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N R Agarwal Industries Ltd Management Discussions

Jul 22, 2024|10:59:07 AM

N R Agarwal Industries Ltd Share Price Management Discussions

Global economy Overview

The global economy was estimated to have grown at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect).

The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine and consequent unprecedented inflation caused by shortage of food grains and rising fuel prices, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.

The challenges of 2022 translated into moderated spending, disrupted trade and increased energy costs. Global inflation was 8.8% in 2022, among the highest in decades.. The Federal Reserve raised its benchmark interest rate to its highest in 15 years.

The result is that the world ended 2022 concerned that the following year would be slower.

Gross FDI inflows - equity, reinvested earnings and other capital - declined 8.4% to $55.3 billion in April-December 2022. Global trade expanded by 2.7% in 2022 (expected to slow to 1.7% in 2023).

Regional growth (%) 2022 2021
World output 3.2 6.1
Advanced economies 2.5 5
Emerging and developing economies 3.8 6.3


The global economy is projected to grow a weak 2.9% in 2023, marked by sustained Russia-Ukraine conflict and higher interest rates. Global inflation is projected to be 6.5% in 2023 (Source: IMF). On the positive side, the reopening of Chinas economy after the waning of the pandemic, the decline in the European energy crisis and robust US consumption outlook (despite high inflation) remain positives.

Indian economy

Overview: India emerged as the second fastest-growing G20 economy in FY 2022-23. India had retained its position as the fifth- largest global economy and was seen as a principal driver of the global economy (with China).

Growth of the Indian economy

FY 20 FY 21 FY 22 FY 23
Real GDP growth(%) 3.7 (6.6%) 8.7 7.2

Growth of the Indian economy quarter by quarter, FY 2022-23

Q1 FY 23 Q2 FY 23 Q3 FY 23 Q4 FY 23
Real GDP growth (%) 13.1 6.3 4.4 6.1

(Source: Budget FY24; Economy Projections, RBI projections)

According to the India Meteorological Department, the year 2022 delivered 6% higher rainfall than the long-period average. Indias exports (merchandise and services) in April-February 2022- 23 were estimated to have grown 16.18 percent over the same period of the previous year. Till Q3, FY 2022- 23, Indias current account deficit, a crucial indicator of the countrys balance of payments position, decreased to $18.2 billion or 2.2% of GDP from $22.2 billion (2.7% of GDP) a year ago. Indias fiscal deficit was estimated in nominal terms at ~H17.55 lakh cr and 6.4% of GDP for the year ending March 31, 2023.

India moved up in the Ease of Doing Business (EoDB) rankings from 100th in 2017 to 63rd in 2022.

In 2022-23, total receipts (other than borrowings) were estimated at 6.5% higher than the Budget estimates. Tax-GDP ratio was estimated to have improved by 11.1 percent Y-o-Y in RE 2022-23.

The total gross collection for FY 2022-23 was H18.10 lakh cr, an average of H1.51 lakh a month and up 22% from FY 2021-22, Indias monthly goods and services tax (GST) collections hit the second highest ever in March 2023 to H1.6 lakh cr. Per capita income almost doubled in nine years to H172,000 during the year under review, a rise of 15.8 percent over the previous year.


India is expected to grow 6.8% in FY 2023-24, catalysed in no small measure by 35% capital expenditure growth by the government. The global landscape favours India: Europe is moving towards a probable recession, the US economy is slowing, Chinas GDP growth forecast of 4.4% is less than Indias GDP estimate of 6.8% and America and Europe are experiencing their highest inflation in 40 years. Broad-based credit growth, improving capacity utilisation, governments thrust on capital spending and infrastructure should bolster investment activity.

Union Budget FY 2023-24 provisions

The Budget 2022-23 sought to lay the foundation for the future of the Indian economy through projects like PM Gati Shakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments. The capital expenditure of the Indian government expanded 35.4% from H5.54 lakh cr to H7.50 lakh cr.

Global paper and packaging industry overview

The global paper and packaging industry is projected to reach a market value of $3,83,867.8 million by the end of 2023 and is expected to exhibit a CAGR of 4.1% 2023 -2033, ultimately reaching a market value of $5,73,705.45 million.

The global paperboard packaging market exhibited a growth in size, increasing from $192.19 billion in 2022 to $200.44 billion in 2023, reflecting a CAGR of 4.3%. Furthermore, it is projected to reach a market size of $235.61 billion in 2027, with a CAGR of 4.1% during the period from 2023 to 2027.

The global printing and writing paper market is projected to grow by $7.92 billion during the period of 2022 to 2026, with a CAGR of 1.76%. Additionally, the global tissue paper market is expected to grow from $80.99 billion in 2022 to $124.74 billion by 2029, with a CAGR of 6.4% during the period of 2022 to 2029.

Packaging products serve a crucial role in various sectors, and the increasing environmental awareness among consumers, along with strict regulations against plastic use enforced by environmental laws / regulations, is anticipated to boost the paper packaging market. The growth in the paper and packaging industry is primarily driven by the demand from the end-user industries it serves, with the food and beverage industry being a significant consumer of paper packaging. The shift towards sustainable packaging options, including paper-based solutions, is expected to further drive the demand for paper packaging in the market.

(Source: Yahoo Finance, The Business Research Company, Times of India, IMARC)

Indian paper and packaging industry overview

Paper is a significant source of packaging in India, accounting for 5% of global production. The Indian paper and paperboard packaging market was valued at $10.77 billion in 2021 and is projected to reach $15.69 billion by 2027, exhibiting a CAGR of 6.63%. Packaging-grade paper constitutes 55% of the major types of paper produced in India. The paper and packaging industry holds the position of the fifth largest sector in the Indian economy, offering products at prices approximately 40% lower than their European counterparts.

The Indian packaging industry has experienced significant growth, driven by increasing demand from sectors such as e-commerce, food processing, pharmaceuticals, FMCG, manufacturing and healthcare etc. The governments Make in India initiative has also played a catalytic role in boosting the packaging industry in the country.

The printing and writing paper market is projected to exhibit a CAGR of 1.76% during the period of 2022- 2026. This segment is expected to experience demand growth driven by various factors, including the rising population, rise in expenditure on education, re-opening of economy / offices post-pandemic and increasing traction in the pharmaceutical and e-commerce industries, among others.

The Indian packaging industry is characterized by a significant level of fragmentation, with a large number of small and medium-sized enterprises dominating the market, along with a few dominant players. The industry is highly reliant on imports for high-end packaging machinery and technology, as the domestic manufacturing capabilities for such machinery are limited.

(Source: InvestIndia, ibef.org)

Paper prices

Indian paper prices have risen due to a worldwide shortage of pulp and increased demand for paper products amid the ongoing Russia- Ukraine conflict. Both waste paper and pulp prices have observed a downward trajectory recently, leading to a general decrease in paper prices across all market segments.

SWOT analysis


- Gaining significant momentum, with a notable increase in demand

- Diverse range of paper types are manufactured to cater to various applications

- Increasing income of plantation farmers

- Cutting-edge manufacturing facility


- Several financially unviable plants

- Heavy reliance on debt to finance multiple plants and higher rate of interest

- Increasing need for scale to ensure survival


- Significant demand potential due to low per capita consumption compared to developed countries

- Increasing demand for packaging paper/ board in food and pharmaceutical sectors

- Increased focus on cleanliness and hygiene as a result of the pandemic or otherwise .

- Opportunities of creating innovative products.


- Rising costs of raw materials due to inflationary pressures

- Growing competition from imported products

- Reduced demand for paper due to digitalization.

- Rising energy costs impacting competitiveness.

Growth drivers of paper industry

Growing literacy: In 2022, Indias literacy rate was estimated to be 77.7%, which has catalyzed the demand for writing and printing paper as well as packaging paper.

E-commerce expansion: The Indian e-commerce market is projected to reach $350 billion by 2050, driven by factors such as increased internet access, rising incomes and a growing population.

Wellness and cleanliness: The medical grade paper market in India is projected to reach a revenue of $235.70 million, with a CAGR of 5.62% from 2022 to 2030.

Food packaging: The food packaging market in India is projected to reach approximately $17.88 billion by 2026, growing at a CAGR of 6.22%. Packaging materials are changing to remove fluorochemicals and adopt more natural and chemical-free alternatives.

Plastic-free consciousness: Due to the challenges associated with plastic, the pulp and paper industry has multiple opportunities. Paper bags and packaging have become popular due to plastic bans in many countries. The paper industry benefits from this anti-plastic sentiment as it encourages the use of biodegradable alternatives.

Growing population: India has surpassed China as the worlds most populous country, which will result in a large market base.

Demographic transformation: In 2022, the average age of Indians was 28.7 years, with over half of the population being under 25 years old. The consumer market is largely influenced by the millennial population (15-34 years), who are students or young professionals.

(Source: techsciresearch.in, researchandmarkets, livemint, Financial Express, Economic Times, findeasy, businessworld, Statista)

Company overview

Established in1993, N R Agarwal Industries Ltd is known for producing high-quality finished paper products, serves domestic and international markets. Based in Mumbai, India, with production plants in Gujarat, the Company aims to almost triple its current production capacity with a new duplex board factory, building on its reputation for delivering top-notch products in India and worldwide.

The Company primarily manufactures paper products used in FMCG packaging, textbooks, notebooks and print media. It has focused on product development, cost reduction and quality improvement over the years. In FY 2022-23, the Company produced a total of 270940 tons of paper/paper board .

Financial capital analysis

Balance sheet

- Borrowings for FY 2022-23 stood at H134.50 cr compared to H142.99 cr during FY 2021-22.

- Total non-current assets for FY 2022-23 stood at H701.52 cr compared to H544.02 cr in FY 2021- 22

Profit and loss statement

- Revenues increased 9% to H1766.07 cr in FY 2022-23 compared to H1616.51 cr in FY 2021-22.

- EBITDA increased 28% to H197.34 cr in FY 2022- 23 compared to H154.24 cr in FY 2021-22.

- Profit after tax increased 62.70% to H99.30 cr in FY 2022-23 compared to H61.02 cr in FY 2021-23.

- Total expenses for FY 2022-23 stood at H1630.75 cr compared to H1533.32 cr in FY 2021-22.

- Depreciation and amortization stood at H35.81 cr in FY 2022-23 compared to H34.40 cr in FY 2021-22.

Risk management

Economic risk Economic downturns can lead to decreased consumer spending, which may result in reduced demand for paper products. Mitigation: Indias GDP is projected to grow between 6.0% to 6.8-% in 2023-24, showcasing the countrys resilience and recovery potential. This presents opportunities for the market and the Company.
Digitization risk Increasing digitalization in the country may lead to a decline in paper usage. Mitigation: The Company offers a wide range of high-quality, customizable and unique products to cater to the growing demand in the e-commerce industry. It has also increased its focus on paper packaging to capitalize on this market trend. It has unique capacity to serve consumers for small lot/order size.
Raw material risk Shortage of raw materials may disrupt business operations. Mitigation: The Company also relies on local waste paper as its raw material, reducing dependence on external sources.
Financial risk High input costs can impact the profitability of the business. Mitigation: The Companys prompt debt repayment and effective input cost management have positively impacted its profitability, resulting in significant shifts in profit after tax (PAT) and EBITDA.

Key numbers

EBITDA/Turnover (%) 2022-23 2021-22
11.20 9.54
Debt-equity ratio 0.21 0.13
Return on equity (%) 18.13 17.83
Book value per share (H) 373.48 314.97
Earnings per share (H) 58.35 35.85
Interest Coverage Ratio (x) 14.31 6.11
Current Ratio (x) 2.26 1.14
Net Profit Margin (%) 6% 4%

Human resources

The Company considers its employees as a key factor in its success and is committed to providing them with necessary skills to adapt to technological advancements. It organized various training programs in technical and behavioral skills, leadership, customer orientation, safety, values, and code of conduct during the year. As of March 31,2023, the Company had a total of 1177 employees.

Internal control systems

The Company follows corporate governance principles and criteria in its internal control and risk management system. The Board of Directors provides guidance and strategic supervision to the Executive Directors and management, and oversees control and risk committees and the audit department. The Statutory Auditors provide supervision over the control and risk committee and the audit department.

Cautionary statement

The Management Discussion and Analysis report containing your Companys objectives, projections, estimates, and expectations may constitute certain statements, which are forward-looking within the meaning of applicable laws and regulations. The statements in this management discussion and analysis report could differ materially from those expressed or implied.

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