simplex papers ltd Management discussions


INDUSTRY STRUCTURE AND DEVELOPMENTS

Globally paper industry is one of the high priority industries having a bearing on the socio-economic development. In India too this industry plays a vital role in the overall industrial growth. Indian paper industry is one of the worlds fastest growing industries

Today, there are more than 800 paper mills in India, out of which around 25 paper mills are wood based, 60 agro residue-based paper mills and remaining 715 paper mills are based on recycled or waste paper. Out of total paper production in the country, 70 percent paper and board is contributed by these non-wood sectors of the Industry. These mills are producing varieties of paper from very simple to highly sophisticated papers, however, there are certain specialty varieties of paper which continue to be imported in the country. India is exporting about 1-2 million tonnes of paper and the figure is increasing annually.

The estimated annual turnover of the paper industry in India is 70,000 crore. The contribution of the paper industry towards the exchequer is 5,000 crore. The industry provides direct employment to 500,000 persons, and indirectly to around 1.5 million

The growing popularity of ready to eat products and perishable foods is expected to grow the demand for packaging paper. Demand for duplex board and kraft paper is expected to rise, higher than the global average.

Indian paper market has seen a paradigm shift in the demand pattern and consumer preferences. The increase in the income level of the middle class and phenomenal growth in higher education and also alignment with global universities has changed the mindset of consumers and their preferences. The demand for quality paper and value added products are increasing at a faster rate.

OPPORTUNITIES

The paper and board industry in India is considering this transition phase as a great opportunity coupled with the challenge of providing affordable alternatives. Paper mills are conducting various trials to make paper and paperboard for the intended use, like carrying, wrapping, protecting, packing and holding as a container.

The Indian paper industry is expected to grow at about 6-7% CAGR. The per capita paper consumption in India stands at 15 kg which is well below the global average of 57 kg and significantly below 200 kg in developing economies, which highlights an opportunity in terms of potential growth of paper demand in India. The demand will be driven and supported by higher Government spending on education initiatives, corporate spending on stationary and healthy growth in services sector. Inspite of advancement in technology, like the usage of Tabs, Smart Phones, digitization, the increased preference for online storage and dissemination of data, the paper industry is poised for a consistent growth in demand over the next few years.

The Indian paper industry is expected to see increased demand coming from manufacturing sector, requirement of better quality packaging of FMCG products marketed through organised retail and the demand for the upstream market of paper products, such as copier paper, cup stock paper board, base paper for making straws & paper bags and other single use paper products are expected to drive the paper & paper products market in India in coming years.

With a number of countries replacing plastic bags with paper equivalents, paper industry opportunities are growing. Increasing literacy is driving higher writing & printing paper consumption in developing economies. Paper and Paperboard touches all aspects of life and its production is vital for education, packaging and several other sectors of the economy.

THREATS

Indian paper mills are categorized based on raw materials used by them in the manufacture of paper - wood/forest based mills, agro-based mills and wastepaper based mills. Wood accounts for 30-35% of production, while wastepaper and agri-residues account for 45-50 percent and 20-22 percent, respectively. India has a total land area of 3.3 million sq km with forests covering only 0.7 million sq km. About 78 percent of the total land area is non-forest area. With diminishing forest resources and limitations on enlarging man-made forests, there is scarcity of raw material for paper mills. Moreover, the limited raw material can be put to many alternative uses.

India is wood fibre deficient country inadequate raw material availability domestically is a major constraint for the paper industry. Over 90 percent of wood demand met through industry driven agro/farm forestry (1.2 million hectares); 10 percent through Government sources and other sources. Current demand for pulpable wood by paper industry is about 11 million tonnes per annum (TPA) while domestic availability is 9 million TPA (demand projected to rise to 15 million TPA by 2024-2025).

Wastepaper collection /recovery mechanism is not very strong in the country and largely in the unorganised sector.

The development challenges faced by the Paper industry are as follows:

Consolidation of the fragmented industry

Achieving economies of scale

Modernisation of mills, productivity improvement and building new capacities

Quality benchmarking

Creation of a robust raw material base

Enhancement of the industry competitiveness to face global competition

Environment standards and regulatory compliances

Increasing digitisation is seen as a threat, replacing paper with virtual equivalents.

RISKS AND CONCERNS

The Companys risk management strategy encompasses the proper and in-depth identification, assessment and prioritization of risks, followed by speedy mobilization of resources to minimize, monitor and control the probability of unfortunate events.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company has proper and adequate internal control system to ensure maintenance of proper accounting records, their accuracy and that all the assets are safeguarded from loss or damages.

PERFORMANCE

The Company has reported net loss of 2,216.87 st thousands for the year ended 31 March, 2023.

KEY FINANCIAL RATIOS

The Key Financial Ratios for the financial year

st

31 March, 2023 are as under:

Particulars

2022-23 2021-22
Debtors Turnover - -
Inventory Turnover - -
Interest Coverage Ratio - -2,087.14
Current Ratio 0.11 0.10
Debt Equity Ratio -1.03 -1.03
EBIDTA Margin % - -
Net Profit/(Loss) Margin % - -
Return on Networth (%) -1.85 -1.41

In the current year, return on net worth is lower due to goods and service tax receivable written off and interest coverage ratio is nil as there was no interest cost and principal repayment during the year.

CAUTIONARY STATEMENT

Statements in this report on Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations or predictions may be forward looking, considering the applicable laws and regulations. These statements are based on certain assumptions and expectation of future events. Actual results, could, however differ materially from those expressed or implied.