Kuantum Papers Ltd Management Discussions

<dhhead>Management Discussion & Analysis</dhhead>

1. Overview

The objective of this report is to convey the Management’s perspective on the external environment, the paper industry, the strategies involved, operating and financial performance, developments in human resources and industrial relations, risks and opportunities, as well as internal control systems and their adequacy in the Company during the financial year 2023-24. This should be read in conjunction with the Company’s financial statements, the schedules and notes thereto and other information included elsewhere in the Report and Annual Financial Statements 2023-24. The Company’s financial statements have been prepared in accordance with Indian Accounting Standards (‘Ind AS’) complying with the requirements of the Companies Act, 2013, as amended and regulations issued by the Securities and Exchange Board of India (‘SEBI’) from time to time.

2. Global Economy

Global economic growth dropped from 3.5% in 2022 to around 3.1% in year 2023. Asia was however centre of growth despite challenges like weaker recovery in China, sustained US weakness, higher energy costs in Europe, weakened consumer sentiment due to conflicts, and increased logistics costs from Red Sea crisis.

Tightened monetary policies led to higher policy and interest rates, hampering new investments.

These factors slowed down growth in advanced global economies from 2.6% in 2022 to 1.5% in 2023. The projections for advanced global economies are at 1.4% in 2024 due to policy tightening, European sluggishness, recessions in Britain and Japan, and heightened energy costs from global conflicts.

Emerging markets and developing economies showed a more optimistic outlook, with a slight growth decline from 4.1% in 2022 to 4.0% in 2023. Emerging Markets are expected to show , sustained growth through 2024.

Global inflation is expected to decline steadily, from 6.8 percent in 2023 to 5.9 percent in 2024, aided by tight monetary policies and lower international commodity prices. and 4.5 percent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies.

Core inflation’s decline is expected to be slower, with a return to target not anticipated until 2025 in most cases. The US Federal Reserve approved a significant interest rate hike, bringing benchmark borrowing cost to their highest level in over 22 years.

Global growth in 2023 continued at an annual rate above 3%, despite the drag exerted by tighter financial conditions and other adverse factors, including Russia’s war of aggression against Ukraine and the evolving conflict in the Middle East.

The IMF forecast global real GDP growth of 3.2% for 2024 and 2025 - the same rate as in 2023. The 2024 forecast was revised upward by 0.1 percentage point from the previous World Economic Outlook’s estimate in January, 2024 largely due to a significant upward revision in the U.S. outlook.

As per S&P Global also, in 2024, global GDP is expected to grow at a healthy 3.2%. Growth in emerging markets and China will lead the way, while growth in the US is forecast to stand at 2.5%, and the eurozone will trail at 0.7%. Resilient labor markets have helped to power global growth and service sector demand has remained steady.

Asia is expected to emerge as a pioneer in global growth in 2024-25, with its economy projected to represent 49% of the world’s GDP and grow at a rate of 4.5%, remaining the largest contributor to global economic expansion.

Despite high inflation and monetary tightening, the global economy displays resilience, maintaining growth levels for the next two years.

3. Indian Economy

Despite the global slow and steady growth, India’s economic growth rate is stronger than in many peer economies and reflects relatively robust domestic consumption and lesser dependence on global demand. The Government of India’s strong infrastructure push under the Prime Minister’s Gati Shakti (National Master Plan for Multimodal Connectivity) initiative, logistics development, and industrial corridor development will contribute significantly to raising industrial competitiveness and boosting future growth.

According to RBI, the Indian economy grew at 7.6% in 2023-24, its third straight year of 7% plus GDP growth. This year the economy is expected to grow at 7% with the manufacturing sector showing sustained expansion. A normal monsoon will also lead to recovery in rural demand. The external sector is also looking up which could would lead to a recovery for Indian exporters.

With a growth rate of 7.8% in the 2023-24 fiscal year compared to 7.2% in 2022-23, India maintains its position as the fifth-largest economy.

In 2023-24, India’s real GDP reached Rs. 171.79 lakh crore, up from Rs. 160.06 lakh crore in 2022-23, with a growth rate of more than 7%.

India’s net direct tax collection surged by 19% to Rs. 14.71 lakh crore by January 2024, with gross collection up by 24.58% compared to the previous year. Gross

GST collection reached Rs. 20.2 lakh crore, marking an 11.7% increase, with an average monthly collection of Rs. 1,68,000 crore, surpassing the previous year’s average of Rs. 1,50,000 crore.

India’s foreign exchange reserves soared to a historic high of US $ 645.6 billion by the end of FY 24. Indian companies maintained strong credit quality in the second half of the year, supported by deleveraged balance sheets, sustained domestic demand, and government-led capital expenditure. The gross non-performing asset ratio for scheduled commercial banks decreased to 3.2% as of September 2023, down from 3.9% in March 2023. Rating upgrades continued to outnumber downgrades in the second half of FY24. UPI transactions in India witnessed a record 56% increase in volume and a 43% rise in value during FY24.

India withstood global headwinds in 2023 and is likely to remain the world’s fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass US$ 4 trillion in 2024-25.

4. Global Pulp and Paper Industry

The global pulp and paper sector are one of the primary sectors, renowned for its wide-ranging applications in writing and printing. The global pulp and paper market size was worth around US$ 365.60 billion in 2023 and is projected to surpass the valuation of US$ 434.36 billion by 2031 at a CAGR of 2.35% between 2024 and 2031.

Increasing consumer awareness of health and wellness is a key catalyst propelling the pulp and paper market forward, driving increased demand for related products.

Concurrently, technological progressions within the industry are fostering the adoption of more efficient and sustainable production methods, amplifying market expansion.

The e-commerce business is expected to grow to over US $100 billion by 2025. The carton board market is significantly influenced by the burgeoning e-commerce logistics industry, driven by evolving consumer behavior and the increased prevalence of online shipping.

The global carton board market size is estimated at US$ 71.93 billion in 2024 and is expected to reach US$ 98.41 billion by 2029, growing at a CAGR of 6.47% during the forecast period i.e. from year 2024 to 2029.

5. An overview of the Economy and Business Environment

India’s growth continues to be resilient. India is forecast to grow by 7% in 2024-25 and healthy domestic demand in India will also support regional growth.

With the support of various industry-promoting programmes like the Production-Linked Incentive (PLI) scheme and the government’s "Make in India" initiative, the manufacturing sector can potentially expand into a US $ 1 trillion industry by 2025–2026. Additionally, Indian government initiatives like infrastructure projects and ease of doing business reforms are propelling the growth of a more competitive and healthy manufacturing sector.

Furthermore, the emphasis on manufacturing in India, various government incentives such as lower taxes, and rising services exports on the back of stronger digitization and technology transformation drive across the world will aid in growth. Also, several spillover effects of geopolitical conflicts could enhance India’s status as a preferred alternate investment destination.

80 per cent of India’s merchandise trade with Europe passes through the Red Sea, with key products such as crude oil, auto & auto ancillaries, chemicals, textiles, and iron and steel . Due to the Suez Canal being affected, which acts as a major juncture between Asia and Europe , the combined impact of higher freight costs, insurance premiums, and longer transit times could make trade transactions more expensive.

6. Industry Structure and Development

India is the 15th largest paper producer in the world. Demand for paper products, including writing papers, printing papers, and specialty papers, has been steadily increasing. India accounts for about 5% of the global paper market. The market value of the Indian paper industry is expected to reach US$ 19.1 billion in 2033. The market value of the Indian paper industry is expected to grow from 2024 to 2033 at a CAGR of around 7.5%.

With the increase in literacy rate, more and more students are entering the education system and the demand for notepads, textbooks and supplementary materials is increasing and giving a positive boost to the paper industry. The future growth trend of the Indian paper industry is also being driven by the increasing demand for corrugated and household paper products.

India’s paper industry is flourishing both within the country and globally, fuelled by an increase in global demand. This growth is driven by the lifting of pandemic-related restrictions and the prohibition of single-use plastics.

Indian population is around 15% of world population but consumes only 5% of the total paper produced in the world. India’s growing FMCG sector and high spending in education coupled with growth in organised retail and demand for better quality paper as well as more health consciousness of people, etc., are triggering factors of growth prospects of Indian Paper Industry. The industry provides direct employment to 0.5 million persons, and indirectly to around 1.5 million.

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. The mills use a variety of raw material viz. wood, bamboo, recycled fibre, bagasse, wheat straw, and grasses. In terms of share in total production, approximately 18% are based on wood, 73% on recycled fibre and 9% on agro-residues. The geographical spread of the industry, as well as market, is mainly responsible for the regional balance of production and consumption.

The paper Industry holds immense potential for growth in India as the per capita consumption is one of the lowest at around 15-16 kg, which is way behind the global average of 57 kg (200+kg for developed countries). India is the fastest-growing market for paper globally and it presents an exciting scenario; paper consumption is poised for a big leap forward in sync with economic growth. The futuristic view is that growth in paper consumption would be in multiples of GDP and hence an increase in consumption by one kg per capita would lead to an increase in demand of 1 million tonnes. Healthy demand for printing and writing paper and firm realisations are further expected to drive growth for paper manufacturing companies.

The literacy rate in the country is 74.04%, 82.14% for males and 65.46% for females. This rise is largely attributable to the following Government’s flagship schemes:

1. Pradhan Mantri Kaushal Vikas Yojana (PMKVY),

2. Mahila Samakhya Programme,

3. Sarva Shiksha Abhiyan (SSA),

4. Beti Bachao Beti Padhao,

5. Strengthening for providing quality Education in Madrassas,

6. Rashtriya Madhyamik Shiksha Abhiyan ,

7. Saakshar Bharat (Adult Education) and lastly,

8. Make in India program

Writing & Printing Paper demand is expected to increase 3-5% CAGR over the current demand by fiscal 2025. Enrolment of students (schools as well as higher education) is expected to increase at a relatively faster pace of 1.5-2% CAGR over the next years. Also, with the New Education Policy coming to effect and a gradual rise in education spend by the government, alongwith an increased thrust on education (through initiatives such as Sarva Shiksha Abhiyaan/Education for All) are expected to support demand for creamwove and maplitho paper. Specialty paper demand, primarily driven by Tissue paper, is expected to continue to log a robust 11-12% CAGR over the current demand to fiscal 2025. Demand for copier paper (20% of the W&P segment) is expected to increase at 7-9% CAGR through fiscal 2025, primarily on account of moderation spends on stationery by corporates due to focus on digital- based communication. Demand growth for coated paper is expected to remain moderate at 3-5% CAGR through fiscal 2025.

Demand for specialty paper is expected to increase driven by strong demand for tissue paper. Over fiscal 2023 to fiscal 2025, it is expected this segment to grow at robust 11-13% CAGR to 1.9-2.3 million tonne by fiscal 2027 from 1.3-1.5 million tonne in fiscal 2022. The main varieties of specialty paper are tissue, decor, thermal, fine printing, cigarette, and business card paper. Rise in urbanisation, emphasis on hygiene through increased government thrust (via initiatives such as Swatch Bharat), and steady rise in healthcare and hospitality demand will lead to rise in demand for tissue paper consumption. Moreover, rise in the number of cashless transaction (ATM, debit/credit card purchase, etc.) and increased billing (owing to rise in share of organised retailing) will boost demand for thermal paper.

Greater emphasis on education and literacy by the Government coupled with demand for better quality of paper are major drivers for writing & printing paper. The paper industry has made substantial investments to increase the production capacities and as a result, in almost all paper grades, the country has enough domestic capacity to meet the growing domestic demand and also for exporting to other counties. Further about 1 million TPA of pulp, paper and paperboard capacity is required to be created additionally on an annual basis over the current capacity to meet the growing demand.

In the last five to seven years, an amount of over Rs 25,000 crore has been invested in new efficient capacities and induction of clean and green technologies. The industry size of single-use plastics is estimated to be INR 10,000 crore. This move by the government will benefit all Indian paper mills to flourish their business. In India, only 15% of total paper and paperboard production is made from recycled materials, compared to a global average of 30% to 85%. As a result, there is a lot of potential for recycling in the paper industry.

About 50% of global paper demand is in Asia of which India is the fastest growing market in the world expected to grow at about 4% to 5% compound till at least 2030. According to various studies, the consumption of paper and board in India is expected to grow to over 35 million tons by 2035 from approximately 22 million tons presently. Now there are several drivers for growth of the Indian paper industry. Greater emphasis on education and literacy by the government coupled with the growth in business and commerce and demand for better quality paper by environmentally conscious consumers are the major drivers in the writing and printing segment.

Increased economic growth is probably going to propel joint ventures, foreign director investments, and public and private investment into the end-user markets, which will propel the market over the forecast period.

The paper industry has been moving toward automated production facilities from labor-intensive manufacturing techniques.

Due to automation, paper product manufacturers can now increase productivity and lower manufacturing costs. Additionally, these technologies reduce energy expenses. Control systems, such as Integrated Drive Systems (IDS), are reducing consumption, increasing equipment efficiency, and streamlining the processes involved in servicing and maintaining equipment.

7. Opportunities and Threats

The per capita paper consumption in India stands at 15-16 kg which is well below the global average of 57 kg and significantly below 200 kg in developing economies, which highlights an opportunity in terms of potential growth of paper demand in India. The demand will be driven and supported by higher Government spending on education initiatives, corporate spending on stationary and healthy growth in services sector. Inspite of advancement in technology, like the usage of Tabs, Smart Phones, digitization, the increased preference for online storage and dissemination of data, the paper industry is poised for a consistent growth in demand over the next few years. Despite the higher level of technology being used in the corporate sector, there has been no decline in the overall paper consumption. The envisaged growth in the value-added writing and printing paper segment in India presents an invaluable opportunity and your company plans to leverage it by tapping its institutional strength in its distribution supply chain, cost competitiveness and its premium quality alongwith its branding prowess. Further with literacy rates set to improve and universalization of education through legislative steps like Right to Education, government measures like Sarva Shiksha Abhiyan, Mid Day Meal Schemes, Girl Education Programme (GEP), growing enrolment as well as increasing number of schools, colleges and institutions and increased spending on education by all sections of the society will provide an impetus to this segment.

The company has been one of the most cost competitive paper mills and a large player in the writing and printing segment. The continuous efforts of the company towards cost reduction and technology up-gradation has led to improved product quality, enhanced product range, increased production capacity, higher operational efficiencies and economies of scale. Further these initiatives have also enabled the company to manufacture premium quality paper, such as maplitho paper, specialty papers and premium copier paper, which is placed in the higher value segment, competing with quality of other large paper mills.

Indian paper mills are categorized based on raw materials used by them in the manufacture of paper-wood based mills, agro-based mills and wastepaper based mills. Wood accounts for 30-35% of production, while wastepaper and agri-residues account for 45-50% and 20-22%, respectively. India has a total land area of 3.3 million sq km with forests covering only 0.7 million sq km. About 78% of the total land area is non-forest area. With diminishing forest resources and limitations on enlarging man-made forests, there is scarcity of raw material for paper mills. Moreover, the limited raw material can be put to many alternative uses.

Raw material and chemical costs account for about 50 per cent of the operating income of mills in the paper industry. Agro and Wood based pulp are the main raw materials required for manufacturing W&P paper, especially in the higher end papers such as maplitho and coated paper. India’s wood resources are limited, and therefore the cost of wood is higher in global comparison. Since there is conspicuous absence of Government’s policies favoring industrial plantation, securing future wood supplies will be the Industry’s biggest challenge. In line with this increase in production, demand for wood material will also go up. Your company has insulated itself from the vagaries of pricing of global pulp by enhancing its wood pulping capacities, thereby reducing its dependency on imported wood pulp. Further to counter the issue of wood deficit, the paper mills including your company gave thrust to initiatives like agro forestry which have now started yielding results.

To support the availability of raw material for the industry, the Government had announced that the Government will provide funding to help implement policies that will promote agro-forestry and commercial forestry. The Government had put in place policies to encourage agro-forestry, giving the paper industry a boost in terms of the stability of its raw materials, in addition to contributing to an increase in the overall amount of green cover across the country.

Another source of raw material for the paper industry is agri-residues such as wheat straw, bagasse, wild grass, and other such agricultural wastes. Your company has the locational advantage of being in the centre of one of the largest wheat growing areas in India and thus, does not foresee a challenge in the availability of this raw material despite increased demand. Bagasse is the other widely-used agri-residue in the paper industry. However, availability of bagasse has been declining due to its increased use in power generation by sugar industry. Your company has also decreased its dependency on bagasse and developed alternate raw materials through extensive R & D. Despite agri-residues being seasonal in nature, your company has mastered processing several types of raw material for pulp making, and has therefore gained an edge in the industry.

The alternative source of raw material is wastepaper and recycled paper - domestic and imported. Both together accounted for nearly 50 per cent of the total paper production. In India, however, the system of wastepaper collection is not very well developed in the domestic wastepaper segment. The recovery rate is low and consequently there is lower availability. This leads to domestic mills relying increasingly on imports to meet their demand. Your company does not use wastepaper as a raw material for its production purposes and hence is not impacted by this raw material.

The changes in Government policies, environment standards and the paperless initiatives on various fronts, coupled with Green initiatives in Corporate Governance, is indicative of a slight threat to the paper industry. Although India does not import any significant quantity of W&P or paperboard, the share of imports over the next few years will remain a key factor for growth in writing and printing paper.

The Government has announced the new National Education Policy which signifies a transformative step in the educational trajectory of the nation. Addressing the dynamic requirements of the modern era, this policy places renewed emphasis on holistic learning, digital literacy, and skill development. The preparation of the policy for education in schools and colleges falls under the purview of the National Education Policy, which the Government of India updated in 2024. The new policy includes significant changes aimed at positioning India as a global knowledge superpower.

The policy acts as a roadmap to revolutionize schooling and higher education in India that will support and foster a lifelong learning culture to maximize the rich talents and resources the country has to offer. The NEP is a giant leap in a list of initiatives taken by the government in achieving its goals. The policy recognises the ever-changing knowledge and employment landscape in our global ecosystem and focuses on curricular and pedagogy reform, aligning it with international standards and making India a vibrant knowledge economy and a nation of thought leaders.

With the gradual implementation of the NEP from academic year 2023-24 and rise in the education spend by the Government and increased thrust on education through initiatives such as Sarva Shiksha Abhiyaan/ Education of All, the printing & writing paper demand is expected to increase.

The impending changes in the education policy and curriculum are bound to create a huge demand for writing and printing paper to meet the needs of new Indian education system.

Completely replacement of textbooks on account of this new curriculum can be a huge opportunity for paper companies with a higher realisation. We expect Implementation NEP can fuel Printing and writing paper demand, which can fuel P&W paper CAGR from 3-4% to 9-10% over 2-3 years.

The ban on the use of plastics in a wide variety of applications that has been put in place by the Govt of India with effect from July 01, 2022, and has given a big boost to paper production for new paper products and the new variety of paper qualities are finding its way into the market, filling up the huge gap left behind by the plastic ban.

To regulate the import of paper as also to promote the flagship schemes like "Make in India" and "Atmanirbhar Bharat", the Government has brought the imports of paper under compulsory registration from the 1st October 2022. The import policy of major paper products, such as newsprint, handmade paper, wallpaper base, duplicating paper, coated paper, uncoated paper, map-Litho and offset paper, excluding currency paper, bank bonds and cheque paper and security printing paper, has been amended from ‘Free’ to ‘Free subject to compulsory registration under Paper Import Monitoring System’ by the Directorate General of Free Trade.

One major near-term concern for the paper industry has been fluctuating wood pulp and fuel costs, given that the industry also relies on imported coal, wherein the prices have fluctuated over the last one year. Though the industry is managing these challenges by passing on such rises to the final customer as well as absorbing, wherever possible, on an aggregate basis, the long-term demand potential for the Indian paper industry remains intact, given the rising usage of different forms on paper in daily life.

8. Risks and Management Perception

The paper industry is labour intensive, as well as power and capital intensive, and is exposed to several risks i.e. changes in the government policies, raw material shortage, environment policies, competition, duties and taxes, technological obsolescence and external economic factors.

Your company adopts a comprehensive and integrated risk appraisal and mitigation process as part of its risk management policy.

The company uses agro waste materials, primarily Wheat straw and Sarkanda grass, as well as wood materials like chips, veneer and bamboo, as the basic raw materials to manufacture paper. The availability of these raw materials is seasonal. The raw material of all kinds is available in abundance on ground and thus its adequate availability may not be a constraint despite increased capacities of the other paper mills in and around the region. The continuous increase in prices of raw material and other inputs continues to be a matter of concern for the industry. However, locational advantage of your company’s paper mill provides an added access to the major raw material sources and insulates itself to quite some extent on this front. We have suppliers connected to your company for the last several decades for supply of both Agro and Wood raw materials, by way of long term arrangements.

India’s wood resources are limited, and therefore the cost of wood is higher than in global comparison. In the absence of Government’s enabling policies favoring industrial plantation, securing future wood supplies is one of Industry’s big challenge.

To secure a substantial part of our wood requirements, your company had developed a social Agro-forestry process by creation of a Nursery at the Mill to grow premium quality clonal plants which has been doing very well. At the Nursery, saplings of clonal varieties of fast growing hard wood trees are grown and distributed to farmers, enabling the company to buys back the hardwood post the harvest. Domestic land under social forestry is expanding by approximately 10% annually. This sustainable initiative has created employment opportunities in the remote areas in close proximity to the mill thereby, helping rural development. We are also continuing our efforts for growing of plantations by touching base with the farming community and making them aware of the financial benefits attached to social farm forestry.

The paper industry consumes a large amount of energy and water. Energy costs that account for about 16-18 per cent of costs, vary depending on the fuel used for generating power. The cost of power has increased as a result of inadequate supply and increase in tariff for industrial consumers. The prospect of availability of good quality fuel is diminishing. This has been offset by your company by establishing a state-of-the-art captive Co- Gen Plant to meet its entire power requirements, thereby reducing its dependency on the grid power.

The company continued its efforts in arriving at a proper raw material mix, cost reductions and product mix optimization. The Chemical Recovery plant, Co-generation plant and other cost reduction measures coupled with variety of distinctive products manufactured with better and improved operational efficiencies has significantly increased its cost competitiveness.

Your company has also framed a ‘Risk Management Policy’ to identify and assess the key risk areas, monitor and report compliance and effectiveness of the policy and procedure. A Risk Management Committee as per the regulatory requirements has also been constituted to oversee the risk management process in the Company.

Further with the implementation of the NEP, the ban on single use plastics and Paper Import Monitoring System that has been put in place, we expect a huge demand for writing and printing paper and for the Paper Industry in India to grow.

The paper industry is highly fragmented, with stiff competition from both organised and unorganised players. This limits the manufacturers’ pricing power and puts additional pressure on profitability. Additionally, the industry is affected by economic cycles. Furthermore, KPL primarily uses agricultural raw materials sourced from domestic markets. Agro-based raw materials are limited in use due to seasonal availability, resulting in high price volatility. The company uses a wide range of raw materials that are perfect substitutes for one another, so raw material availability is not a perceived risk. Moreover, the company has insulated itself against this by implementing backward integration and increasing the capacities of pulp, paper, and co-generation power plants, as well as by establishing a chemical recovery plant.

Paper industry is one of the most polluting industries, as identified and categorized by Central Pollution control Board (CPCB) as it is one of the largest users of fresh water. With water used in nearly every step of the manufacturing processes, the paper industry produces large volume of wastewater and residual sludge waste, presenting number of issues in relation to wastewater treatment, discharge and sludge disposal. KPL has an adequate Effluent treatment Plant (ETP) in place with capacity to treat the wastewater produced by the company.

Countries such as China and Indonesia have significant excess paper production capacity which enables them to offload their inventory at very low prices in India. These imports attract no duty under the India-ASEAN FTA and the Asia Pacific Trade Agreement (APTA).

Risks, Concerns and Threats

The Company faces general risks inherent in any business including political, legal, geographical, economic and environmental and competition risks and takes appropriate steps to mitigate them and reduce their impact to the extent possible. The business of the Company is subject to set legal procedures and Government rules, approvals and regulations and any change in them may affect the business of the Company. Raw material prices also affect the financial performance of the Company.

In today’s economic environment, Risk Management is a very important part of business. The main aim of risk management is to identify, monitor and take precautionary measures in respect of the events that may pose risks for the business. The Company’s risk management is embedded in the business processes. The Company has identified the following threats and adopts management as below:

(a) Commodity Prices

The Company is exposed to commodity price fluctuations in its business. All major raw materials as well as finished goods, are subject to market price variations. Prices of these commodities continue to be linked to both domestic and international prices, which in turn are dependent on various macro and micro factors. Also, commodities are increasingly becoming asset classes. Prices of the raw materials and finished products manufactured by the Company fluctuate widely due to a host of local and international factors.

The Company continues to place a strong emphasis on risk management and has successfully introduced and adopted various measures for hedging the price fluctuations in order to minimise its impact on profitability. Also, the Company has initiated setting- up of a framework to upgrade itself to a robust risk management system. Further, the Company has price review mechanism to protect against material movement in price of raw materials.

(b) Interest Rate

Any increase in interest rate can affect finance costs. However, the Company’s dependency on debt is optimum. The Management of the Company adopts suitable procedures and takes reasonable steps in anticipation.

(c ) Foreign Exchange

Risks are associated with various forex exposures like translation, transaction, economic etc. The Company would have a risk on net import side. There are various financial instruments available to mitigate these risks and the Company may use them for mitigating the Forex Volatility.

(d) Human Resource

The Company’s ability to deliver value is dependent on its ability to attract, retain and nurture talent. Attrition and the non-availability of the required talent resources can affect the overall performance of the Company. By continuously benchmarking of the best HR practices across the industry and carrying out necessary improvements to attract and retain the best talent. By putting in place production incentives on time bound basis and evaluating the performance at each stage of work. Also recruitment is across almost all states of India which helps to mitigate this risk and we do not anticipate any major issue for the coming years.

(e) Competition

The Company is always exposed to competition Risk. The increase in competition can create pressure on margins, market share, etc. However by continuous efforts to enhance the brand image of the Company by focusing on R&D, quality, cost, timely delivery, best customer service and by introducing new product range commensurate with demand, the Company plans to mitigate the risks so involved.

(f) Government Policies

The policies announced by the Government have been progressive and are expected to remain likewise in future, and have generally taken an equitable view towards various stake holders, including domestic farmers, industry, and consumers.

(g) Freight and Port Infrastructure

The element of freight is not likely to cause any adverse effect on the operational performance.

The Company has a proactive information and management system to address the issues arising out of port congestions to the maximum extent possible and has also made sufficient arrangements for storage infrastructure.

(h) Compliances

Any default can attract penal provisions. The Company regularly monitors and reviews changes in regulatory framework by monitoring compliance through legal compliance Management tools.

(i) Industrial Safety Employee Health and Safety

The industry requires labour and are exposed to accidents health and injury risk due to machinery breakdown, etc. By development and implementation of critical safety standards across the various departments of the factory establishing training need identification at each level of employee.

(j) Domestic Economy

The Company is well geared with multi-processing capabilities to cater to variances and changing consumer preferences. Also, keeping in view the overall growth of the economy, it is expected that consumption will continue to outgrow.

(k) Digital Alternatives:

The growing preference for digital solutions could impact the demand for traditional paper products.

9. Outlook

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 (iii) rightful replacement to single use plastic and (iv) no real low cost substitutes for paper.

The Indian paper and paperboard industry has the potential and the capability 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.

While Writing & Printing paper does not face any major threat from substitutes, the increased preference for online storage and dissemination of data and information could marginally impact the growth. However, despite the higher level of technology being used in the corporate sector, there has been no perceptible decline in the paper demand. The demand for the writing and printing paper is expected to rise sharply on account of the implementation of the New National Educational Policy, which will result in publication of new books, in different languages of India, under the revised curriculum. Furthermore, a variety of paper products are finding its way into the market due to the ban placed on use of certain plastic items.

Since the New Curriculum is being developed after a gap of 15 years, it would eliminate sale of second-hand books and would lead to strong growth for at least 2-3 years. Completely replacing second hand textbooks will be a huge opportunity for paper industry with a higher realisation.

Availability of adequate good quality raw materials at cost effective prices, higher capital outlay, high interest and capital costs, long gestation period and stringent environment regulations are the major entry barriers for Greenfield projects in the Indian Paper industry.

According to the IPMA, paper consumption in India will likely reach 30 million tonnes by March 2027. There is growing demand from sectors such as FMCG and retail for innovative packaging solutions as they reduce dependency on plastics. Paper stocks can also benefit from the rising e-commerce shopping as well as ready-to-eat and packaged foods.

Projections indicate a 6 to 7% annual growth in paper consumption in India, reaching 30 million tonnes by FY 2026-27. The growth is likely to be attributed to a focus on education and literacy, coupled with the rise in organised retail.

India is the world’s fastest-growing paper market, and it provides an interesting scenario. Paper consumption is set to take a significant jump ahead in tandem with economic expansion. According to the forecast, growth in paper consumption would be in multiples of GDP, therefore an increase in consumption of one kilogramme per capita will increase demand of one million tonnes.

In India, the paper industry is experiencing promising growth, driven by increasing domestic demand fueled by factors such as population growth, rising literacy rates, GDP expansion, and improvements in the manufacturing sector and individual lifestyles. The paper industry plays a pivotal role in the country’s economic development, contributing to revenue generation, foreign exchange earnings, and employment opportunities. With a growing emphasis on education and alternative uses of paper, the domestic demand for paper is expected to outpace supply, further bolstering the industry’s growth.

Moreover, developments in the upstream market, including tissue paper, tea bags, filter paper, and lightweight online coated paper, are poised to propel the industry forward. Infrastructureimprovements,suchaskeyportenhancements, road and railway upgrades, and communication facility developments, are expected to benefit the entire industrial sector, including the pulp and paper segment.

In the global copier paper market, A4 size paper holds the highest market share, driven by its extensive utilization in consumer printing and commercial sectors. The copier paper market is categorized based on paper size, thickness, end use, and material type.

The Indian paper industry has agro-forestry routes, as has been mentioned, and strong backward linkages with the farming community from whom wood, which is the key raw material, is sourced.

Specialty papers, with a remarkable presence of over four decades in the industry.

Our writing and printing papers find extensive applications in the printing of books, notebooks, annual reports, directories, account books, envelopes, diaries, calendars, computer and office stationery. We also manufacture a wide variety of specialty products like thermal paper, bond paper, parchment paper, azurelaid paper, cartridge paper, coloured paper, ledger paper and stiffner paper. We are dedicated to addressing environmental concerns and contributing to a sustainable future. By leveraging our expertise, we have developed a range of specialty products which include bas paper for cupstock, and carrybags that reduce dependence on single-use plastics, fostering a greener tomorrow.

During the year under review, the Company achieved a production of 1,56,956 metric tonnes as against 1,52,172 metric tonnes in the previous year. The quantitative figure for the sale of paper was 1,56,931 metric tonnes this financial year as against the sale of 1,52,305 metric tonnes in the previous year.

10. Company’s Financial Performance & Analysis

Kuantum Papers Limited is a distinguished manufacturer of agro and wood-based Writing & Printing, Copier and

The summarized financial results of the Company for the financial year 2023-24 are given hereunder.

(INR in Lakhs)

Particulars	2023-24	2022-23
Sales & other income	1,21,693.66	1,31,316.26
Operating Profit	33,870.49	38,281.71
Interest	4,284.70	7,099.44
Gross Profit	29,585.79	31,182.27
Depreciation	4,824.73	4,543.67
Profit (Loss) before exceptional items and tax	24,761.06	26,638.60
Exceptional items	-	6,342.31
Profit (Loss) after exceptional items	24,761.06	20,296.29
Provision for
- Current Tax	5,461.74	1,533.07
- Adjustment of Tax-Earlier Years	32.30	(128.68)
- Deferred Tax	884.45	5,276.72
Net Profit (Loss) after tax	18,382.58	13,615.18
Other comprehensive Income (Expense)	(61.72)	(45.52)
Total comprehensive Income/(Loss) for the year (Net of Income tax)	18,320.86	13,569.66

The company recorded a Net Sales Turnover (net of GST) including other income stood at INR 1,21,693.66 Lakhs (Previous Year INR 1,31,316.25 Lakhs) lower by 7.32 %; Operating Profit at INR 33,870.49 Lakhs (Previous Year INR 38,281.71 Lakhs), lower by 11.52%; Profit before exceptional items INR 24,761.06 Lakhs (Previous Year INR 26,638.59 Lakhs) lower by 7.04%; and the Net Profit after Tax and other comprehensive income (expense) at INR 18,320.86 Lakhs (Previous year INR 13,569.66 Lakhs) up by 35.01% . There were no exceptional items for the financial year ended 31st March, 2024(Previous Year INR 6,342.31 Lakhs, representing tax adjustments).

The company has continued to take up projects in focused areas for operational improvement and this has also led to improved operational efficiencies, productivity, reduction in operational costs, and sizeable increase in savings.

The results of cost reduction initiatives and operational efficiencies achieved from the backward integration projects comprising of enhancing the capacities of Pulp and Paper, Chemical Recovery Plant and Captive Power Plant have been visible in the financial performance for the year under review and will continue to be visible in the coming years.

To cater to the growing demands of its products, the company has further undertaken the implementation of the capex projects with outlay of Rs. 735.00 Crores for upgradation, Environment & Sustainability Initiatives , modernisation, allied projects and production capacity enhancement. This capex is proposed to be funded through the blend of debt and internal accruals. This will enhance the Paper Production capacity of 450 TPD to 675 TPD .

These initiatives have made your company not only one of the most cost competitive paper mills, but has also placed it amongst the large paper players in the writing and printing segment. Furthermore, continuous research & development have enabled the company to manufacture papers of distinctive prime quality and broader product mix, which is competing with the premium quality of other large paper mills.

11. Accounting treatment

The Financial Statements of the Company for the year under review have been prepared in accordance with Indian Accounting standards (Ind AS) as notified by Ministry of Corporate Affairs pursuant to Section 133 of Companies Act, 2013 read with Rule 3 of the Companies (Indian Accounting Standard) Rules, 2015, Companies (Indian Accounting Standards) Amendment Rules, 2016 and subsequent amendments.

12. Significant change of key financial ratios

As required under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, during the year, the significant changes in the financial ratios of the Company, which are more than 25% as compared to the previous year, are summarised below:

Ratios	FY 23-24	FY 22-23	% change	Reason for Change
Current Ratio (inItimes)	1.02	1.02	-1%	No material changes in net working capital
Current Ratio (in times)-without considering current maturity of debts.	1.63	1 .45	12%	No material changes in net working capital
Debt Equity Ratio (in times)	0.46	0.53	•14%	Reduction in term liabilities pursuant to repayment
Debt service coverage ratio (in times)	11.54	3.67	214%	Earnings improved during the current year and reduction in debt.
Interest Coverage Ratio	6.42	3.56	80.34	Lowered borrowing costs and increase in profits.
Operating profit margin	27.83	29.15	-4.53	Decrease in operating profits
Return on Net Worth (%age)	17.59	22.21	-21%	Return on networth decreased due to increase in average shareholders equity.
Inventory Turnover (in times)	7.18	9 .31	-23%	Increase in Inventory at year end.
Debtors Turnover (in times)	42.86	32.46	32%	Increase due to faster recovery of receivables
Trade payables turnover (in times)	20.48	29.13	-30%	Increase in trade payables due to increase in Inventory at year end.
Net capital turnover (in times)	250.97	289.66	-13 %	Due to slight increase in working capital.
Net Profit Margin (%age)	15.19	10 .42	46%	Earnings improved during the current year
Return on capital employed (%age)	16.35	21 .0 1	-22%	Return on networth decreased due to increase in capital employed .

13. Internal Control Systems

Your Company has established adequate internal control systems to provide reasonable assurance that the assets are safeguarded and transactions are properly authorized, recorded and correctly reported. Your company has already implemented SAP to further strengthen the control systems. It is a common practice to lay down a well thought business plan for each year. From the annual business plan, detailed budgets for revenue and capital for each quarter are determined. The actual performance is reviewed in comparison with the budget and deviations, if any, are addressed adequately. The internal control mechanism is well established. The internal control system is supplemented by regular management reviews and periodical reviews by an independent firm of chartered accountants, which evaluate the functioning and quality of internal controls and checks; and provide assurance of its adequacy and effectiveness. The scope of the internal audit covers a wide variety of operational methods and ensures compliance with specified standards with regard to availability and suitability of policies, practices and procedures, extent of adherence, reliability of management information system and authorization procedures including steps for safeguarding of assets. The Reports of internal auditors are placed before Audit Committee for review.

The audit committee reviews the adequacy of the internal control systems, audit findings and suggestions. The Company’s Statutory Auditors regularly interact with the Audit Committee to share their findings and the status of further improvement actions under implementation.

The Company maintains a robust internal control system and code of conduct to safeguard all assets against unauthorised use or disposition. Additionally, the system guarantees that transactions are properly authorised, recorded, and reported. The internal control system is reinforced by an extensive internal audit, periodic management reviews, and documented policies, guidelines, and procedures. The primary objective of this internal control is to ensure the reliability of financial and other records for the preparation of financial statements, while also maintaining asset accountability.

14. Human Resources and Industrial Relations

Your company enjoys the support of a committed and well satisfied human capital. Human resources are invaluable assets of the company and the Company’s endeavor has always been to retain the best professional and technical talent. The company lays great emphasis on proper management of human resources and skill development and believes that the human resource is the most important ingredient for achieving excellence in performance and for the sustainable growth of the business of the company. These practices enable the company to keep the attrition rate well below the industry average. The management has a process driven approach that invests in training and skill development needs of the employees on a regular basis through succession planning, on the job training and workshops. Progress made by the company has been possible in no small measures by efforts of the entire team.

Industrial relations were harmonious. Safety welfare and training at all levels of our employees continues to be the areas of major focus for the Company as recognised by the awards bestowed on the company by independent agencies.

The year under review has seen changes in the policies and procedures to make the organisation high performing and successful. The Company has always valued its human resources and believes in the optimum potential of each employee. During the period under review, the industrial relations were cordial without any disruptions to manufacturing activities. Additional appointments were made and annual increments were granted to the salaries of employees during the period under review.

As of March 31, 2024, the Company had 1,357 employees on its payroll. The Company believe, ‘People’ are the most valued resource of an organisation. Their interests and welfare is its prime concern. The Company strives to explore their best by creating opportunities for growth and development, while maintaining discipline and demeanour in consonance to the culture and values of the organisation. In the process, a set of parameters addressing all dimensions have been created. Also, the Company has a full-fledged manual on HR policies, which underpins and brings together the various codes of practices relating to specific aspects of Human Resources. Human Resource Management is a dynamic function, which needs to adapt to the changing business needs of the organisation. Thus, the manual provides the basic guidelines to channelise the HR initiatives in the organisation and may not provide exhaustive solutions to problems, that keep emerging at regular times in the organisation.

The Company understands that its greatest asset resides within its Human Resources. In line with any other valuable capital, the Company recognises the need for continuous investments in this area, understanding that the long- term returns will be fruitful. Consequently, the Company proactively invests in its employees through comprehensive education and training programmes, aiming to improve the overall quality and productivity levels. The development of individuals and teams is of utmost importance to the Company. The Company operates under a transparent and performance- based system, fostering an environment of trust, healthy competition, and constant challenges. The Company’s primary focus is on providing ambitious opportunities for personal and professional growth, accomplished through various training initiatives and career enhancement tasks.

15. Cautionary Statement

Statements in this "Management’s Discussions and Analysis" are describing the Company’s "forward looking statements" within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s 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. The Company assumes no responsibility in respect of forward looking statements made herein which may undergo changes in future on the basis of subsequent developments, information or events.