Ruchira Papers Ltd Management Discussions.

Management discussion and analysis

Global economic overview

The global economy grew 2.9% in 2019 compared to 3.6% in 2018. This sharp decline was precipitated by an increase in global trade disputes that affected the cross-border movement of products and services, a slowdown

in the global manufacturing sector, weak growth coming out of some of the largest global economies and the impact of Brexit. The result was that global trade grew a mere 0.9% in 2019, pulling down the overall economic growth average. The

Great Lockdown, as a result of the pandemic COVID-19, is projected to shrink the global growth significantly starting from the calendar year 2020.

(Source: World Economic Outlook, April 2020, CNN, Economic Times, trading economics, Statists, CNBC)

Global growth over the years

Year World output Advanced economies Developing and emerging
2015 3.5 2.3 4.3
2016 3.4 1.7 4.6
2017 3.9 2.5 4.8
2018 3.6 2.2 4.5
2019 2.9 1.7 3.7

Indian economic review

India emerged as the fifth-largest world economy in 2019 with a gross domestic product (GDP) of US$ 2.94 trillion. India jumped 14 places to 63 in the 2020 World Banks Ease of Doing Business ranking.

There was a decline in consumer spending that affected Indias GDP growth during the year under review. Indias growth for FY19-20 was estimated at 4.2% compared with 6.1% in the previous year. Manufacturing growth was seen at 2%, a 15-year low as against 6.9% growth in FY18-19.

A sharp slowdown in economic growth and a surge in inflation weighed on the countrys currency rate; the Indian rupee emerged as one of the worst performers among Asian peers, marked by a depreciation of nearly 2% since January 2019. Retail inflation climbed to a six-year high of 7.35% in December 2019.

The government moderated the corporate tax rate to 22% from 25%; it announced a new tax rate of 15% for new domestic manufacturing companies, strengthening the Make- in-India initiative. The new effective CIT would be 25.17%, inclusive of a new lower surcharge of 10% and cess of 4%. Indias CIT is now closer to the global average statutory CIT of 23.03%. During the last week of the financial year under review, the national lockdown affected freight traffic, consumer offtake and a range of economic activities.


Various forecasts have estimated a sharp de-growth in the Indian economy for the current financial year, the first such instance of degrowth in decades.

Global pulp and paper industry overview

The pulp and paper industry is one of the largest industries in the world and was pegged at US$ 63.30 billion in 2019. The packaging industry segment and the food and healthcare sub-segment accounted for the largest market share in 2019. Pulp and paper is used in a wide range of packaging applications in end-user industries such as consumer goods, hygiene, food, industrial packaging, and agricultural films. Currently, North America holds the largest market share of the paper and pulp market due to its growing requirement in the packaging and construction and consumer industry.

Other factors driving the success of the pulp and paper industry are the demand for hygiene products— like paper towels, toilet paper and disposable makeup wipes—and increased economic participation of the global middle class. (Source: Global news wire)

Indian paper industry overview

India accounts for 4% share of the global paper production. The Indian paper industry size was estimated at H70, 000 Crores in FY19-20, contributing H5000 Crores to the exchequer. Indian paper production was estimated to reach 20.7 million tons in FY19-20. The industry provides direct employment to 5 Lakhs people and indirect employment to 15 Lakhs individuals.

India is the fastest growing paper market, the increasing demand addressed by imports, leading to a relative under-utilisation of domestic manufacturing capacity. The Indian paper industry operated at only 80% of its overall manufacturing capacity, considered low for a capital-intensive and continuous process industry. Indias per capita paper consumption is around 13 kg compared to global per capita of 57 kg, indicating headroom for growth.

Paper is an eco-friendly product and bio-degradable. The industry planted more trees than harvested and primary raw material like wood and agro-residues was 100% renewable. A third of new paper comes from recycled paper and an equivalent amount from waste such as sawdust and scrap from lumber mills. In India, companies use 46% raw material from recovered paper, 29% from agro-residue like bagasse, straw etc. and 29% from plantation wood. More importantly, the average cost of recycling of paper is H32 per kg (H20 for the cost of collecting paper trash and H12 conversion cost). In comparison, the cost to the collection of plastic waste is H30 to 36 per kg and recycling is H22 to H35 per kg, transporting one tonne of paper costs H4.5 per kilometre compared to H6.2 in case of plastic.

Energy consumption for paper production is 0.59 to 1.19 tonne of oil equivalent per tonne as opposed to 1.48 to 2.58 a tonne in plastic. According to the study released at the worlds largest paper fair, PAPEREX, 55-60% energy can be saved if the paper is used in place of plastic.

Paper industry is going through a transformation phase and now uses less power and water owing to technological changes. Cost of production of recycled paper is at least 30 to 40% cheaper depending upon the location than the recycled plastic.

The Indian paper market can be classified on the basis of raw material and application. On the basis of raw materials used, the market is categorised into waste and recycled paper, wood and agro-residue, of which the waste and recycled paper segment is expected to grow faster owing to growing concerns about felling trees to produce pulp. On the basis of application, the market is classified into writing and printing paper, paperboard and packaging, newsprint and specialty paper. The packaging segment accounts for over 50% of the total paper demand, followed by writing & printing paper at 30%. However, the demand for WPP was affected by the closure of most educational institutions since the beginning of March 2020 due to the COVID-19 pandemic and work from home.

(Source: New Indian Express, Paper first, Business Today)

Demand drivers for Indias paper industry

Rising incomes

The nominal per-capita net national income during FY19-20 is estimated at H1,35,050, a rise of 6.8% compared to H1,26,406 during FY18-19. (Source: MoSPI)


Nearly 34% of Indias population resides in urban areas. It is projected to increase to ~40% by 2030, driving paper demand.

Demographic dividend

Indias population among the youngest in the world. By 2022, the median age in India will be 28 years, compared to 37 in China and United States. A larger workforce could strengthen domestic demand in a sustainable way. (Source: The Hindu)

Youth education

Indias youth literacy is expected to grow at a rate of 90% by 2020 from 74% in 2017. The rise in national literacy is expected to increase the expenditure on textbooks, notebooks and other paper products.

E-commerce boost

India had an internet user base 665 million in 2019 and projected to reach 829 million by 2021. The projected transaction size of the e-commerce market was estimated to reach US$ 91 billion by 2021, catalysing packaging paper demand.

Established in 1980, Ruchira Papers Limited is stewarded by Umesh Chander Garg, Jatinder Singh and Subhash Chander Garg. The Company commenced operations with a manufacturing capability of 7 tons per day (TPD) of Kraft paper, which has since increased to 400 TPD of kraft paper and writing and printing paper. The Companys manufacturing unit is situated in Kala-Amb, District Sirmaur, Himachal Pradesh. During the year under review, the Company forayed into the manufacture and marketing of copier paper, de-risking its product portfolio.

Financial performance


Revenue during the year stood at H481.01 Crores, decreasing by 2.63% compared to H493.99 Crores in FY18-19.

Interest and finance costs

Net interest and finance costs increased by 28 bps during the year due to a revision in spread by the lender.

Profit after tax

The Company registered a profit after tax of H27.37 Crores compared to H40.23 Crores in the previous year.

Key numbers

Particulars FY19-20 FY18-19
Turnover (Rs. in Crores) 481.01 493.99
Debt-equity ratio 0.06 0.11
Return on equity (%) 10.13 16.29
Earnings per share (?) 11.29 17.43
Current Ratio (Times) 1.68 1.60
Debtors turnover (days) 48 47
Inventory turnover (times) 6.09 6.56
Operating profit margins (%) 6.31 13.97
Net profit margins (%) 5.69 8.14

Risk management

Competition risk

increase in the number of competitors could lead to reduced market share and profitability.

Mitigation: Over the years, the Company has established itself as one of the leading printing and kraft paper manufacturers in North India (using agricultural residues.

Raw material risk

Unavailability of raw materials could affect operations.


The Company uses a nominal amount of imported softwood pulp. The Company uses available resources like bagasse (byproduct of the sugarcane industry), wheat straw, sarkanda and long-fibres like indigenous and imported waste paper. The Company keeps sufficient stock of Baggase for its availability throughout the year.

Liquidity risk

A liquidity crunch could affect operations.


The Companys working capital cycle was at 86 days during FY19-20, while its debt-equity ratio strengthened from 0.11 to 0.06.

Environment risk

Inability to comply with environmental regulations could lead the disruption in the Companys operations.

Mitigation: The Company invested in a state-of-the-art effluent treatment and chemical recovery plant to ensure the recycling of the entire black liquor generated in the pulping process.

Quality risk

Inability to service the customers with quality products could affect the demand for the Companys products.


The Company emphasises quality products and has multiple procedures in place to ensure this. The result is that the Company has been accredited with ISO 9001:2015, validating its quality commitment.

People risk

Lack of qualified professionals could affect quality.

Mitigation: The Company emphasises the training and development of employees, which increases the productivity.

The Companys internal audit system has been continuously monitored and updated to ensure that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly. The audit committee reviews reports presented by the internal auditors on a routine basis. The committee makes note of the audit observations and takes corrective actions, if necessary. It maintains constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively.

The Company believes that the quality of the employees is the key to its success and is committed to equip them with skills, enabling them to seamlessly evolve with ongoing technological advancements. During the year, the Company organised training programmes in different areas such as technical skills, behavioural skills, business excellence, general management, advanced management, leadership skills, customer orientation, safety, values and code of conduct. The Companys employee strength stood at 1048 as on 31st March 2020.

Cautionary statement

The Management Discussion and Analysis report containing your Companys objectives, projections, estimates and expectation 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. Important factors that could make a difference to the Companys operation include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in the governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors.