Bio Green Papers Ltd Management Discussions.

INDUSTRY SCENARIO, STRUCTURE & DEVELOPMENTS:

About Company Introduction

This is only a summary. Investors should read the following summary with the Risk Factors mentioned and the more detailed information about us and our financial statements included elsewhere in this Information Memorandum Summary of Industry.

KRAFT PAPER:

The preference for biodegradable and sustainable Kraft paper packaging is growing with increasing awareness regarding the negative impact of packaging solutions on the environment, due to use of plastic and other such non-biodegradable products among the consumers and growing preference for paper based packaging industry. Consumers are turning their loyalties towards eco-friendly products. Kraft paper is one such ecofriendly product which is used in packaging nowadays, as they do not draw any negative impact on environment.

Goldstein Research analyst forecast that the Global Kraft paper market is set to reach nearly USD 87.5 billion by 2024, growing a CAGR of 3.60% over the forecast period (2017-2025).

(Source: Websites of global consulting group ‘Pyory and International Council of Forest and Paper Association)

The paper and paperboard industry have experienced a radical shift in the business environment in the year. Due to the strong economic growth in both China and India, the demand for paper and paperboard is increasing rapidly and they are expected to emerge as an important market for pulp & paper. The ban on waste paper import by China is seen to have a positive impact on India. The trade war between China and the USA is at its peak. Consumerism and mobility among Indians is riding high pushing retailing and e-tailing. These situations are boosting business opportunities in India.

JATROPHA PLANTS:

Biofuel development in India centres mainly around the cultivation and processing of Jatropha plant seeds which are very rich in oil (40%). The drivers for this are historic, functional, economic, environmental, moral and political. Jatropha oil has been used in India for several decades as biodiesel for the diesel fuel requirements of remote rural and forest communities; jatropha oil can be used directly after extraction (i.e. without refining) in diesel generators and engines.

Jatropha is known for its ability to survive in very poor dry soils in conditions considered marginal for agriculture, and can even root into rock crevices. However, survival ability does not mean that high productivity can be obtained from jatropha under marginal agricultural environments. Precultivation in nurseries, sown in either nursery beds or containers, enables better germination and survival of seedlings through control over moisture, shade, soil, weeds, pests and diseases.

Indian Paper Industry

The domestic paper and paperboard industry remained impacted by sluggish demand conditions prevailing in the Indian Industry. However, Indian paper industry looks quite as the domestic demand is on the rise after the stabilization of the economy. The increasing literacy rate, rise in per capita income, growth in GDP, improvement in manufacturing sector and changing lifestyle of individuals in the urban as well as in rural areas are expected to provide impetus to the growth of paper industry in India.

The Indian Paper Industry accounts for about 3.7% of the world production of paper and paperboard. The industry is poised to grow and touch to 25 million tonnes in the year 2019-20 which is 20.37 in 2018-19 which is at a rate of 20% per annum. The industry provides employment to more than 0.12 million people directly and 1.50million people indirectly. India has emerged as the fastest growing market in the production of packaging paper. The paper industry in India looks extremely positive as the demand for upstream market of paper products is grown up. Most of the paper mills are in existence for a long time and hence present technologies fall in a wide spectrum ranging from oldest to the most modern production processes. The geographical spread of the industry as well as market is mainly responsible for regional balance of production and consumption.

Economic and income growth, population growth, Urbanization, young generation, rapidly changing lifestyles, preference to ready to eat foods and improvement in living standards increases the demand towards better quality packaging of FMCG products organized through organized retail.

The transition from rural to urban areas has led to an increase in demand for goods and also shifted to consumption pattern. Replicating the global market, the demand growth in India is largely led by consumer packaging paperboard segment, which is also impacted positively due to raising e- commerce. The increasing demand for paper brings with its new challenges of economies of scale, efficient usage of resources, need to develop and expand sustainable use of fibre, and value chain management, etc. Despite the fact that the Indian Paper Industry holds its importance to the national economy, unfortunately it stands fragmented.

Demand for Kraft paper

In a major blow to corrugated box manufacturers, prices of Kraft paper have risen by 23 % over the past period. Kraft paper is usually the brown paper that is commonly used for manufacturing brown bags, cartons, etc. Kraft papers are produced using Kraft process. Various fibers can be used in the kraft process. These papers are relatively coarse and have high tensile strength. Kraft papers are available in various textures and colors. Kraft papers are used in various industries such as food, bakery, and others, for packaging purpose. Kraft papers are used for producing carryout bags, grocery and shopping bags, butcher wrap, multiwall shipping sacks, and gift wrappers. Kraft papers are available in a variety of types, such as bleached, unbleached, sack, and specialty Kraft papers. Due to high sulfur ratio and less lignin content, Kraft papers are stronger than any other

paper used for packaging purposes. The outlook for the global kraft papers market is anticipated to be positive over the forecast period due to aforementioned reasons.

Corrugated boxes account for 85-90 per cent of the total demand for Kraft paper. Demand for Kraft paper depends on the growth in consumer durables, the manufacturing industry, horticulture, FMCG etc. Strong growth in end-user sectors such as pharmaceuticals, horticulture, ready to eat foods, marine products, textiles, consumer durables and other industrial products is expected to result in a buoyant growth for Kraft paper. Duplex boards which are mainly used as primary packaging for various products such as pharmaceuticals, cigarettes, matchboxes, agarbattis, toothpastes and other similar consumer items is witnessing robust demand. Growing agro-based sector, including horticultural products, fresh and canned fruits, etc. This, together with the Government policy to replace wooden crates by containerboard boxes particularly in fresh fruit packaging, will create new demand for corrugated boxes Demand Drivers for Kraft paper Consumption of industrial paper is closely linked to growth in the packaging industry, industrial production and development in packaging technology and substitution by other materials.

Demand for Jatropha Plants:

In India, it has been projected that there is a need to increase the primary energy supply by at least three to four times from their 2018-19 levels by 2031-32 in order to maintain same growth rate. On account of high targeted economic growth rate and with over 15% of the worlds population, India is likely to have a significant consumption of energy resources. High speed diesel (HSD) is the largest consumed petro-product in India on account of better mileage, power and lower price rate compared to petrol (gasoline). Among various alternatives to diesel, Planning Commission of India has identified Jatropha curcas L. (Jatropha), a non-edible oil seed tree whose oil can be easily converted into biodiesel with properties very similar to diesel. In India, the energy demand is increasing at a rate of 6.5% per annum. The crude oil demand of the country is met by import of about 80%.

As the Government has allowed sale of Bio-diesel (B100) by private manufacturers to bulk consumers like Railways, State Transport Corporations, the demand for jatropha plants has increased abnormally. Also, retailing of bio-diesel blended diesel by Public Sector OMCs has started on the same day. Outlets of Biodiesel blended diesel (B5) are increasing day by day and presently sold by OMCs in 6 states in more than 3621 retail outlets. In future the number of outlets is going to be increased drastically. (As per Annual Report Issued by the Ministry of Petroleum and Natural Gas)

OVERVIEW

Bio Green Papers Limited is in business of Kraft Paper Production and Processing of Jatropha plants. The Kraft Paper produced by the Company is of 70 GSM to 180 GSM quality range and used to make corrugated boxes, paper tubes, cones, match boxes, shoe boxes and cosmetic containers.

Product Profile

The line of business in which BGPL is engaged in are manufacturing of Kraft Paper board and cultivation and sale of Jatropha Plants

Kraft Paper: - Manufacturing Process of Kraft

Manufacturing process of Kraft consists of the following stages:

1. Selection of Waste Paper

2. Pulping

3. Chemical Additives

4. Paper Making

5. Finishing & Storage

SELECTION OF WASTE PAPER:

Raw material expense is ~45 to 50% of the revenue. Pulp is the primary raw material used for manufacturing paper, and it can be obtained through processing of wastepaper. In early years, paper industry was majorly dependent on wood as a raw material. However, due to increasing awareness and restriction on cutting trees focus has slowly shifted to waste paper and agro residue. The waste paper is so chosen that no deinking process is involved.

PULPING:

Waste Paper is fed into the high speed hydra pulper filled with plain water and rotated to form a masi known as water turbulence. The mass is discharged over the wire mash. Water collected is taken away This will give the paper higher bursting strength. Pulpers are either batch, which uses a tub with a higl shear rotor, or continuous, using a long, perforated drum. Drum pulpers are very expensive but hav< the advantage of not breaking up contaminants, thus giving cleaner end product. The pulper chops th paper to smaller pieces; water and chemicals are added. Normally the pH is adjusted to 8.5 - 10.0.

CHEMICAL ADDITIVES:

Paper chemicals designate a group of chemicals that are used for paper manufacturing, or modify the properties of paper. These chemicals can be used to alter the paper in many ways, including changing its color and brightness, or by increasing its strength and resistance to water. Addition of the different polysaccharides increased the tensile index and density of the paper. The largest increases in tensile index and stiffness were seen when combining cationic starches with CMC. With certain combinations of cationic starch and CMC, it was possible to increase the tensile index and stiffness of the paper, while maintaining the high elongation at break after unrestrained drying.

PAPER MAKING:

Paper can be defined as a sheet or continuous web of fibers. The strength of the paper is obtained by interlacing of fibers. The fibers in water suspension with requisite consistency are allowed to pass over the endless wire from where the drained away and the paper after pressing and drying are reeled. The strength of paper is determined largely by the length, diameter and

thickness of wall and flexibility and bonding characteristics of fiber used. The bulk density, porosity, uniformity and other properties are dependent on the inherent qualities of fibers as well as on the treatment given in the process of manufacture. Mixing, Cleaning and Refining are done in this stage. Waste paper pulp is properly mixed in a Beater. Any dust if remaining, is thoroughly removed. This pulp is passed through Vibrating Screen, Centrifugal Cleaner and refined in Disc Refiners.

PAPER FORMING:

The refined slurry, treated with additive chemicals and binding agents is pumped into Head Box of Paper Machine and couched on to the moving moulds which takes it to Press Rolls and paper is formed. The excess water has been squeezed out and paper formed is taken to MG Drier for drying by steam and reeling.

TRIMMING & PACKING:

The dried paper is trimmed in slitter for required width - usually 48" and packed on reels for selling.

Kraft Paper is used in:

1) Packaging of Consumer Durables (TV, Fridge/AC/Washing Machine), Oil Packaging, Textile Industries, Yarn Industries, Engineering Goods, Fruits / vegetables / Flowers, Pharmaceutical Companies, Foods & Beverages Companies, Glass Industries, Ceramic Industries, Auto Part, Garment Industries, Cosmetic Industries.

2) Tubes & Cones

Cone Tubes for Paper Mills, Core Polly Films/Plastic, and Textile tubes/Yarn Tubes.

3) Wrapping Purpose Wrapping of paper rolls/sheets, wrapping of laminate, Furniture wrapping, Bags Manufacturing. Also, to make corrugated boxes, / Match Boxes /Shoe Boxes, etc.

Kraft Paper Range:

GSM BF Deckle Size Cobb Die. of Reel Color
70 to 170 14 to 24 2500mm As per Requirement 48" Max. As per requirement

JATROPHA PLANTS:

The Company selects planting material from the seeds that have proven, over several seasons, to have high yield and seed oil content under the same irrigation and fertilization conditions that

are proposed for the new plantation. Seed from high-yielding jatropha plants is not generally available, due to the fact that the out-crossing seed selected from productive plants may or may not result in high-yielding and high-quality plants. So, the company select trees capable of producing more than 2 tonnes of dry seed per ha with 30 percent seed oil content should be selected as source material.

HUMAN RESOURCES & INDUSTRIAL RELATIONS

Industrial relations continue to remain peaceful at the manufacturing plant. All the employees are working with the Company for a common objective. Industrial relations of the Company were cordial during the year.

BOARD OF DIRECTORS

The composition of the Board of Directors during the Financial Year 2018- 2019 is as given below:

Sr. Name, Designation, No Nationality Age (years) Relationship
1 Velamala Jagdish Indian 51Yrs Promoter Director
Managing Director Elder Brother of (2)
2 Venkateswarlu Velamala Indian 47Yrs Promoter Director
Director Younger Brother of (1)
3 Kiran Kumar Garlapalli Independent Director, Chairperson Indian Independent Director
4 Mallikarjuna Sarma Guntur Indian 50Yrs
Independent Director Independent Director
5 Suneethi Gudapati Non-Executive Director NRI 49 Yrs Non-Executive Non-Independent Director
6 V. Krishnaveni Indian 43Yrs Non-Executive
Non-Independent
Non-executive Director Director

BRIEF PROFILE OF DIRECTORS:

Mr. Velamala. Jagdish: An Engineering Graduate in Mechanical Engineering from Osmania University, Hyderabad. Prior to becoming an entrepreneur Mr. Jagdish, pursued a career with Wartsila India Ltd, Rastriya Ispat Nigam Ltd at Vizag and worked on Engineering Projects with ABB Ltd. More than 22 years of experience in Plant Engineering and considered as the entrepreneur who set up Kraft Paper and Duplex Board facility at lowest capital cost.

Mr. Venkateswarlu Velamala: A Law Graduate from Andhra University and have 15 years of Experience in Project Implementation and administration.

Mr. Kiran Kumar Garlapalli: He is a MBA Graduate in Marketing and Human Resources having 11 years of experience in Banking and Marketing.

Mr. Mallikarjuna Sarma Guntur: He is a Commerce Graduate had work experience over 18yearsinthe field of Banking and Finance.

Ms. Krishnaveni is a Science Graduate having good experience in quality control management.

Ms. Suneethi Gudapati is an Engineering Graduate having good experience INTEREST OF THE DIRECTORS

Other than their respective shareholding in the Company and re-imbursement of expenses incurred and normal remuneration/sitting fee from the Company, the directors of the Company have no other interest in the Company.

RISK AND CONCERN

The risk is always the part and parcel of any business activity. The Company operates in a highly competitive environment that is subject to innovation and varying level of resources available to each player in this segment of business. The common risks inter alia are: Risk to Company Assets and Property, Employees Related Risks, Foreign Currency Risks, Risks associated with NonCompliance of Statutory enactments, Competition Risks, Operational Risks, Business risk, Technology obsolescence, Investments, Retention of talent and Expansion of facilities. Business risk, inter-alia, further includes financial risk, political risk, fidelity risk, legal risk. Immense competition is faced by the company from the international players and unorganized sectors. The Company is constantly reviewing the risk that would impact adversely. Cost of raw material and inflationary pressure also increase the cost of manufacturing, but the availability of raw material from the suppliers at the right time and at the right price has enabled the company to reduce the cost of manufacturing. For Inflationary pressures and its impact, the company has taken suitable cost control steps.

The Companys Human Risk is minimal as it enjoys a harmonious industrial relationship in the manufacturing units of the Company. Lack of clarity on future Government policy continues to be an area of major concern for the industry. The exact impact of this cannot be evaluated until the proposed changes are actually introduced and implemented.

CAUTIONARY STATEMENT:

Statement in this Managements Discussion and Analysis detailing the Companys objectives, projections, estimates, expectations or predictions are "forward -looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian demand-supply conditions, finished goods prices, stock

availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the Company conducts business and other factors such as litigation and labour negotiations.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS (i.e., change of 25% or more over the last 12 months):

The changes in Debtors turnover, Inventory turnover, current ratio, operating profit margin (%) and Net Profit margin (%) are not significant and are less than 25 %. Debt-Equity ratio and Interest coverage ratio are not applicable since the Company is a debt free.