I. INDIAN ECONOMIC REVIEW
The last two years have been difficult for the world economy on account of the COVID-19 pandemic. Repeated waves of infection, supply- chain disruptions and, more recently, inflation have created particularly challenging times for policy-making. Faced with these challenges, the Government of Indias immediate response was a bouquet of safety-nets to cushion the impact on vulnerable sections of society and the business sector. It next pushed through a significant increase in capital expenditure on infrastructure to build back medium-term demand as well as aggressively implemented supply-side measures to prepare the economy for a sustained long-term expansion. This chapter explains how this flexible and multi-layered approach is partly based on an "Agile" framework that uses feedback-loops, and the monitoring of realtime data.
Advance estimates suggest that the Indian economy is expected to witness real GDP expansion of 9.2 per cent in 2021-22 after contracting in 2020-21. This implies that overall economic activity has recovered past the pre-pandemic levels. Almost all indicators show that the economic impact of the "second wave" in Q1 was much smaller than that experienced during the full lockdown phase in 2020-21 even though the health impact was more severe.
The pandemic affected both demand and supply, at least in the short-term. As lockdowns eased across the world economic activity gradually started to recover. The contraction in GDP seen in many countries, including India, was because of reduced economic activity and restricted mobility, due to COVID-19 as people curtailed discretionary spending and focused on essentials and precautionary savings due to the level of uncertainty.
INDIAN ECONOMY RECOVERY
Despite all the disruptions caused by the global pandemic, Indias balance of payments remained in surplus throughout the last two years. This allowed the Reserve Bank of India to keep accumulating foreign exchange reserves (they stood at US$ 634 billion on 31st December 2021). This is equivalent to 13.2 months of merchandise imports and is higher than the countrys external debt. The combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide an adequate buffer against possible global liquidity tapering in 2022-23.
The fiscal support given to the economy as well as to the health response caused the fiscal deficit and government debt to rise in 2020-21. However, a strong rebound in government revenues in 2021-22 has meant that the Government will comfortably meet its targets for the year while maintaining the support, and ramping up capital expenditure. The strong revival in revenues (revenue receipts were up over 67 per cent YoY in April-November 2021) means that the Government has fiscal space to provide additional support if necessary.
II. SUPPLY CHAIN DISRUPTION AND THE PAPER INDUSTRY IN INDIA
The Indian paper market faces a difficult situation due to extreme undersupply and high input costs. The surge in production cost, logistics, chemicals, and raw materials, have forced paper mills to increase prices to all-time highs.
The years 2020 and 2021 have seen disruptions with respect to the world supply chain, consequent upon pandemic upheaval. This disruption had adversely affected the goods sector and had enhanced the service sector like never before. While this is a welcome trend for the service sector, one should do well to remember that at the core of majority of service sector activities lay the exchange of goods, and hence any supply chain disruption will ultimately be a major concern for both the goods as well as the service sector. Therefore, a look into the supply chain situation for 2022 should be of major interest for the entire business community, while knowing how rough the ride could be to do any crystal-ball-gazing into the world shipping trend for 2022, given the pandemic situation plus the war in Ukraine.
This matter is, however, extremely important for the paper industry in India, since the greater part of its total production volume relies on raw materials procured from the overseas supply chain through international shipping routes, more so because the paper industry in India has never bothered to build up a dedicated supply chain, being too enamored in reaching corporate goals through buying cheap.
The havoc on the supply chain started with the shortage of shipping containers at the beginning of the pandemic. The cargo containers being at the heart of all supply chains, their shortages at the supply point wrecked havoc on the international supply chain. But, surprisingly enough, this shortage was not due to a smaller number of containers, vis-a-vis the available cargo for shipment. According to Harvard Business School Professor Willy Shih, this was rather due to the growing container imbalance, a messy build-up of containers in places where they are not supposed to be. With the beginning of pandemic related shutdown, containers started to pile up at major importing centers, while their availability suffered at the exporting hubs.
On reviewing various aspects of the international business trend and shipping, in all likelihood, this Covid-19 related supply chain disruptions will continue through the greater part of 2022. Even Maersk shipping, one of worlds largest shipping lines predicts the same trend in international cargo shipment, as in 2021, to continue for the bulk of the months of 2022. According to Goldman Sachs, backlogs in availability of shipping space and high shipping cost will continue to persist for 2022.
III. GROWTH AND OPPORTUNITIES
In the last two financial years, India has become a net exporter of paper in terms of volume. Paper consumption in India is likely to witness 6 to 7 per cent annual growth and will reach 30 million tonnes by FY 2026-27, largely driven by emphasis on education and literacy coupled with growth in organised retail. As the economic activity opens up in the post-pandemic era, the growth momentum is likely to get further acceleration.
Paper Industry in the country has undergone a transformation of sorts in the last few years. The industry has gone up the sustainability curve and has become far more technologically advanced.
Exports of paper and paperboard from India jumped nearly 80 per cent in the financial year 2021-22, touching a record Rs 13,963 crore, according to the industry body IPMA (Indian Paper Manufacturers Association).
"In terms of value, exports of coated paper and paperboard increased by 100 per cent, uncoated writing and printing paper by 98 per cent, tissue paper by 75 per cent and Kraft Paper by 37 per cent," the IPMA said.
"In volume terms, paper exports from India have grown four-fold from 0.66 million tonnes in the financial year 2017 to 2.85 million tonnes in the financial year 2022. Similarly, in value terms, the figures for the same year increased from Rs 3,041 crore to Rs 13,963 crore," it said.
Paper plays a key role in communication and as a packaging material. Demand for paper is closely linked to the prevalent economy conditions. Paper industry continues to have a reasonably moderate prospect in India during next few years as the demand of paper and paper products grow in line with the GDP growth. Paper continues to enjoy a relatively healthy demand on account of (i) lifecycle of a paper product from manufacture to consumption and disposal is short, as paper is used more in the nature of a consumable and not as a durable (ii) Wide usage, right from an individual to a corporate entity and (iii) no real low cost substitutes for paper.
The Indian paper and paperboard industry has the potential and the capabilities to service the demand in domestic and international market; and also to create huge employment avenues in rural India through agro production and forestry. This will only strengthen if the competitiveness of the value chain is encouraged by the government.
The India Paper and Paperboard Packaging Market was valued at USD 10.77 Billion in 2021 and is expected to reach USD 15.69 Billion by 2027, registering a CAGR of 6.63% during the forecast period of 2022-2027.
The paper and paperboard packaging business experienced growth over the last decade, owing to changes in substrate choice, expansion of new markets, changing ownership dynamics, and government initiatives to ban plastic. Sustainability and environmental issues continue to be emphasized, and various innovations catering to paper and paper board packaging are expected to drive market growth in India.
The paper and paperboard packaging industry in India is growing rapidly and spanning various end-user segments, such as food and beverages, healthcare, personal care, household care, and others. Strong favorable demographics aside, factors like growing disposable income levels, increasing consumer awareness, and demand for processed food are the key drivers impacting the growth of the paper and paperboard packaging industry.
V. RISKS AND CONCERNS
The Company is deriving 100% of its revenue from paper and board business. Environmental issues, continuous availability of raw materials & fuels and increasing interest rates are the important issues concerning the paper industry.
The paper industry is one of the highly polluting categories of industries today. The Company is meeting all the norms as prescribed under Environment Protection Act, 1986 and other environmental laws consistently.
VI. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
|(Rs. in Lakh)|
|Profit before Tax (PBT)||611.93|
|Profit after Tax (PAT)||831.42|
|EPS (Basic & Diluted) (in Rs.)||0.32|
The Company posted Net sales of Rs. 43989.29 Lakh and the Net profit after tax stands at Rs. 831.42 Lakh.
The Company has maintained a healthy capital structure as is evident from its debt to equity ratio which is as follows:
|S. No.||Particulars||March 31, 2022||March 31, 2021|
|3||Interest Coverage Ratio||7.48||7.91|
|5||Debt Equity Ratio||0.39||0.11|
|6||Operating Profit Margin (%)||1.39%||3.22%|
|7||Net Profit Margin (%)||1.89%||2.69%|
|8||Return on Net Worth||1.32%||2.77%|
VII. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
Your Company has evolved a system of internal controls to ensure that the assets are safeguarded and transactions are authorized, recorded and correctly reported. The internal control system is supplemented by management reviews and independent periodical reviews by the outside chartered accountancy firms which evaluate the functioning and quality of internal controls and provides assurance of its adequacy and effectiveness. The scope of internal audit covers a wide variety of operational methods and, as a minimum, ensures compliance with specified standards with regard to availability and suitability of policies and procedures, extent of adherence, reliability of management information system and authorization procedures including steps for safeguarding of assets. The Reports of internal audit are placed before Audit Committee of the Directors. Audit Committee reviews such audit findings and the adequacy of internal control systems. The Statutory Auditors, Internal Auditors and the Cost Auditors of the Company also interact with the Audit Committee to share their findings and the status of corrective actions under implementation.
VIII. HUMAN RESOURCES
Inspite of enduring perhaps the toughest phase in the Companys history it must be mentioned that the trusted loyal work force has always stood firmly in the hour of need. The Company also looks after its human resources well and always judiciously rewarded performance.
IX. CAUTIONARY STATEMENT
Statements in this "Managements Discussions and Analysis" describing the Companys objectives, projections, estimates, expectations or predictions may be "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, raw material availability and prices, cyclical demand, changes in Government regulations, environmental laws, tax regimes, economic developments within India and abroad and other factors such as litigation, industrial relations and other unforeseen events.
Gold/NCD/NBFC/Insurance and NPS
Gold/NCD/NBFC/Insurance and NPS