for
all its people, having established robust health and safety policies and practices. The
Company also offers regular training and development opportunities for employees, enabling
them to acquire new skills and progress within the organisation. Furthermore, the Company
is committed to promoting diversity and inclusivity in the workplace, recognising that a
diverse and inclusive workforce drives innovation and productivity, leading to operational
excellence.
1,111
Total employees
Sustainability
Sustainability has always been a business imperative at Emami Paper.
The Company has always promoted environmental consciousness with an unwavering focus on
recycling. The Company is committed to sourcing wood pulp only through suppliers certified
by the Forest Stewardship Council (FSC). The Companys firm commitment to protecting and
safeguarding the environment highlights its dedication to responsible business practices.
This has also positioned the Company in a sweet spot to witness sustained growth in a
world where sustainability is becoming increasingly vital.
Internal control systems
The Company has implemented a comprehensive internal control mechanism
to ensure the efficient and secure conduct of its operations. The controls are designed to
prevent and detect frauds and errors, maintain accurate and complete accounting records,
and ensure timely preparation of reliable financial information as per the Management
Information System (MIS). The primary objective of these controls is to provide reasonable
assurance regarding the proper accounting controls, reliable financial reporting, and
monitoring of operations while protecting the Companys assets from unauthorised use or
losses and ensuring compliance with regulations. The Company has made sustained efforts to
align its processes and controls with global best practices.
In addition to implementing robust internal controls, the Company has
engaged the services of an external and independent Audit Firm to act as its internal
auditors. The role of these auditors is to periodically review and monitor the
effectiveness of the Companys internal control measures pertaining to its operations.
During the meetings of the Audit Committee, internal auditors are in
attendance to discuss their audit reports, management comments, and observations. The
Audit Committees Terms of Reference encompass various responsibilities, including
reviewing the adequacy of the internal control environment, monitoring the implementation
of action plans resulting from internal audit findings, and ensuring the Companys Risk
Management Systems are strengthened in compliance with statutory mandates.
The Company operates a comprehensive budgetary control system, with key
performance indicators (KPIs) established for all significant operational parameters. The
management team regularly monitors and reviews these KPIs during Management Committee
Meetings, which are chaired by the Whole-time Director of the Company and attended by all
departmental heads. Necessary corrective and preventive actions are taken based on the
findings and recommendations discussed during these meetings.
Cautionary statement
The MDA section may contain forward-looking statements regarding future
prospects. These statements involve various known and unknown risks and uncertainties,
which may result in material differences between actual results and the forward- looking
statements. In addition to changes in the macro- environment, the emergence of a global
pandemic like COVID-19 can introduce unforeseen, unprecedented, unascertainable, and
continuously evolving risks to the Company and its operating environment. The estimates
and figures presented in the report are based on certain assumptions made by the Company,
taking into account internal and external information that is currently available.
However, the factors underlying these assumptions can change over time, leading to
corresponding changes in the estimates on which they are based. It should be noted that
forward-looking statements only reflect the Companys current intentions, beliefs, or
expectations as of the date on which they were made. The Company is not obligated to
revise or update any forward-looking statements in light of new information, future
events, or other factors.
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