Mysore Paper Mills Ltd Management Discussions.

THE MYSORE PAPER MILLS LIMITED CORPORATE DIVISION

THE MYSORE PAPER MILLS LIMITED CORPORATE DIVISION-BENGALURU

OVERALL REVIEW:

This has been covered in detail in the Directors’ Report.

INDUSTRY STRUCTURE AND DEVELOPMENTS:

India ranks 15th among paper producing countries in the world. Total installed capacity in the country is approximately 12 million tonnes. The per capita consumption of paper is about 10kg against the world average of 60kg and Asian average of 40kg. The industry is fragmented with over 700 mills spread across the country. Only 50 Mills have a capacity of 50000 TPA or more. The current demand of 12 million tonnes is expected to reach 20million tonnes by 2020. With the consistent growth in the literacy rate and economy, India is rated as the fastest growing market for paper in the world, with a growth rate of 6% per year. Increase of per capita paper consumption by 1kg wood increase the demand by about 1.25 million tonnes per year.

The paper industry divided into four segments namely Newsprint, Writing and Printing Paper (WPP), Industrial Paper and Specialty Paper. WPP accounts for about 35%, Newsprint 19%, Industrial paper 40% and Specialty Paper 6% of total production. MPM produces around 40000 MTs of WPP per annum, approximately 0.5% of the total production of WPP in the country. Presently, MPM produces around 40000 MTs of Newsprint per annum, approximately 3% of total production of Newsprint in the country.

The paper industry is broadly classified into three categories viz., Wood base, Agro base and Waste Paper base. MPM uses predominantly wood from its captive forest along with imported chemical pulp. Also, uses Bagasse as a raw material for production of chemical pulp.

About 35% of the capacity is located in Northern Region, 30% in the Western Region, 30% in Southern Region and 5% in the Eastern Region.

OUTLOOK, OPPORTUNITIES AND CHALLENGES:

Newsprint:

MPM has produced 38900 MTs of Newsprint during 2013-14 when compared to 45450 MTs during 2012-13. The net sales realization has increased by 12% when compared to 2012-13 due to better opportunity for domestic Newsprint demand during 1st half of the financial year 2013-14.

Manufacture and Sale of Newsprint is totally uneconomical due to steep increase in variable and fixed cost coupled with lower sales realization. Demand for indigenous Newsprint mainly depends on uncontrolled imports coupled with dumping, cheaper price and long-term credit supplies. Hence, as a preventive measures in future MPM should drastically scale down its Newsprint production and in a phased manner should discontinue the production of Newsprint in the near future.

Writing, Printing and Packing Paper:

MPM has produced 36700 MTs of Writing, Printing and Packing Paper during the year 2013-14. Despite sluggish market opportunity for Writing, Printing and Packing Paper during 2013-14. MPM was able to sell 34200 MTs of Writing, Printing and Packing Paper. Out of this MPM was able to sell 16000 MTs of Elegant variety alone manufactured on PM-IV. The Maharashtra market segment played a significant role in off-take of more than 8225 MTs of Elegant Paper which was dormant hither to for years predominantly due to product improvement of Creamwove Elegant to an acceptable level in the competitive price and quality oriented market.

MPM could also extend its wing for larger segment of Creamwove market in Andhra Pradesh, Karnataka, Tamil Nadu apart from Maharashtra and Gujarat only due to acceptable and better price for Creamwove Elegant. In this endeavour MPM continuous to expand its market segment for Creamwove Elegant / Maplitho varieties in the near future with consistent quality and better pricing strategy.

Global paper consumption is expected to reach 445 million tonnes by 2015. The growth in developed countries is expected to be flat. The growth in developing country is expected to provide for an over all growth of 1.5% - 2% per annum. Indian paper industry market size is estimated at 12 million tonnes, consisting of Writing, Printing and Packing Paper 4.2 million tonnes, Newsprint 2.3 million tonnes, Industrial Papers 4.85 million tonnes, and Specialty Paper 0.65 million tonnes.

In the printing and writing paper segment, unquoted variety constitute 3.52 million tonnes and quoted varieties 0.68 million tonnes. Within the unquoted varieties, Creamwove Papers constitute 50% and surface sized grades account for the balance 50%.

Between 2008 and 2011, paper production capacity increased by about 1.50 million tonnes, approximately 60% over the capacity in 2007 against the demand growth of about 8% per annum. Supplies were in excess of demand during 2011 and 2012. Paper prices therefore declined steeply during this year and continuing till date.

Raw material shortages, ever rising input cost, strict environment regulations, high capital cost and lower capital turn-over ratio besides liberal imports without custom duty / anti dumping duty are the serious trade barriers in the industry. However, due to capacity addition, liberal imports from Indonesia, Japan and China, diversion of export material into domestic market etc., have contributed for excess supplies over demand. Consequently, prices are steeply declining in the trade.

Sugar:

The Sugar production in the country for 2013-14 was 238 lakh tonnes, when compared to 251 lakhs tonnes in 2012-13. While on the above, Sugar production in MPM is in the order of 24675 MTs in 2013-14. This shows that MPM has produced 44% higher over the production of previous year mainly due to increased availability of Sugar cane and prompt payment to Farmers.

Presently, as per the GOK order the entire production of Sugar ought to be handed over to Food, Civil and Consumer Affairs Dept. for their onward distribution under PDS scheme at the price fixed by GOK.

INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY:

The company has in-house internal audit system, and is also availing the services of auditors to review the internal control systems and its adequacy. The company has over the years been successful in implementing proper systems in internal controls in order to ensure that all the assets and properties of the company are economically utilized. The internal control system is devised in such a way that the financial and other records are reliable for preparing financial statements and other data for maintaining accountability of assets. The reports of both in-house internal audit and auditors are reviewed by the Audit Committee from time to time.

DISCUSSION ON FINANCIAL PERFORMANCE WITH REFERENCE TO OPERATING ACTIVITIES :

This has been dealt with in the Directors’ Report.

HUMAN RESOURCES DEVELOPMENT:

The Company has vibrant work culture and positive Human Resource Development policies. The HR Policies are being updated from time to time. The approach is ever pragmatic, be if ISO, IMS or ERP.

The Company believes in workers participative management and so, the workers are members of Medical Consultative Committee, Canteen Management Committee, Safety Committee, EPF Trust, House Allotment Committee, Sports Committee, Awards Committee etc. The Committees meet periodically. Apart from reviewing improvements undertaken, the Committees discuss about future plans and their implementation. The Company respects the workers involvement in the growth of the Company and their valuable suggestions for improvements.

In line with the policies of Government the Company has Complaints Committee on Prevention of Sexual Harassment at Work places, SC/ST Grievance Cell and alike. Information sought under RTI ACT 2005 is also being complied with.

The Company not able to induct new blood into the workforce and hence shortage of different category of skilled and experience workforce is badly felt due to retirement of employees in large number. Inspite of it, the present workforce is able to sustain the extra load. This is the underlying feature and dedicated nature of available workforce. The Company is coping up the shortage with contract appointments.

The Company takes care of health of its workforce and dependents. It has 24 bedded hospital in the township and has Occupational Health Centre inside the Company. Apart from health facility, safety of the workers is given the importance. With the overall proactive and workers friendly Management strategies, the Industrial Relation problems are minimum.