Forward-looking statements
The Company has included forward-looking information in this Annual Report to help investors analyse its future goals and make educated investment decisions. This report, as well as other written statements issued by the Company regularly, includes forward-looking statements that outline expected results based on managements plans and assumptions. The Company has sought to identify such statements wherever feasible by using terminology such as anticipate, estimate, intends, plans, believes, and similar expressions in conjunction with any discussion of future performance. The Company cannot guarantee that any forward-looking statements will be fulfilled, but it believes that its assumptions were reasonable. Results are susceptible to risks, uncertainties and even incorrect assumptions. Actual results may differ considerably from those anticipated, estimated, or projected if known or unknown risks or uncertainties materialise, or underlying assumptions prove to be erroneous. Readers should keep this in mind. Except as required by applicable regulations or by law, the Company disclaims any responsibility to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Global economy 1
In CY 2023, the global economy maintained a growth of 3.2% and showed resilience amidst concerns of global recession and high interest rates, flaring geopolitical tensions, sluggish economic activity and tight monetary policies by the central banks. The reported year also recorded supply chain disruptions due to the Middle East and Red Sea conflict, causing commodity prices to exhibit volatility. However, the global transportation cost remained below the 2021-22 level.
On the other hand, inflation fell from its peak in CY 2022 to 6.8% in CY 2023. Calibrated interest rate hikes by central banks have been instrumental to rein in inflation. With the decrease in global inflation, economic activities are steadily gaining momentum. Despite the predictions, most indicators are predicting a soft landing and the global economy is expected to avoid recession as well.
Outlook
The global economy is expected to grow by 3.2% in 2024 and 2025. While the advanced economies are expected to grow by 1.7% in CY 2024, emerging market and developing economies (EMDEs) are expected to grow steadily at 4.2% in CY 2024. On the other hand, global inflation is expected to fall to 5.9% in CY 2024 and subsequently decline further in CY 2025 owing to decline in energy prices, easing of supply-chain frictions as well as decline in Chinese export prices.
With the global inflation rate reaching its target, policy rates are expected to decline in the second half of CY 2024, providing much needed impetus to the global economic activities to grow. Looking forward, fiscal consolidation is projected to resume, exerting a material drag on near-term growth in advanced economies and a modest headwind in EMDEs.
1https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024
Growth in the Global GDP (in %)
| 2025 (P) | 3.2 |
| 2024 (P) | 3.2 |
| 2023 | 3.2 |
| 2022 | 3.5 |
| 2021 | 6.1 |
P- projected
Source: World Economic Outlook April 2024, IMF
Indian economy
Despite a challenging global economy, India maintained its position as one of the worlds fastest growing economies in FY 2023-24, with GDP growing by 8.2%2. The Indian economy recorded an increase in disposable income, followed by a strong surge in private consumption. This enabled sustaining the demand for goods and services and augmenting the growth of the country further. Additionally, the strong domestic consumption cushioned the impact of the global headwinds on the Indian economy.
Strong domestic demand for consumption and investment, along with the Governments continued emphasis on capital expenditure were the key drivers of the GDP in FY 2023-24. On the supply side, industry and services sectors played an instrument role to propel growth. The robust growth of the Indian economy can be largely attributed to the timely intervention of the Reserve Bank of India (RBI) and the Government of India (GOI). The Indian government is making consistent efforts to develop India as an attractive investment destination. With the aim to transform the business environment of the country by attracting foreign direct investment (FDI), India witnessed resilient growth in the gross FDI inflow, amounting to USD 70.95 billion in FY 2023-24. In addition to this, the total FDI equity inflows stands at USD 44.42 Bn3. The Indian rupee emerged as the third most stable Asian currency against USD in FY 2023-244, reflecting the strength of the Indian economy. Furthermore, the GoI has allocated 3.3% of GDP to the development of infrastructure to bolster the growth of the economy5. In FY 2023-24 the Purchasing Managers Index (PMI) displayed that the manufacturing sector grew by 9.9%6, marked by favourable demand conditions. This has significantly contributed to the manufacturing sectors emergence as a primary growth driver of the Indian economy.
a: PMI Manufacturing
Source: Reserve Bank of India Bulletin April 2024, RBI
2https://pib.gov.in/PressReleseDetailm.aspx?PRID=2022323
3https://www.investindia.gov.in/foreign-direct-investment#:~:text=Total%20FDI%20inflows%20in%20the%20country%20in%20the%20FY%20 2023,into%20India%20FY%202023%2D24.
4https://www.business-standard.com/markets/news/rupee-most-stable-asian-currency-in-fy24-after-singapore-hong-kong-124032900392_1.html
5https://www.investindia.gov.in/team-india-blogs/indias-push-infrastructure-development
6ttps://pib.gov.in/PressReleaseIframePage.aspx?PRID=2022323#:~:text=This%20GVA%20growth%20has%20been,23%20for%20Mining%20 %26%20Quarrying%20sector.
Outlook
The Indian economy is projected to become the third-largest economy with a GDP of over USD 5 trillion by FY 2027-287. To achieve this, the Indian Government is curating specific policies to support the growth of different sectors. In the Interim budget FY 2024-25, the corporate tax for some new manufacturing companies is reduced followed by an increase in employment opportunities in the manufacturing industry. These initiatives are expected to aid in the development of the manufacturing sector and support the target to make India a manufacturing hub. Further, the digital transformation of India that is currently underway is expected to accelerate the growth of e-commerce, changing the retail consumer market landscape over the next decade. Additionally, the Interim Budget 2024-25 also focuses on improving the education in India. With budget allocation of H73,498 crore8, it is expected that the initiative will not only improve the literacy rate but also facilitate the growth of the paper industry. The capital expenditure allocation for the upcoming year has seen an 11% rise which is anticipated to sustain the growth momentum.
Global Paper Industry
The global pulp and paper industry overcame difficulties including the constant evolution of customer preferences, market fluctuations rapid technological advancements and sustainability imperatives in CY 2023. The global paper and pulp industry grew attained a market size of USD 357.21 billion in CY 20239. Additionally, the global pulp prices declined on account of excess production of pulp in the global markets. The industry can mainly be divided into pulping process, bleaching process, etc., depending on the manufacturing process. The bleaching process dominated the manufacturing process by 51.47% in FY 2023-2024.10 Paper is an environment-friendly packaging material. Its affordability, coupled with the advantage to recycle and reuse, makes it a preferred alternative over plastic as a packaging material. The global paper packaging industry attained a market size of USD 164.04 billion in CY 2023.11 Several key players in the industry have leveraged this opportunity to innovate and develop paper-based packaging solutions. They also embraced sustainability in their operations which further contributed to the success of the paperboard packaging industry.
Outlook
The demand for paper is expected to rise in the coming years. This growth is expected to be supported by the long-term growth in the paperboard market owing to its increased application in various industries. The global paper board packaging market is expected to grow at a CAGR of 4% from 2024–2030 and attain a market size of USD 209 billion by 203012. The demand for paper is expected to be contributed from regions such as the United States (US), the European Union (EU) and China. Asia is expected to contribute majorly to the anticipated capacity expansion in the coming years. The global pulp production is expected to rise in CY 2024 as compared to CY 2023. Along with this, the paper prices are expected to remain stable for CY 2024 and CY 2025. The industry players are embracing innovative technologies and incorporating sustainable practices to continue the growth of the industry in the upcoming years.
Indias Paper Industry
India is the worlds the 5th largest paper-producing country13 and the per capita paper consumption is around 15-16 kilograms in FY 2024. Indias paper industry is highly fragmented and has a large number of companies with small capacities. The industry needs to have regular access to raw materials including wood-based pulp, waste paper and agricultural residue, at a strategic price level to maintain its operational efficiency and profitability. The paper industry in India is divided into various categories including writing and printing (W&P), paperboard and newsprint. The paperboard accounted for the major share of the market in volume terms. In addition to this, the W&P dominated the market in terms of value.
7https://economictimes.indiatimes.com/news/india/india-to-be-a-usd-5-trillion-economy-by-fy28-reach-usd-30-trillion-by-2047-fm/articleshow/106697419.cms?from=mdr
8https://www.education.gov.in/sites/upload_files/mhrd/files/dsel_feb24.pdf
9https://www.fortunebusinessinsights.com/pulp-and-paper-market-103447
10https://www.extrapolate.com/chemicals-and-advanced-materials/pulp-and-paper-market/87446#:~:text=Description-,Market%20 Perspective,2.35%25%20between%202024%20and%202031.
11https://www.stellarmr.com/report/Paper-Packaging-Market/1477a https://ipmaindia.org/overview-2/
12https://www.industryarc.com/Report/15969/paperboard-packaging-market.html
13https://www.infomerics.com/admin/uploads/Paper-industry-apr23.pdf
Opportunities
The retail market in India is expected to attain a market size of USD 1.1 trillion by 202714 thus increasing the demand for paper, paper packaging and paper boards. This is anticipated to significantly contribute to the growth of the paper industry in India.
The e-commerce industry is expected to grow at a CAGR of 18%15 by 2025. The consumption of paper and paper packaging materials are expected to rise with the growing popularity of the e-commerce industry.
Fast-moving consumer goods (FMCG) Revenue is expected to grow at a CAGR of 27.9% in FY 2024-203016. This is anticipated to increase the demand of paper packaging materials.
The Government of India has undertaken various initiatives to mitigate the adverse effects caused in the environment due to littered plastic waste. The paper industry can record an increase in sales with the elimination of single-use plastics. This paradigm shift towards eco-friendly solutions is expected further to augment the growth of this industry.
The Government of Indias initiatives to promote education has proven to be beneficial for the growth of the paper industry. Initiatives such as Samagra Shiksha aims to promote education and improve students learning outcomes. The revised Samagra Shiksha scheme is extended upto FY 2025-26. This scheme is expected to increase literacy rate and support the growth of the paper industry.
Threats
The pulp and paper industry is subjected to stringent environmental regulations. Evolving regulatory landscape on waste management and recycling targets pose compliance challenges for the paper industry.
There is a scarcity of raw material for paper mills with the waning forest resources and limitations on man-made forests.
The paper mills have been constrained to adjust their prices due to the volatility in imported materials, currency fluctuations, increase in production costs, logistics, chemicals and raw materials. This is due to the inflationary pressure of the economy.
The shift towards utilising digital resources can reduce the demand for paper materials.
The ASEAN-Korean Free Trade Agreement and Asia-Pacific Trade Agreement (APTA) have resulted in the rise of paper imports in India during FY 2023-24. This rise has proven to be a noteworthy threat for the growth of the countrys paper manufacturing sector.
14https://www.investindia.gov.in/sector/retail-E-commerce
15https://www.investindia.gov.in/sector/retail-e-commerce/e-commerce
16https://www.maximizemarketresearch.com/market-report/indian-fast-moving-consumer-goods-fmcg-market/29038/
Outlook
As per the industry reports, the revenue-generating ability of the industry is expected to rebound by 6-9% in FY 2025, highlighting the probable growth in the industry 17. The domestic paper consumption is poised to grow significantly. As per the statistics, the domestic consumption of paper and paper products are expected to grow by 23.5 million TPA and the production of the industry is anticipated to touch 22.0million TPA by FY 202518. This expansion is anticipated to be supported by the growth in industrial activities, spending on office stationery and advertisements. Several factors such as increased enrolment of students in academic institutions and New Education Policies (NEP) are expected to support the growth of the paper industry in India. In addition to this, the increased focus on innovation is further expected to drive sustainable growth in the industry in the coming years.
Risks and Mitigation Measures
| Risks | Risk definition | Risk Impact (Low, Medium, High) | Mitigation strategy |
| Economic risk | The Company is exposed to a variety of economic risks, including changes in political and economic scenarios which can affect the operations of the Company. | High/Medium | The Company closely assesses and monitors the activities in the domestic and global landscape. This aids in prediction of risks that can impact the Company. |
| Foreign exchange risk | Fluctuations in foreign exchange transactions such as trade payables, credit notes and trade receivables can affect the Companys financial performance. | Medium | A professional team surveys the financial market. Certain risk mitigation tools such as hedging are leveraged to mitigate the risks that can weaken the financial stability of the Company. |
| Procurement risk | Any obstruction in the availability of raw materials can cause a surge in the input price thus disrupting the Companys performance. | High | To mitigate this risk, Andhra Paper Limited has partnered with local communities for a consistent supply of fresh wood. The effective management of inventory and integration of market intelligence have enhanced production capabilities to meet the dynamic market demand. |
| Market risk | The increase in imports, owing to trade agreements, can hinder the sustainable growth of the domestic industry. This can intensify the competition in the domestic market. | High | The Company has always remained ahead of the curve, owing to its superior quality products and effective branding techniques. |
| Product substitution risk | The shift towards digital technologies can negatively impact paper consumption. | Medium | Andhra Paper Limited undertakes proactive assessment strategies to analyse the market demand and forecast the potential threats and employs proper initiatives to mitigate this risk. |
| Change in industry dynamics Human resource risk | The cyclical demand for paper can hamper the sales of the Company which can adversely impact the profitability. Labour-related issues and lawsuits can hamper the reputation of the Company. | Medium Low | Efforts are made to enhance the operational efficiency, increase the scope of operations and expand product portfolio. The Company also focuses on reducing the fixed cost each metric tonne of paper. The Company focuses on attracting the right people to the organisation. It adheres to laws and regulations to reduce any labour risks. |
| Technological risk | Absence of recent technology can be a risk to the Company as it provides a competitive edge against both domestic and international competitors. | High/Medium | Andhra Paper Limited leverages cutting- edge technology to optimise resource utilisation and improve the production process. It also embraces advanced technology to minimise its input cost and enhance the quality of its products. |
| Environment sustainability risk | It is essential for the Company to align itself with the regulatory compliances of the environment, otherwise, it can impede the Companys growth. | High | The Company abides by regulatory compliances and actively contributes to the protection of the environment. It also uses technology to reduce emission of harmful gases into the atmosphere. |
| Health and safety risk | Ensuring occupational health and safety is necessary for the Company to avoid any serious injuries that can result in loss of life. | Medium/High | The Company acknowledges the importance of health and safety of its workers and ensures building an accident- free workplace. It also adheres to the Environment, Health and Safety (EHS) requirements and provides suitable instruction and assessment procedures. |
| Credit risk | Failure to fulfil a financial obligation can create stress on the financial management of the Company, leading to mismanagement in cash flow and revenue loss. | Medium | The Company regularly monitors and updates financial transactions to ensure proper management. It also makes necessary interventions to maintain operational efficiency. |
Human Resources
The Company recognises the value of an efficient workforce. Andhra Paper Limited invests in hiring and retaining individuals that can effectively contribute to the growth of the Company. It undertakes effective talent management strategies, leadership succession, planning initiatives and organisational assessments to maintain the skill and competency of its human capital.
The Company follows the 3C rule-Character, Capability and Catalyst. This rule is integrated into the process and tools for employee development, ensuring the employees are aligned with the Company goals. The Company also uses career planning and training and skill development initiatives to strengthen its human capital and build a strong organisation.
Andhra Paper Limited prioritises the safety of its employees. The Company fosters a positive work environment that does not discriminate on any grounds. It also ensures no sexual harassment at work.
4835
Total number of employees as of March 31, 2024.
Operational Highlights
The Company is present in all segments of paper ranging from writing, printing, industrial and copier papers. The Companys share in the export was approximately 8% in FY 2024. It remained focused on producing value-added products with higher Net Sales Realisations to increase profitability including cup stock, pharma print and Hi BF Virgin Kraft.
The Company consistently makes efforts to improve its existing products to stay aligned with the industry trends. Feedbacks are gathered from the customers and channel partners to provide with personalised and market-relevant products. Through its ‘Think Customer, the Company focuses on offering its customers with ‘right products for the right applications that meet the customer requirements. Initiatives including the commissioning of a state-of-the-art Precipitated Calcium Carbonate (PCC) Plant, the relocation of outside conversion facilities within the mill, installation of a new Marushi Wrapmatic machine have further helped the organisation meet market demand in a timely manner.
In the reported year, Andhra Paper Limited received a 96% OTIF delivery rate (on-time-in-full) and improved complaint closure by 90%, making it top-tier in the Indian paper industry. The strong distribution network of the Company within the domestic market has helped it to cater to the domestic demand. In the reported year, despite the long annual outage of 41 days, the total sales made by the Company was 2,33,480 metric tones.
The Company completed projects including pulp mill upgradation of 100 tones per day (TPD) and surface sizing a large paper machine and is anticipating to leverage on these projects and enhance its productivity and efficiency in delivering to the customers in the coming years. These will additionally help in increasing value in terms of profitability and shareholder returns of the Company.
Initiatives undertaken by the Company under its operations in FY 2024
Installation of Tissue Paper Machine
The Company received consent from the State Pollution Board for installation of a tissue paper machine with capital outlay of INR 270 crores. The Company has signed an agreement with a globally reputed vendor for the supply and commissioning of the tissue paper machine with 129 TPD capacity. This is expected to be operational in next year. This is anticipated to add to the existing capacity by 35,000 metric tones per annum and help diversify into the speciality paper segment where the growth is in double digits with opportunities in the domestic market.
Upgrading and rebuilding of pulp mill
The approved planned capex by the Board was utilised to rebuilt and upgrade the manufacturing facilities at Rajahmundry and Kadiam in phases starting from 2023 and most of the work was undertaken during the long annual outage. The rebuilt and upgrade is expected to get completed by 2024-25. The investment in rebuilt and upgrade aligned with new technological advancements is expected to yield significant benefits on long term basis by increase in operational efficiency, reduction in breakdowns and increase in machine reliability, productivity and competitiveness.
Installation of PCC Plant
The Company undertook various sustainability initiatives, such as installation of PCC plant for efficient carbon capture and reuse. This reduces carbon emission for the Companys existing lime kiln stacks by 54 metric tones per day i.e. 19,000 tones per annum (TPA ). This process also lowers production costs and improves paper capacity, bulk and brightness.
Financial Highlights
In FY 2023-24, revenue from operations stood at INR 1801 crore compared to H2098 crore in the previous year, reflecting a decline of 14% over FY 2023-24. EBITDA stood at H526 crore compared to H787 crore in FY 2023-24. Profit after tax dropped to H340 crore compared to H522 crore in the previous year.
The profitability declined on account of an extended period of planned maintenance shutdown for 41 days. The long maintenance period was utilised to integrate the Board approved capital expenditure to rebuild and upgrade the plant and machinery at certain units within the manufacturing facilities to increase the efficiency and reliability of manufacturing operations.
The annual outage along with the increase in the cost of raw materials such as pulp, wood, coal, chemicals and volatility in import materials coupled with low volume output and lower realisations had negatively impacted the overall profitability of the Company.
For FY 2023-24, the CARE ratings reaffirmed the ratings of CARE AA; stable for long-term facilities and CARE AA; Stable/ CARE A1+ for short-term facilities. The ratings took into consideration the Companys balanced capital structure and strong liquidity profile with the availability of surplus liquid investments amidst low debt levels and cushion in the fund-based working capital limits utilisation.
The India Rating assigned IND AA (Stable ratings for long-term facilities) and IND AA/Stable/IND A1+ for Andhra Paper Limited. The affirmation reflects the continued strong consolidated business profile led by a robust market position, moderately diversified portfolio within the paper industry, healthy operating performance with robust margins and a strong financial position with a net cash position.
Although there are lot of challenges in the coming years owing to geopolitical friction, increasing supply chain disruptions and rising input costs, the Companys proven capability of swinging between the domestic market and exports to balance supply and demand situations and the noteworthy flexibility of each machine to manufacture an array of products will help mitigate such challenges. The management is confident that the capital investment in manufacturing facilities coupled with other initiatives taken during the year will yield positive results in the coming years.
Ratios
| Particulars | 31st March 2024 | 31st March 2023 | Variance |
| i. Debtors Turnover | 17.27 | 16.78 | 3% |
| ii. Inventory Turnover | 8.77 | 13.16 | -33% |
| iii. DSCR | 7.20 | 4.88 | 48% |
| iv. Current Ratio | 3.06 | 3.40 | -10% |
| v. Debt Equity Ratio | 0.06 | 0.03 | 92% |
| vi. Net Profit Margin (%) | 18.87% | 24.91% | -24% |
| vii. Return on ROCE | 22.08 | 41.63 | -47% |
For further information and detailed explanations on ratios, please refer Note No. 51 of the Financial Statements.
Internal control systems and their adequacy
Andhra Papers management is in charge of implementing and maintaining effective internal control over financial reporting. Internal control over financial reporting is designed under the supervision of the Chairman & Managing Director, Joint Managing Director and Chief Financial Officer and implemented by the Board of Directors, Audit Committee, Management and other personnel to provide reasonable assurance about the reliability of financial reporting and the preparation of financial statements for external purposes.
All internal control systems have inherent limitations, including the possibility of control circumvention and override and so can only provide reasonable certainty of meeting the control objectives. The Companys internal control system is based on written rules and procedures, includes self-monitoring measures and is audited by outside auditors. Management takes appropriate corrective actions as problems are detected. The Company has a procedure in place to continuously monitor the processes, identify gaps and implement new and/or better controls where the impact of such gaps would be material to the Companys operations. The Company fully supports Internal Auditors, an external and independent audit firm, in this ongoing process.
The Company evaluated and assessed the sufficiency and effectiveness of its internal financial controls as of March 31, 2024. Based on this assessment, Management believes that the Companys internal controls over financial reporting were effective as of March 31, 2024 and our Statutory Auditors have expressed an unmodified opinion on the adequacy and operational effectiveness of the Companys internal financial controls over financial reporting, as stated in their report.
The internal control environment includes a corporate-wide attitude of integrity and control consciousness, which creates a positive tone at the top. This is demonstrated by our ethics programme, which contains long-standing principles and policies on ethical business behaviour that demand employees to uphold the highest ethical and legal standards in the conduct of Andhra Paper Company and has been provided to all employees.
The internal control system also includes careful selection and training of supervisory and management personnel, appropriate delegation of authority and division of responsibility, widespread dissemination of accounting and business policies and an extensive programme of internal audits with management oversight. The Board of Directors, with the assistance of the Audit Committee, oversees the integrity of the Companys financial statements and financial reporting systems, as well as the performance of the Companys internal audit function and independent auditors, as specified in its charter. The Committee, which is made up of the majority of Independent Directors, meets on a regular basis with management representatives, independent auditors and internal auditors to examine their actions, both with and without management representatives present.
The Committee reviewed and discussed the financial accounts for the fiscal year ended March 31, 2024, with Management and the independent auditors, including internal control systems, major accounting policies and significant Management judgements.
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