Cosboard Industries Ltd Management Discussions

PERFORMANCE REVIEW:

In the competitive market, the Company was able to achieve Sales and Other Income, in monetary terms for the year to NIL as compared to previous year of Rs. 1,40,66,674 in the previous year and the Loss is Rs. 3,59,60,284 as compared to a loss of Rs. 39,83,85,253 in the previous year. The profitability of the Company has been affected drastically due to break down of plant & machinery, boiler and labour unrest, which resulted into a huge loss during the year.

INDUSTRY OVERVIEW:

The Indian paper industry is highly fragmented. According to estimates, the total number of mills vary from anywhere between 500 to over 1000. The top five producers account for 15 per cent of the total paper capacity in the country. The industry is highly diverse, technical and capital intensive. Further norms relating to environmental pollution such as chlorine free operations and tighter effluent treatment/discharge parameters etc. have restricted rapid expansion of paper industrys capacity. Paper consumption is an indicator of the economic and literacy status of any country. While India accounts for nearly 15% of the world population, it consumes only1% of the world paper production. Indias per capita consumption of paper at about 7 kgs. is very low as compared to the world average of over 50 kgs. The impact of just 1 kg. Increase in per capita consumption would lead to increase in demand by 1.1 million M.T. of paper. Paper demand is inextricably linked to economic growth, industrial production, advertisement expenditure, expenditure on education etc. while industrial paper demand is driven by industrial output and packaging industry growth etc. printing and writing paper demand is determined by public spending on education, expenditure on publicity and general literacy levels. The growing demand of paper has encouraged a gradual improvement in capacity utilizations. Stringent pollution control norms will act as a determent to smaller players from adding capacities as it would require significant investment to upgrade the existing facility to meet these norms. Though currently there is no law in force, the company that the Indian paper industry will be compelled to eliminate the use of chlorine for bleaching in the next few years.

The paper industry in India is dependent on three parameters:

1. The literacy level (which is dependent on government expenditure on education).

2. The GDP growth rates India has witnessed phenomenal development in the field of education - both in quantitative and qualitative terms, since independence. However, the national goals of universal elementary education and total eradication of illiteracy still remain elusive. The Government is committed to achieving these national goals and has been steadily increasing the budgetary allocation for education. The Country has also made significant strides in higher and technical education. With the Indian economy on a growth path and the government increasing emphasis on the education the future of the Indian paper industry looks positive with immense growth potential.

3. The domestic demand of paper has been forecasted over 14 Million M.T.by the year 2020. At present the demand of the paper is witnessing a healthy growth of 6.6% (app.) as compared to 5 percent (pp.) in the past. The Indian paper industry is highly fragmented with a large number of organized and unorganized players operating in the market. Some of the key players in the industry are Ballarpur Industries, ITC, Sirpur Paper Mills, West Coast Paper Mills, J K Paper, Century Paper Mills, Tamil Nadu Newsprint, Hindustan Paper Corporation Limited, Rama Newsprint & Papers Limited etc. Indian paper industry needs the following to be globally more competitive: ^•

• Sustained availability of good quality of raw materials (forest based) and bulk import of waste paper to supplement the raw materials supplies.

• Adequate modernization of the manufacturing facilities.

• Improvement of infrastructure.

• Quality improvements and reduction in cost of production.

• Import policy conducive for import of material, equipment, instruments, raw materials and technologies.

• Achieving Economies of Scale.

However, the Prospects of paper industry appear positive with the existing demand-supply gap, and the Governments focus on education at every level. The further imposition of 1% Higher education Cess and Education Cess of 2% introduced by the Government reflects the focus of the Government towards Education in the Country. The above steps initiated by the Government are expected to further fuel the demand for paper.

Domestic paper prices are linked with international price. Hence, paper prices in India are very much dependent on the international demand supply situation for paper. However, recent stress on education sector and growth in the retail sector has acted as a catalyst for demand in packaging grade paper and therefore the fortunes of the Indian Paper Industry is largely internally driven.

OUTLOOK FOR THE COMPANY:

The paper industry has been showing signs of increasing demand, and the long-term outlook and growth prospects of the industry appear positive.

The rapid industrialization of the country during the previous five years plans together with the increase in population escalated the countrys demand for paper and paperboards. The extent of usages of paper & Packaging Industry in a country is generally taken as parameters of its cultural and industrial activities. It plays an increasingly important role in modern civilized society.

FACTORS AFFECTING OUR FUTURE RESULTS OF OPERATIONS:

Our future results of operations may potentially be affected by the following factors:

• Competitive conditions in the industry.

• Growth of paper sector in India.

• Our ability to continuously operate and maintain our manufacturing facilities optimally.

• Technological changes in the industry.

• Escalation in prices as well as the availability of raw materials.

• General economic and business conditions in India.

HUMAN RESOURCES:

The Company continues its focus on development of human resource. The relations of the management with employees during the year continued to be cordial. Learning and development has been strengthened to bring value addition in the employee and to enhance Team Building leading towards success. The Company focuses on providing the employees motivating work environment and excellent career development opportunities.

INTERNAL CONTROL SYSTEMS:

The Company has effective internal control systems for compliance of laws, rules and regulations to safeguard the interest of the Company. The Company maintains a system of internal controls designed to provide reasonable assurance regarding the effectiveness and efficiency of operations and for safeguarding the assets of the Company and for ensuring appropriate recording and reporting of financial information for ensuring reliability of financial controls and for ensuring compliance of applicable laws and regulations. The internal audit covers a wide variety of operational matters and ensures compliance with specific standards with regard to reliability and suitability of policies and procedures. The internal auditor system report to the top management through Chairman & Managing Director and continuously monitors adherence to lay down systems and policies through a structured internal audit process. The systems are regularly reviewed and modified for changes in operating and regulatory requirements. The Audit Committee reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening the same from time to time.

RISKS & CONCERNS:

The unprecedented variation in the prices of raw materials, particularly Waste paper, Chemicals, consumables, coal and other inputs for executing paper orders in uncertain market condition. The unutilized capacity in the paper industry and intense competition adversely impact product prices and margins.

The domestic demand supply scenario is expected to be balanced even though a number of capacity expansions are expected to be implemented by various companies the state over the next 1-2 years. In this scenario, the player with lower production costs would be in a position to utilize capacities optimally.

The products prices are subjected to changes with international price. Sharp fall in price will affect the profitability of the unit.

Adverse climatic condition will affect the supply line of the product which will affect the operation and profitability.