Malu Paper Mills Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENT GLOBAL

Paper Industry is a significant player in the World Economy. Global Paper demand has increased from ~ 170 Mn T p.a. (in Year 1980) to ~ 420 Mn T p.a. (in Year 2023) and is expected to reach ~ 473 Mn T p.a.by Year 2030. Its annual revenue exceeds US $ 500 billion. Asia outperforms other markets in the demand for Paper and boards.

The four key Paper and Board segments are: Newsprint, and Printing and Writing Papers, Paper Boards for packaging applications, Tissue Papers & other Speciality Papers. Packaging continues to be fastest growing segment globally. Global demand for paper and paper board is forecast to grow to about 480 million tonnes in 2030, or 1.1 per cent per year, according to a global paper market insight study by Poyry Management Consulting. The study forecasts the graphic paper market facing huge challenges, in particular, due to shrinking of demand for newsprint as well as uncoated and coated wood containing and wood free papers. Demand for tissue paper, container boards and carton board, is expected to grow upto 2030, driven by increasing packaging needs in emerging markets, booming e-commerce and the growing demand for convenience food and consumer goods.

Global Paper Industry is led by China, followed by USA, Japan and Germany. India occupies 5th position in the Global demand for Paper and boards.

Asia Pacific analysis

Asia-Pacific dominates the pulp & paper market, owing to the increasing demand for commercial printing and food packaging in the region. The rising population and increasing urbanization in APAC is the major factor driving the demand for commercial printing and food packaging.

Owing to increasing environmental concerns across the world along with the rising need to reduce toxic emissions; fiber crops based recycled paper packaging is being extensively used to manufacture hygienic paper. This, in turn, is expected to propel the market growth, during the forecast period.

A rise in the demand for paper packaging, owing to growing consumer awareness regarding the harmful effects of plastic on the environment along with the eco-friendly nature of fiber crops based paper packaging, is also projected to flourish the pulp & paper industry. The rapid penetration of the worldwide e-commerce and retail sector has created an enormous demand for both wrapping and packaging paper.

In addition, both customers and producers in the developing economies are embracing paper packaging goods with growing environmental consciousness. Also, packaging innovation has been critical in shaping the consumption of soft drinks, paper goods are easy to recycle paper and can minimize air pollution, clean up the atmosphere, leading to a rise in demand from the food and beverage industry for paper packaging.

DOMESTIC

The Indian Pulp and Paper Industry plays a crucial role in Indias economy and provides direct employment to 0.5 Mn persons and indirectly to 1.5 Mn persons. In terms of raw material used, about 71% of the paper is produced from recovered paper / recycled fibre; 21% is wood / bamboo based and balance 8% is from agro residue (bagasse / wheat straw). The Indian Paper Industry has strong linkages with the farming community and has agro based roots. India occupies 5th position in the Global demand for Paper and boards.

Environment and economic benefits of wastepaper

Paper Industry, is often at the receiving end from environmental activists who are wary of environmental footprint of this resources-intensive industry. As per European Environmental Paper Network (EEPN), Paper Industry should enable a clean, healthy, just and sustainable future for all life on Earth. EEPNs vision encompasses 7 principles; namely: Reduce global paper consumption and promote fair access to paper, maximize recycled paper content, ensure social responsibility, source fibre responsibly, reduce greenhouse gas emissions, ensure clean production and ensure transparency and integrity. China is the largest consumer of paper and boards, more than 120 million tonnes annually. China is also the biggest importer of recovered paper and producer of recycled paper. The Chinese Environment Paper Network (CEPN) has flagged its major concerns like, Pollution of water from untreated mill effluent, unsustainable sourcing of fibre for Mills, imports of pulp from countries causing deforestation, insufficient levels of wastepaper recovery and wasteful use of paper.

STRENGTH & OPPORTUNITIES

The competitive strengths and the opportunities that are available to the Indian Paper Industry are:

? The Government and consumers both have concerns about environmentally sustainable packaging solutions, which present an opportunity for the Company as paper-based packaging is more eco-friendly than plastics and other non-biodegradable materials. The Company can utilise this opportunity by investing more towards sustainable packaging solutions.

? The impending changes in the education policy and curriculum are bound to create a huge demand for Newsprint and Writing & printing papers to meet the needs of new books etc.

? Robust growth in e-commerce, FMCG, Consumer Goods & Pharma to drive paper board demand.

? With a number of countries replacing plastic bags with paper equivalents, paper industry opportunities are growing.

WEAKNESS & THREATS

The following competitive weaknesses and threats confront the Industry:

? The Indian paper industry is currently being crushed by a plenty of problems including the non-availability of waste paper, high prices for pulp, fibres and newsprint, container problems, including rising freight rates, increasing coal, chemicals and other inputs rates.

? Poor collection of used paper resulting in low recovery rate and undue dependence on imports to meet domestic needs.

? Absence of policy measures for creation of sustainable raw material base through industrial plantations and used paper recovery.

? Increasing competition from electronic media and digital communication alternatives

? Cyclical: Prices of paper are linked to global prevailing raw material prices and price of finished product. This industry is also highly cyclical in nature. Unchecked imports can prevent companies from passing on the increase in raw material prices.

? Increasing imports consequent on numerous Regional Trade Agreements (RTAs) / Free Trade Agreements (FTAs) entered into by the Govt without adequate safeguards.

Paper Industry is capital intensive and yields poor returns on investments. To enhance the competitiveness of the Industry, Govt must address the issues of creation of robust raw material base as well as extending fiscal incentives for assimilation of eco-friendly technologies, etc. International Competitiveness is the key issue that is confronting the Indian Paper Industry, today especially in the context of Governments resolve to bring down import tariff every year and RTAs/ FTAs entered into with ASEAN / SAARC countries. The major players, alive to the emerging international threats, have been aggressively pursuing quality improvement programmers, coupled with cost rationalisation and capacity additions. Increasingly, more up-to-date technologies are sought to be implemented, with added focus on environmental compliance.

SEGMENT WISE PERFORMANCE

The company is a single product company and hence, segment wise or product wise performance is not provided.

RISKS AND CONCERNS

? Digitalization: As the world shifts towards digital platforms, paper demand could decline.

? Volatility: Wastepaper and pulp are critical paper raw materials, around 57% of the cost of sales. These costs are subject to fluctuations, affecting profits.

? Disruptions in supply-chain affecting availability and prices of key input materials.

FUTURE OUTLOOK

The long-term demand outlook for paper in the Indian market remained moderately positive, due to the relatively low per-capita consumption compared to global averages. The implementation of the New Education Policy (NEP) is expected to stimulate demand for printing and writing paper. The increasing use of specialised and traditional packaging in FMCG, healthcare, e-commerce, pharmaceuticals, and consumer industries is expected to drive demand; a focus on innovative and visually appealing packaging, and ongoing transition from plastic to paper-based packaging in the FMCG and food product sectors is expected to catalyse demand as well. (Source: Maximize Market Research, ICRA, Financial Express)

INTERNAL CONTROL SYSTEM & THEIR ADEQUACY

The Company has laid down adequate systems and well drawn procedures for ensuring internal financial controls. It has appointed an external audit firm as Internal Auditors for periodically checking and monitoring the internal control measures. The Board of Directors have adopted various policies for ensuring the orderly and efficient conduct of the business of the Company, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information. The Statutory Auditors have also expressed satisfaction with the existing system in their Audit Report to the Shareholders.

COMPANY FINANCIAL PERFORMANCE & SIGNIFICANT RATIOS

For further information and detailed explanations on ratios, please refer note no. 36 of the Financial Statements.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

This has been dealt with in the Boards Report.

HUMAN RESOURCE & INDUSTRIAL RELATIONS

The Company employs 257 persons in all ranks in its two units as on 31^st March, 2025. The employees of the company are considered as its most valuable resource and the company recognizes the importance of aligning human resource practices with business priorities and objectives. The workforce is the key strategic pillar that drives the business processes to attain the companys vision. The company has maintained a healthy and cordial industrial relationship with its employees, who have been equal partners in implementing company policies and achieving stretched operational targets.

CAUTIONARY STATEMENT

Statements in this report on Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws or regulations. These statements are based on certain assumptions and expectations of future events. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and domestic demand supply conditions, finished goods prices, raw material cost and availability, changes in Government regulations, tax regimes, economic developments within India and other factors such as litigation and industrial relations. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments, information or events.