Neeraj Paper Mkt Management Discussions


INDUSTRY STRUCTURE AND DEVELOPMENT

OUTLOOK OF PAPER INDUSTRY:

The Indian paper industry has experienced a signi icant improvement in operating margins for top 10 listed companies in FY23, driven by a 45 per cent revenue growth and a surge in net realisation. However, the industry showed signs of stabilisation in Q4FY23 due to factors like Chinas ban on paper waste and supply disruptions from the Russia-Ukraine war.

Looking ahead to FY24, a moderation in top-line and operating margins is anticipated. The Indian paper and paperboard packaging market is projected to grow at a CAGR of 6.6 per cent until 2027. The industry witnessed a rise in sales volumes, higher production, and a remarkable 45 per cent growth in sales revenues in FY23. Supply-demand disruptions led to higher realisations, while imports of raw materials and uncertainty in the industry pose challenges for future growth.

Paper is a versatile and widely-used material made from cellulose _ibers, usually derived from wood pulp. It has been an integral part of human society for over two thousand years, with a vast range of applications including writing, printing, packaging, and more.

The importance of paper lies in its ability to convey information and ideas, as well as its convenience and accessibility. Paper is lightweight, easy to transport, and can be produced in large quantities at a relatively low cost. It has played a critical role in the development and dissemination of knowledge, allowing for the spread of ideas and information across vast distances and time periods.

In addition to its communicative and informational properties, paper also has practical applications in everyday life. It is used in packaging for products ranging from food to electronics, providing protection and stability during transportation and storage. Paper products such as tissues and hygiene products are also an essential part of personal care and hygiene.

Overall, papers versatility and accessibility have made it a fundamental material in modern society. While digital technology has led to a decline in certain paper products, such as newspapers and magazines, it remains a crucial component of many industries and will continue to be so for the foreseeable future.

SCOPE AND DEMAND OF PAPER INDUSTRY IN INDIA

The Paper and Paperboard Packaging market size was worth around US$ 203 billion in 2021 and is estimated to hit approximately US$ 243 billion by 2030. Due to a variety of driving factors, the market is predicted to rise at a signi icant rate.

The global paper and paperboard packaging market is projected to grow owing to increasing strictness adopted by government and international environmental bodies against the use of single-use plastic in the packaging industry compelling market players to opt for more sustainable forms of material to use.

The growing demand for paperboard packaging in the healthcare segment is expected to help the global market generate high revenue. Some of the most commonly used materials in the pharmaceutical and healthcare sectors are metals and plastics. Since there are growing concerns about using plastics for packaging medicines, providers of paper and paperboard packaging solutions have increased investment in research to develop better solutions using less harmful materials.

Other factors like the reusability of paper packaging may help generate more consumers as the general population has become aware of the direct consequences consumer shopping patterns have on the environment. There is a growing set of people who prefer to shop or purchase products only from companies that support environmental sustainability. Such moves are projected to drive the demand for paper packaging solutions. The food & beverages industry is one of the highest consumers of paper and paperboard for packaging and as the industry grows, the demand will increase.

The growth in the sector is being driven by a surge in e-commerce, food processing, pharmaceuticals, FMCG, the manufacturing industry, and the healthcare sector. The signi icant upsurge is fuelled by a growing demand for paper-based products, evolving consumer preferences, and increasing emphasis on sustainable packaging solutions. This industry has become a cornerstone of Indias manufacturing and logistics sectors, contributing to both domestic consumption and export markets

The growing e-commerce industry may provide growth opportunities while managing paper quality is expected to act as a challenge for the market players.

Firstly, the rapid expansion of the e-commerce sector has created a massive demand for packaging materials such as corrugated boxes, cartons, and envelopes.

As online shopping continues to _lourish, the need for safe, durable, and eco-friendly packaging solutions has skyrocketed. This trend has presented signi icant opportunities for the industry to innovate and cater to the evolving demands of modern consumers.

Furthermore, the increasing awareness about environmental sustainability has driven the shift towards eco-friendly packaging alternatives. With a growing emphasis on reducing plastic waste and carbon emissions, paper-based packaging solutions have gained immense popularity. From recycled paper packaging to biodegradable materials, the Indian paper and packaging industry has been at the forefront of providing sustainable options to meet consumer expectations and comply with regulatory requirements.

Additionally, the rising literacy rates, expanding education sector, and government initiatives promoting education for all have resulted in a surge in demand for paper products. From textbooks and notebooks to stationery and printing papers, the Indian paper industry plays a vital role in supporting the education system and knowledge dissemination. This growing demand for paper-based educational materials has contributed signi icantly to the industrys expansion.

Moreover, technological advancements and investments in advanced machinery and equipment have enhanced production capabilities, ef iciency, and product quality in the industry. The adoption of cutting-edge technologies has not only improved manufacturing processes but also enabled customization and specialization, allowing the industry to cater to diverse customer needs e ectively. Additionally, numerous government initiatives including Make in India had a positive impact on the packaging industry.

There is a high demand for palpable wood for paper manufacturing, and the requirement is about 11 million tonnes per annum, which is further expected to increase. Hence, this has led to the development of the Indian Handmade Paper Industry and increased paper production from recycled waste. Due to the scarcity of wood raw material, handmade paper units are becoming increasingly popular. Due to a shortage of raw materials, the handmade paper industry relies on secondary resources.

The estimated annual turnover of the paper industry in India is INR 70,000 crore, with a domestic market size of INR 80,000 crores. The contribution of the paper industry towards the exchequer is INR 5,000 crore,

The overall consumption of paper is expected to hit 24 million tonnes in 2024 25. In the past 5 to 7 years, more than 5 USD billion investment has been made towards the paper industry for setting up state of the art infrastructure.

As per the geographical location, Maharashtra is the major paper producing state. Maharashtra consists of the largest number of paper mills and produces the majority percentage of paper in India.

SWOT ANALYSIS OF THE INDIAN PAPER AND PACKAGING INDUSTRY

STRENGTHS

· The packaging board segment is growing attractively · Wide variety of paper is traded · Incomes of plantation farmers have increased · There is increased recyclability of waste paper

WEAKNESSES

· Many economically unviable plants

· There is a growing requirement of scale to survive

THREATS

· Costs of raw materials have increased hence the total cost increased · There is growing competition from imports · Digitalization is a ecting paper demand · Higher energy cost imparting competitiveness

OPPORTUNITIES:

· Attractive demand headroom from a lower per capita consumption perspective · Growing consumption of packaging paper/board in food and pharma sector · Greater hygiene awareness following the pandemic · Growing demand from downstream sectors (Kraft, corrugation, duplex) · Innovative product creation possibilities · Progressive ban on single-use plastic to widen the market

SEGMENT -WISE /PRODUCT WISE PERFORMANCE

Company is engaged in trading of paper and waste paper. During the year 2022-23, turnover of Paper, Paper Board and Other Paper items

contributed in the gross turnover of the Company which is as follows:

Revenue from products

S.No Products

Total (in Rs.)

247854511.01

1 Duplex

795089863.04

2 Kraft Paper

769099798.70

3 Paper Waste

20693900

4 Poster Paper

353380250

5 Maize Starch “Unicorn”

286528

6 Others

OUTLOOK

The company utilized the total capital arranged. In addition to the core paper trading, the company always trying to explore the opportunities in those sector where the company can increase the value of stakeholders. Paper, Paper Board and Other Paper items contributed 100% in the gross turnover of the Company.

RISKS AND CONCERN

An integrated risk management process is being adopted by the company that works towards the evaluation of the associated business risk and enables the company to survive in the competitive environment. In todays challenging and competitive environment, strategies for mitigating inherent risks in accomplishing the growth plans of the Company are imperative. The common risks inter alia are: Regulations, competition, Business risk, Investments, retention of talent and expansion of facilities. Business risk, inter-alia, further includes _inancial risk, political risk, _idelity risk, legal risk. As a matter of policy, these risks are assessed and the company has not identi ied any element of risk which may threaten the existence of the company.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The Internal Audit Department monitors and evaluates the ef icacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company and its subsidiaries. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls.

The Audit Committee of the company also reviews the internal control system prevalent at each level of the organization and passes on its recommendation to the management in respect of the areas, which requires the correction.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The _inancial and operative performance is already elaborated in Directors Report.

HUMAN RESOURCES

The company continuously works on the development of the employees at various levels. The management makes sure that the employee morale and dedication remains high and that they contribute their fullest and best to the organization. The recreational activities like

st

seminars/vacations are planned for the employees at regular intervals. As on 31 March, 2023, the Company has 20 employees. Industrial relations are cordial and satisfactory.

KEY FINANCIAL RATIOS

The details of changes in Key Financial Ratios as compared to the immediately previous _inancial year along with explanations are as follows:

Nature of Ratios

For year ended 31st March 2023

For year ended 31st March 2022

Changes%

Explanation for the changes more than 25%

Debtors Turnover

4.76

3.13

52.17

Receivable turnover

ratio has improved on

account of better

realization from debtors

Inventory Turnover

NA

NA

NA

NA

Interest Coverage

none; mso-layout-grid-align:none;text-autospace:none>1.35

1.50

-10.15%

NA

Ratio

Current Ratio

1.89

2.02

(6.21)

NA

Debt Equity Ratio

0.98

0.85

15.95

NA

Operating Pro_it

1.28%

1.79%

-28.54%

Profit declined due to

Margin %

higher competition in the

market

Net Pro it Margin %

0.23%

0.67%

(65.49%)

Company has exceptional

income during the Previous

year.

Return on Capital

8.00%

8.53%

-6.16%

NA

employed

Return on investment

NA

NA

NA

NA

Trade payables

23.71

21.50

10.26%

NA

turnover ratio

Net capital turnover

7.94

5.33

48.83%

NA

ratio

Debt Service

0.77

0.80

-3.33%

NA

Coverage Ratio

Return on Equity

2.00%

3.45%

-41.99%

Due to decrease in pro its

Ratio

CHANGES IN RETURN ON NET WORTH

The return on net worth for the _inancial year 2021-22 and for the _inancial year 2022-23, it is 3.37% and 2.06%respectively. The change in return on net worth as compared to the immediately previous _inancial year is-38.87%. Return on net worth has changed due to Company has no Extra ordinary Income income during the year.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis and in the Directors Report, describing the companys objectives, projections and estimates, results may vary materially from those expressed or implied by the forward looking statements due to risks or uncertainties associated therewith depending upon economic conditions, government policies and other incidental factors. Readers are cautioned not to place undue reliance on these forward-looking statements.