Kay Power & Paper Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENT

The Indian packaging industry continues its robust expansion in FY 2025-26, emerging as a major growth driver for the Kraft paper segment. The sustained demand from key end-user industries·such as food and beverages, pharmaceuticals, e-commerce, consumer durables, and personal care· has significantly contributed to the rising consumption of Kraft paper. With e-commerce and quick-commerce platforms experiencing exponential growth, the requirement for strong, lightweight, and sustainable packaging materials like Kraft paper has intensified. Industrial and manufacturing sectors, including cement, textiles, FMCG, and electronics, have also demonstrated increased reliance on Kraft paper for packaging, storage, and logistics purposes. These sectors are undergoing structural expansion, thereby pushing the demand for Kraft paper packaging solutions. The shift in consumer preferences and the retail landscape·from unorganized to organized retail formats like supermarkets, hypermarkets, and large-format stores· continues to influence packaging requirements. Kraft paper, appreciated for its biodegradable nature and aesthetic appeal, is increasingly being used for branded packaging by modern retail chains.

Additionally, Indias position as a key exporter of textiles, pharmaceuticals, handicrafts, and auto components has supported demand for high-performance packaging materials. Kraft paper plays a pivotal role in export-grade packaging, offering both cost efficiency and environmental sustainability.

Government initiatives launched under the ‘Make in India and ‘Atmanirbhar Bharat programs, along with regulatory measures aimed at reducing plastic usage and encouraging sustainable packaging alternatives, have provided a favorable policy backdrop for the growth of the Kraft paper industry. These initiatives are expected to enhance domestic manufacturing and promote

the adoption of eco-friendly materials in industrial applications.

As per industry estimates, Indias Kraft paper market was approximately 11.02 million tons in 2024, with projections to reach over 21 million tons by 2033, reflecting a CAGR of around 7.2% (2025-33). Kraft paper continues to dominate the paperboard and industrial packaging segment, accounting for approximately 52.5% of total segment consumption in FY 2025-26.

The Indian paper industry is broadly categorized into the following segments:

1. Paperboard and industrial packaging paper

2. Writing and printing paper

3. Newsprint

4. Specialty papers

Kay Power and Paper Ltd, strategically located in Satara, Maharashtra, is engaged in the manufacturing of Kraft paper using Indian and imported wastepaper as raw material. During FY 2024-25, the Company maintained its commitment to product quality and customer satisfaction through rigorous quality assurance practices, which have enabled strong client retention and operational efficiencies.

While the sector has witnessed considerable capital investments aimed at capacity augmentation, industry participants continue to face challenges in the form of raw material shortages and increased imports. These factors have impacted input costs and the economic viability of new projects. However, the long-term outlook remains positive, given the increasing awareness of sustainability and the growing demand for biodegradable packaging.

The industrys contribution to the economy remains significant, with an estimated annual gross capital formation of 8,500 crore, generation of direct employment to over 15,000 individuals annually, and creation of 72 million man-days of livelihood opportunities per year through agro and farm forestry initiatives.

OPPORTUNITIES AND THREATS:

Opportunities

The Indian Kraft paper market is witnessing strong growth momentum, driven by increasing awareness of the adverse environmental impact of plastic and other non-biodegradable packaging materials. The rising demand for compostable and sustainable packaging solutions is fuelling the adoption of Kraft paper across various end-user industries.

In addition to traditional applications, Kraft paper is gaining popularity in gift wrapping, events, weddings, and premium packaging due to its aesthetic appeal, textured finish, and versatility. The rising preference for natural, eco-conscious designs has expanded Kraft papers presence in these niche markets. Another significant growth driver is the increasing use of saturated Kraft paper in the construction sector for applications such as countertops, partitions, and flooring, where technical strength and durability are critical. The e-commerce and logistics sectors continue to be major consumers of Kraft paper. Its strength, folding resistance, and compression durability make it an ideal material for protective packaging during transit. The exponential growth in online shopping and direct-to-consumer deliveries further enhances this demand.

From a regulatory perspective, the Government of Indias active measures to phase out single-use plastic have created a favorable environment for the Kraft paper industry. For example, in June 2022, the Central Pollution Control Board (CPCB), under the Ministry of Environment, issued directives to restrict specified plastic products, thereby accelerating the demand for paper-based alternatives.

Additionally, increasing adoption of Kraft paper in the printing and publication sectors, along with the development of advanced packaging formats such as stand-up pouches and zipper pouches, is expected to unlock further growth potential in the years ahead.

Threats and Challenges Despite favorable market trends, the Kraft paper industry continues to face several operational and structural challenges:

1. Raw Material Availability, Quality, and Cost

The availability, quality, and pricing of raw materials·primarily wastepaper and pulp·pose significant challenges. Rising demand coupled with limited domestic supply has driven up procurement costs. Additionally, the quality of input fiber directly impacts the quality and strength of the final product. Manufacturers must diversify sourcing channels, explore alternative fibers (such as agro-based residues), and adopt sustainable procurement practices to ensure consistency and cost control.

2. Energy Efficiency and Sustainability The paper manufacturing process is energy-intensive, leading to high power and fuel costs. To address this, companies need to invest in energy-efficient technologies, process optimization, and renewable energy adoption to lower their carbon footprint and operational expenditure.

3. Technological Advancements

Rapid advancements in manufacturing technologies and automation require continuous upgradation to maintain competitiveness. Failure to adapt may result in inefficiencies, higher production costs, and compromised product quality. Investments in automation, digital monitoring systems, and smart manufacturing tools are essential to drive innovation and operational excellence.

4. Environmental Concerns

The industry must address concerns related to deforestation, high water consumption, and pollution. Regulatory expectations are becoming more stringent. Manufacturers must implement responsible forestry practices, reduce water and energy use, and strengthen recycling and waste management initiatives to meet sustainability goals.

5. Global Competition

Globalization has intensified competition, particularly from low-cost manufacturers in other regions. Indian producers must differentiate themselves through quality, innovation, and service excellence.

Strategic partnerships, R&D collaborations, and value-added product offerings can help maintain competitiveness in domestic and export markets.

6. Quality Control

Maintaining consistent product quality is critical to customer satisfaction and brand reputation. Variability in inputs can result in inconsistent outputs. To mitigate this risk, companies must implement robust quality control frameworks, real-time monitoring, and continuous process improvements.

7. Regulatory Compliance

Evolving environmental, safety, and product quality regulations require strict adherence. Non-compliance can lead to penalties and reputational damage. Companies must invest in compliance systems and ensure alignment with national and international standards.

8. Changing Consumer Preferences Consumers are increasingly demanding environmentally friendly, recyclable, and biodegradable packaging materials. Manufacturers need to respond swiftly to these trends by integrating green practices, enhancing product innovation, and improving product visibility in ecoconscious segments.

SEGMENT-WISE OR PRODUCT WISE PERFORMANCE

The Company operates exclusively in the paper segment, with a focus on the production and marketing of Kraft paper. There are no reportable secondary segments during the financial year.

The Company has developed and maintained a well-established dealer network across Western and Southern India, which continues to serve as a strong distribution backbone for its paper products. During the year under review, the Company focused on further strengthening its dealer network and actively pursued new order opportunities to enhance market reach and customer engagement. The Company manufactures a diverse range of Kraft paper, with grammage varying from 80 GSM to 180 GSM, catering to a broad spectrum of applications and end-user industries. This product flexibility allows the Company to serve various market segments, including packaging, industrial wrapping, e-commerce, and retail sectors.

During FY 2024-25, the Company successfully sold its entire production output without any difficulty, reflecting the consistent demand for its products and the reliability of its supply chain. The strong product quality, customer trust, and responsiveness to market requirements have contributed to the Companys sustained performance in a competitive market environment.

REVIEW OF PERFORMANCE During the financial year 2024-25, the Company achieved Sales and Other Operating Income of 4285.71 lakhs. This reflects stable performance in a competitive and evolving market environment. The management remains focused on enhancing operational efficiency, optimizing capacity utilization, and responding proactively to market trends to improve the overall financial and operational performance in the forthcoming periods.

The Company successfully met market demand and was able to sell its entire output without difficulty, indicating healthy demand for its Kraft paper products and a strong relationship with its distribution network and end-users.

STRATEGIES

To maintain its competitive edge and respond to dynamic market conditions, the Company continues to implement the following strategic initiatives:

• Quality Enhancement: The Company remains committed to consistently improving the quality of its Kraft paper to align with evolving customer requirements and industry standards. Enhanced quality has been a key factor in strengthening customer loyalty and expanding the customer base.

• Technology Upgradation: The Company is progressively adopting latest technologies to manufacture various grades of Kraft paper more efficiently and sustainably. Investments in machinery and process optimization are aimed at improving product consistency, reducing waste, and increasing productivity.

• Customer-Centric Approach: By delivering high-quality Kraft paper and ensuring timely fulfillment of orders, the Company has seen a steady increase in its customer base. Customer satisfaction continues to be a central focus of the Companys growth strategy.

Looking ahead, the Company will continue to explore new market segments, focus on sustainability, and enhance operational capabilities to drive growth and value creation for all stakeholders..

OUTLOOK, RISK AND CONCERN MANAGEMENT PERCEIVES

The paper industry is inherently cyclical and closely linked to global demand-supply dynamics of pulp, wastepaper, and finished paper products. Global price fluctuations, input costs, and trade policies significantly influence industry performance. Despite these inherent volatilities, the outlook for the Indian paper industry remains positive, driven by increasing demand for sustainable packaging, growth in the FMCG and e-commerce sectors, and rising environmental consciousness favoring paper over plastic.

In this favorable environment, the Company is well-positioned to leverage emerging opportunities and respond effectively to evolving market needs. With an emphasis on quality, operational efficiency, and customer engagement, the Company is geared to meet future challenges and expand its market presence.

However, certain risks and concerns remain:

• Raw Material Availability and Cost: The

Companys operations are dependent on the continuous supply of quality wastepaper and other raw materials. Volatility in raw material prices, especially due to rising demand and competition among paper mills, may impact production costs and margins.

• Competitive Pressure: Increased competition within the domestic paper industry, along with cheaper imports, poses pricing pressures that can affect profitability.

• Environmental Regulations: The paper industry is subject to stringent environmental norms. Ensuring compliance with evolving regulations may require additional investment in sustainability and pollution control infrastructure.

• Energy and Input Costs: Rising power, fuel, and logistics costs remain a concern, particularly for energy-intensive operations like paper manufacturing.

In light of these challenges, the Company continues to monitor risks proactively, diversify sourcing strategies, invest in technology upgrades, and strengthen cost control mechanisms to maintain operational resilience and long-term sustainability.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has in place an adequate internal control system, commensurate with the nature and size of its operations, to ensure the safeguarding of assets, prevention and detection of fraud and errors, and reliable financial reporting.

All transactions are properly authorized, documented, recorded, and reported to the management in accordance with established policies and procedures. The Company adheres to all applicable Accounting Standards and regulatory requirements to ensure accuracy and transparency in the preparation and presentation of its financial statements. The internal control system is periodically reviewed and enhanced to align with best industry practices and regulatory expectations, thereby ensuring the Companys operations remain robust, compliant, and risk-resilient.

HUMAN RESOURCE DEVELOPMENT/ INDUSTRIAL RELATIONS The Company continues to uphold fair and transparent human resource practices, providing equal opportunity to all employees regardless of background. The Companys HR policy emphasizes on-the-job training, performance-based remuneration, talent retention, and initiatives aimed at promoting work-life balance. Employees are encouraged to take ownership, demonstrate a proactive attitude, and embrace challenges·fostering a culture of accountability and continuous improvement.

Recognizing the importance of skill development, the Company has implemented a structured program to upgrade the skills of its workforce with the objective of manpower rationalization and productivity enhancement. Regular training programs are conducted to equip employees with updated technical and operational competencies aligned with industry standards.

The Company values open and transparent communication and maintains continuous interaction between management and employees, promoting a collaborative and supportive work environment.

As of March 31, 2025, the total number of employees stood at 49 The Company remains committed to nurturing human capital as a strategic asset, ensuring

that its workforce remains competent, motivated, and aligned with its long-term goals.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE.

Financial performance with respect to operational performance is explained in detail in the beginning of the Directors Report. The management is making continuous efforts to improve its financial and operational performance.

There were significant changes in the following ratios (i.e. change of 25% or more as compared to the previous financial year) during the financial year 2024-25 compared to immediately previous financial year.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report contains certain forward-looking statements, which are based on current expectations, estimates, forecasts, and projections about the Companys operations, industry trends, and anticipated future performance. These statements are also based on assumptions regarding economic conditions, government policies, market dynamics, and other factors, which are inherently uncertain and subject to change.

While the Company believes these assumptions to be reasonable and sound to the best of its knowledge, it does not guarantee the accuracy or completeness of such statements. Actual results may differ materially from those expressed or implied in this report due to a variety of risks, uncertainties, and other unforeseen factors beyond the Companys control.

The Company, therefore, advises readers to exercise caution and not place undue reliance on these forward-looking statements.