Orient Paper & Industries Ltd Management Discussions

GLOBAL MACROECONOMIC LANDSCAPE

The macroeconomic and geopolitical environment remains increasingly complex, presenting multifaceted challenges to global stability and economic growth. The conflict in Ukraine and in Middle East along with geopolitical instability in the South China Sea are contributing to the increased levels of instability. Tariff wars have further disrupted global trade and damaged business sentiment, leading to downgraded growth forecasts. Climate related natural disasters, societal polarization and supply chain disruptions further compound the sense of global uncertainty and ambiguity.

Countries in Europe and Central Asia grew at a modest rate of 3.6% in CY2024. Global uncertainty, economic fragmentation, and weak expansion among key trading partners will make it difficult to sustain this growth rate in the near term. Growth in China declined to 5.0% in 2024 due to slower consumption growth and struggling real estate markets. Oil price volatility, high inflation, and ongoing conflicts are weighing down the MENA countries. In view of this, World Bank projected global economic growth at 2.7 % for 2025 and 2026, factoring in various economic uncertainties.

In a global environment marked by uncertainty and subdued growth, Indias resilience stands out, reinforcing its role as a key driver of global economic activity. India continues to be the fastest growing major economy globally and is estimated to have grown at a rate of 6.2% in FY25. With inflation softening towards benign territory, the RBI has cut interest rates twice this calendar year. With monsoons expected to be in line with the long-term average, the economy is projected to grow at 6.3-6.5% in FY26.

Supported by strong fundamentals and strategic government initiatives, the country is well positioned to navigate the challenges ahead. With reforms in infrastructure, innovation, and financial inclusion, India continues to enhance its role as a key driver of global economic activity. The paper industry is a major contributor and employer in the Indian economy. While the global pulp and paper market registered weak 1-3% growth in CY24, the Indian pulp and paper industry grew by 6-7%. This growth was driven by several factors, including:

- Digitization and New Education Policy: On one hand, the onset of rapid digitization has been a deterrent to the growth of writing and printing segment. On the other hand, increased government spending on education, along with the implementation of the NEP, has boosted demand from the education sector.

- Focus on Health and Hygiene: Rising disposable incomes, increased awareness post-COVID, urbanization, and the growth of hospitality and tourism in India bode well for the tissue paper segment in households and public spaces.

- Shift towards Sustainable Packaging: Increased environmental awareness and the ban on single use plastics have driven demand for paper based alternatives in packaging.

- Growth of e-Commerce: The Indian e-commerce market is poised for continued rapid expansion, with projections estimating a CAGR of 21%. This will benefit various segments within the paper industry.

(Source: NSO-MoSPI, World Bank Report, WEF Report, ADB Report, Crisil Intelligence)

GLOBAL PAPER INDUSTRY OVERVIEW

Global demand for paper and board is estimated to grow by 1-2% in CY24-26. The Writing and Printing (W&P) segment which witnessed a 0-1% decline, is expected to see further demand reduction due to digitisation. Newsprint demand is also experiencing a contraction of 1-3%. Demand is expected to decline further with the rise of e-paper readership. The paperboard segment is expected to grow by 2-4% in CY24-26 due to rising demand from e-commerce and pharmaceutical industries. Long term demand for the paper industry will be driven by the paperboard sub-segment.

In CY24, the global pulp industry witnessed firming up of prices. Softwood and hardwood pulp prices increased by ~7% and 8% respectively. Supply chain disruptions can cause volatility in pulp prices in the short term; however, prices are expected to remain range-bound in the long term.

In India, the paper industry relies primarily on agro-based raw materials and wastepaper due to limited availability of pulpwood. In 2024, wastepaper prices increased by approximately 20% year-on-year on account of increasing freight costs due to disruptions in the Red Sea.

The pulp and paper industry is undergoing structural changes, driven by growing environmental awareness and digital disruption. Rising demand for sustainable, recyclable packaging has prompted companies to innovate ecofriendly products and enhance supply chain transparency. Simultaneously, declining demand for traditional paper due to digital adoption is shifting industry focus toward packaging and specialty paper segments.

Sustainability remains a key priority, with investments in recycling technologies such as de-inking and fibre recovery aimed at improving recycled pulp quality and reducing reliance on virgin materials while also reducing the carbon footprint. These initiatives support the industrys transition to a circular economy and promote long term resource efficiency.

(Source: CRISIL Research, Fortune Business Insights, Grand View Research, Technavio, Statista, Mordor Intelligence, Vector Solutions)

INDIAN PAPER INDUSTRY OUTLOOK

The demand for paper and paperboard is estimated to have grown by 6-7% year-on-year in fiscal 2025. Healthy demand from end-use industries like FMCG, e-commerce and pharma bodes well for the packaging segment. The newsprint segment witnessed a de-growth of 0-1% in 2025. Specialty paper, which includes tissue, thermal paper, and other niche applications, is expected to grow at a health rate of 11-13% CAGR from fiscal 2025 to fiscal 2027. This growth is partly driven by increased awareness post-Covid, rising disposable incomes, rapid growth in the tourism and hospitality industry. The writing and printing segment has maintained steady growth rate at 2-3% versus global de-growth of approximately -0.5%.

The industry is expected to face margin pressures due to increasing input costs, cheaper imports, and new capacity additions. Despite short-term margin contractions and high import volumes impacting domestic manufacturers, long-term prospects remain positive.

TISSUE PAPER

Indias tissue paper market is experiencing a strong growth of 11-13 %, driven by rising hygiene awareness, increasing disposable incomes, and changing lifestyles. Urbanization and the growth of hospitals, hotels and restaurants are strengthening the demand for tissue products like facial tissues, toilet rolls, and kitchen towels. End customers are increasingly becoming environmentally conscious, leading to the rapid growth of eco-friendly options.

WRITING & PRINTING

Despite the rapid move towards digitization, the printing and writing paper market is expected to grow at a modest CAGR of 2-3% from 2023 to 2027. Most of this growth will come from the expanding ‘copier segment. Consumers are expected to adopt a ‘print and digital approach.

Over the medium term, newspaper demand is expected to decline by a 4-6 % CAGR from fiscals 2025 - 2027 due to the shift to digital media for news consumption.

Higher enrolment of students in schools, implementation of the National Education Policy (NEP), and increased government spending on education through initiatives like the Sarva Shiksha Abhiyaan will drive the demand for cream wove and maplitho paper.

Demand for copier paper is expected to grow at a healthy 5-7% CAGR through fiscal 2027, while growth for coated paper is expected to remain moderate at 2-4% CAGR during the same period.

Capacity additions are expected to take place primarily in the paperboard segment among organised players, due to better demand prospects, lower capital intensity, and relatively easier availability of raw materials.

CAUSTIC SODA

The Company also operates a caustic soda manufacturing unit adjacent to the paper manufacturing unit at Amlai. Various chemicals such as caustic soda lye, flakes, hydrochloric acid, chlorine, and stable bleaching powder are manufactured for various industrial applications, including iron and steel, alumina, FMCG, and others.

The Indian caustic soda market has demonstrated steady growth, bolstered by capacity expansions and increasing domestic demand. Caustic soda is projected to witness a demand increase, with a CAGR of 3-4% in the short to medium term.

Significant demand and strategic positions in the global supply chain allow India to play a key role in the international market. However, close attention must be paid to rising energy costs and capacity utilisation as new capacities are added.

(Source: CRISIL Research, Alkali Manufacturers Association of India (AMAI))

REVIEW AND ANALYSIS OF ORIENT PAPERS PERFORMANCE

During the year under review, Orient Paper continued its journey to improve its operations. Multiple initiatives were launched to enhance plant sustainability, which led to production volumes growing by 11% year-on-year.

The Company also optimised its portfolio mix towards more value-added and greener varieties, improving realisations and market acceptability. The Company actively evaluated emerging and niche market trends, aligning its development and production capabilities to meet the evolving market needs.

Orient Paper deepened its engagement with micro-markets through Hub Meets and the Orient Stars digital platform. It widened its presence across new product categories such as bamboo tissue. The Company strengthened its offerings and value chain across growing segments like health and hygiene, education, and sustainable products.

In FY25, the Company introduced seven new products: three in the Writing and Printing segment, three in the Wellness and Hygiene segment, and one in the Sustainable Products category.

The Company continued to debottleneck its existing capacities and invested approximately Rs. 60 Crs. in FY25.

Key projects included the modernisation and digitalisation of processes in the pulp mill and paper machines to improve operational reliability.

In FY25, the Companys product mix comprised 62% Writing & Printing paper and 38% tissue products. Value- added products represented approximately 51% of the overall product mix.

The Company sustained Mission Khushi, its initiative to empower employees to become customer champions and build deeper customer relationships.

The Company remains steadfast in its commitment of achieving net neutrality targets in both carbon and water footprints. During the last financial year, the Company expanded its plantation coverage by 17,058 acres and implemented Good Agricultural Practices across 12,708 acres, benefitting 21,307 families. The proportion of renewables in the energy mix was maintained at approximately 40%.

The Company continued a comprehensive upgrade of its manufacturing control systems after transitioning to a fully equipped QCS set-up on Tissue machines in the previous financial year. Major upgrades included the Valmet DCS of the main machine and systems upgrade in Tissue 2. It also added new field instruments to strengthen control systems.

Orient Paper embarked on its digital transformation journey by implementing state-of-the-art Advanced Process Control (APC) in its facilities, aimed at achieving cost efficiency. Major benefits from APC would start trickling from Q1FY26.

Below is a snapshot of your companys SWOT analysis:

STRENGTHS	WEAKNESSES	OPPORTUNITIES	THREATS
Established brand and reputation	Technological gap due to legacy equipment	Abundant regional land availability for expanding plantations	Rising global pulp production capacity
Strategic presence in high- growth market segments	Inadequate manufacturing scale	Rapid growth potential in the health and hygiene segment	Oversupply from countries such as Indonesia and Latin America
Experienced leadership with deep domain expertise	Elevated labour cost per ton of output	Growth prospects driven by the New Education Policy	Uncertainty due to potential changes in government policies
Robust and transparent corporate governance	High energy consumption and associated costs per ton	Rising demand for value- added products as plastic substitutes	Imminent surplus domestic capacity in the tissue segment
Scalable infrastructure supporting seamless expansion	Need for optimization in product mix strategy	Supportive government policies promoting agroforestry

While on one hand we strive to maintain our strengths in the long run, on the other hand, we have a robust plan to address our weaknesses and threats and become future ready to capitalize on the opportunities.

We have developed our strengths over decades of doing business in an ethical and sustainable manner. These strengths will support us as we expand our capacities, add more value-added products, and continue to focus on high-growth segments.

The company is fully aware of its weaknesses and remains steadfast in its resolve to address them. We continue to invest in the modernisation of our facilities by partnering with OEMs and prioritising high impact areas that will improve our plant reliability and debottleneck capacities. This will help us sweat our assets further and improve our margins.

We are also in advanced stages of discussion and implementation of AI-led technological enhancements to our transportation and production planning processes. These will significantly reduce wastages and help us become more efficient and effective.

We continue to actively engage with the regulatory authorities to effectively counter both external and internal threats. International pulp prices continue to remain volatile, and we are continuously evaluating make-versus- buy opportunities.

ORIENT PAPERS FINANCIAL PERFORMANCE FOR FY 2024-25

Revenues: Revenue during the year stood at Rs. 895.79 Crores, marking an increase of 7.67 % compared to Rs. 831.94 Crores in FY24.

Net Profit after tax: The Companys profit / (loss) after tax stood at Rs. (54.66) Crores compared to Rs. 6.23 Crores in the previous year.

Projects investment: The Company invested Rs. 66.99 Crores on capital projects during the year.

Key Ratios

Particulars	FY 2024-25	FY 2023-24
Debtors turnover ratio	60.58	54.57
Inventory turnover ratio	6.44	6.33
Interest coverage ratio	-0.15	2.87
Current ratio (x)	0.80	0.49
Debt-Equity ratio	0.26	0.20
Operating Profit margin (%)	-0.57	10.37
Return on Net worth (%)	-3.47	0.40

Reason for significant change in the ratios have been explained in Note No. 50 to the financial statements, except for the Interest Coverage Ratio and Operation Profit Margin where variation is due to lower operating profit as compared to previous financial year.

ENVIRONMENTPROTECTION &COMPLIANCE

Orient Paper is committed to environmental protection and has implemented robust systems in place to ensure the effective monitoring and treatment of waste. Some of these include: zero liquid discharge, online stack emission monitoring systems, ambient air quality monitoring systems, dust extraction and suppression systems, effluent treatment plant (ETP), etc.

We have a robust plan to reduce our carbon footprint per ton of product by approximately 10% compared to last year. This would be achieved through the installation of an efficient steam and condensate recovery system, along with increased production.

We are keenly following the developments as the National Carbon Market formalises and begins operating in India.

Our extensive work on water conservation across our supply chain and the surrounding ecosystem will help us conserve more water than what we consume in our operations.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

The Company continues to focus on continuous training and motivation to achieve greater efficiencies and competencies. The total number of permanent employees as of 31^st March 2025 was 1291.

Company is working on multiple initiatives to enhance employee engagement levels. Industrial relations were harmonious. Safety, welfare and training at all levels of our employees continue to be the areas of major focus for the Company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Companys internal audit system is regularly monitored and updated to safeguard its assets, ensure compliance with regulations and promptly resolve outstanding issues. The Audit Committee regularly reviews reports from internal auditors, documenting audit observations and implementing corrective actions as necessary. Continuous and sustained communication is maintained with statutory and internal auditors to ensure the operational efficiency of internal control systems.

CAUTIONARY STATEMENT

Statements in this report on Management Discussion and Analysis relating to the companys objectives, projections, estimates, expectations, or predictions, may be forward looking statements within the meaning of applicable security laws or regulations. These statements are based on certain assumptions and expectations of future events. Actual results could, however, 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, selling prices, raw material costs and availability, changes in government regulations and tax structure, general economic developments in India and abroad, 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 based on subsequent developments, information or events.