Ruchira Papers Ltd Management Discussions.

Global economic overview

Following 3.8% in 2017, the global economy slowed to 3.6% in 2018 following the failure of Brexit negotiations, tightened financial liquidity, geopolitical tensions and higher crude oil costs. Owing to this, the global economic growth in 2018 was estimated at 3.6%.

Crude prices remained volatile since August 2018 as a result of multiple factors including American policy pertaining to Iranian exports and softening of global demand. Oil prices dropped from a four-year peak of USD 81 per barrel in October 2018 to USD 61 per barrel in February 2019.

Global growth is expected to be 3.3% in 2019. The unwinding of the US fiscal stimulus and the fading of the favourable spill-overs from US demand to trading partners could be offset by growth in the emerging markets and developing economies.

Indian economic overview

India retained its position as the sixth- largest economy and retained its position as the fastest-growing trillion-dollar economy through a major part of the year (except in the last quarter of FY18- 19).After growing 7.2% in FY17-18, the Indian economy is estimated to have grown 6.8% in FY18-19 as per the Central Statistics Office release, May 2019.

The principal developments during the year under review comprised a sustained increase in per capita income, decline in national inflation, steadying interest rates and weakened consumer sentiment from the second half of the financial year. The weaker sentiment was on account of a large non-banking financial company announcing its inability to address liabilities. This affected credit expansion, financial markets and consumer sentiment, which in turn resulted in slower GDP growth that declined to 5.8% by the fourth quarter of FY18-19, the slowest growth in a single quarter in years.

In 2018, the country attracted ~USD 42 billion In FDI inflows as per the World Investment Report 2019. Driven by strong policy reforms, India witnessed a 23-notch jump to a record 77th position in the World Banks latest report on the ‘Ease of Doing Business that captured the performance of 190 countries.

The commencement of the US-China trade war opened new opportunities for India, particularly in the agro sector. Inflation (including food and energy prices) was estimated at 2.6% on an annual basis, one of the lowest in years and well below the Reserve Bank of Indias medium-term target of 4%.

The rupee rebounded after touching a low of H74.45 to a dollar to close the financial year at H69.44. During the fiscal under review, the Indian Government continued to invest deeper in digitisation, renewable energy capacity generation and infrastructure building.

Key farm sector initiatives

Increasing MSPs: The Indian Government fixed MSPs for 22 mandated kharif and rabi crops and FRP for sugarcane. The Indian Government committed to provide a 50% return over the cost of production for all mandated crops, strengthening the rural economy.

Pradhan Mantri Kisan Samman Nidhi:

In February 2019, the Indian Government announced in the Pradhan Mantri Kisan Samman Nidhi, a scheme promising an annual assured income of H6000 (USD 84.5) for any farmer owning upto 2 hectares of farmland. The budget for the fiscal year 2020 allocated H75000 Crores for the scheme, benefiting ~120 million land-owning farmer households. (Source: PIB)

Direct Benefit Transfer: The Direct Benefit Transfer initiative re-engineered the cash disbursement process in welfare schemes through simpler and faster flow of information/funds to ensure accurate targeting of beneficiaries, deduplication and reduction of fraud. In FY18-19 alone, this scheme is estimated to have transferred more than H300000 Crores and the gains to have accrued since the time of implementation of the scheme (upto March 2019) is estimated at H141677.56 Crores. (Source: www.

Key nation building initiatives

Bank recapitalisation scheme: In addition to infusing H2.1 Lakh Crores in public sector units, the Indian Government announced a capital infusion of H41000 Crores through recapitalisation bonds in FY18-19. The Budget 2019-20 mandated that the Union Government will infuse H70000 Crores to strengthen and enhance their lending capacity.

Expanding infrastructure: Indias proposed expenditure of H5.97 trillion (USD 89.7 billion) towards infrastructural development in the Union Budget 201819 is expected to strengthen the national economy. As of November 2018, total length of road-building projects awarded under Bharatmala Pariyojana (including residual NHDP works) was 6,460 kms for a total cost of H1.52 trillion (USD 21.07 billion). The Government has announced an investment of H10000000 Crores (USD 1.5 trillion) in infrastructure over the next five years in Budget 2019-20. (Source: IBEF)

The Insolvency and Bankruptcy code (Amendment), Ordinance 2018: Passed in June 2018, the ordinance provides significant relief to home-buyers by recognising their status as financial creditors. The major beneficiary stands to be the MSMEs, as the ordinance empowers the Indian Government to provide the MSMEs with a special dispensation under the code. (Source: PIB)


The Indian economy appears to be headed for sustained sluggishness in FY19-20. Even as a new government is expected to remain pro-investment and pro-business resulting in a larger spending on infrastructure build-out, an economic revival appears some quarters away. The long-term outlook of the country appears to be positive on account of the various economic reforms, increasing aspirations, sustained consumption momentum and a national under-consumption across a range of products appearing to correct itself. (Source: CSO, Fitch, Economic Times, Business Standard, IBEF, Business Today, India Today, Money control)

Global paper industry overview

The global paper and paperboard industry was estimated at ~390 Million Tons (MT) in FY17-18. Globally, the paper industry is one of the largest dominated by North America, Northern Europe and East Asia. It is expected that both India and China will become key players in the industry as Asia is responsible for the bulk of the market accounting for ~50% of the global output and consumption of paper and paperboards. Moreover, increasing disposable income and changing lifestyles have influenced global market growth.

China, India, Japan, and Australia are the major players in the Asia Pacific market. North America is the second- largest market for paper and paperboard packaging. The US accounts for the largest share in North America primarily because of the large online shopping market. Increasing sustainability focus augmented demand for consumer- friendly products which are lightweight and easily transportable, driving growth of the paper and paperboard packaging market.

Growth in the global paper industry slowed over the last five years due to the emergence of digital media and paperless alternatives across developed economies. The global specialty paper market was estimated at USD 26.18 billion in 2017 and projected to grow to USD 51.08 billion by 2026 (CAGR of 7.7%) riding urbanisation, improving literacy and food & beverage sector development.

Growth in emerging markets, rising population and growing packaged products consumption could drive demand for paper and paperboard products. The widespread adoption of new media, paperless reading and digitalisation have shrunk the demand for writing & printing paper while economic growth and literacy have catalysed consumption of writing & printing paper. (Source: PG Paper, Market Watch, Euler Hermes)

Indian paper industry overview

The Indian paper industry accounts for ~3.7% of the global paper production, with a turnover of ~H60000 Crores. The industry provides employment to ~2 million people in the country. India is the fastest growing major paper market, reporting a CAGR of ~8% between 2011 and 2016 compared to a mere 1% for the global paper industry.

Riding this tailwind, the demand for paper in India grew from 9.3 MT in FY07-08 to ~18.5 MT in FY18-19 and is expected to grow to 20.7 MT by FY19- 20. However, Indias per capita paper consumption stood at a little above 13 kilograms compared to a global average of 57 kilograms in 2018, indicating a large headroom for the sector.

The share of writing &printing paper in Indias paper sector was estimated at ~30%. The domestic production of writing &printing paper for FY17-18 was 5.1 MT, driven by improving literacy and increasing educational focus by the government comprising initiatives like Sarva Shiksha Abhiyan and midday meals coupled with increasing government spending on education.

The share of kraft paper in Indias paper market was estimated at 29.50% in FY17- 18, corresponding to a production of 5.05 MT in FY17-18. The industry integrated backwards into farm forestry. (Source: IPMA, CARE, CNBC Tvl8)

The Indian packaging industry was valued at about USD 13 billion in 2012, which has grown to ~USD 32 bilion. The Indian packaging industry contributes about 4% of the global packaging sector. The packaging paper & board segment caters to tertiary and flexible packaging purposes in industries like FMCG, food, pharma, textiles etc. This segment accounts for ~47% of the domestic paper industry, the fastest growing segment owing to urbanisation, organised retail growth and higher growth in the FMCG and pharmaceutical sectors.

Indias import of paper and paperboard declined by 25% to 1.1 MT during the first nine months of FY18-19 from 1.47 MT in the corresponding period during last year due to higher customs tariff of USD 850 a ton to restrict overseas dumping.

Growth drivers

Educational spending: India is a young market with 310 million students, roughly the size of the entire US population. This number has been growing at 1.7% y-o-y. India has one of the largest networks of higher educational institutions in the world; colleges and universities in India were 39050 and 903 respectively, in FY17-18.

Literacy levels: Governmental measures to improve literacy such as the Right to Education Act 2009, Sarva Siksha Abhiyan and the Mid-Day Meal Scheme have resulted in the percentage of literates rising to 74% in 2011 from 65% in 2001 - a growth of 14% y-o-y. Further, the country has successfully updated its literacy rate over the years to 79% in FY17-18.

Increasing commercialisation: Gross leasing activity in India was pegged at 36.4 million sq ft for the first nine months of 2018, a substantial growth of 26% y-o-y which should translate into higher consumption of writing and printing paper.

Downstream demand: The ever- increasing demand from downstream sectors like FMCG and services sector are driving the use of writing and printing paper across the country. The adverse effects of initiatives targeted towards going paperless leveraging modern technology has been partly offset by increasing demand from the services sector.

Print circulation: Riding on the back of growing print circulation, the demand for printing paper has been growing consistently and is expected to sustain.

Urbanisation: India is the second largest urban community in the world after China. It has been estimated that by FY19-20, 35% of Indias population will be living in urban centres contributing 70 to 75% of Indias GDP Urbanisation is expected to continue and by FY49- 50, half of Indias total population is expected to live in the urban areas.

E-commerce: The Indian e-commerce market is expected to grow from USD 38.5 billion in 2017 to USD 200 billion by 2026 catalysed by increased smartphone and internet penetration.

On the back of this substantial growth in the e-commerce sector, the demand for packaging paper is expected to increase exponentially.

Companys product-wise performance:

The Company is engaged in the business of kraft paper as well as writing & printing paper.

During the year under review, the turnover of kraft paper was H190.37 Crores and that of writing & printing paper was H303.62 Crores. The EBITDA margins of kraft paper was 6.04% and writing & printing paper was 23.26%.

Financial analysis,


Balance Sheet

Net worth increased to H244.34 Crores as on 31st March 2019 compared to H191.35 Crores as on 31st March 2018. Total borrowings for FY18-19 stood at H74.73 Crores compared to H88.21 Crores during FY17-18.

Total property, plant and equipment

(net) for FY18-19 stood at H233.63 Crores compared to H230.52 Crores in FY17-18.

Profit & Loss statement

Revenues increased by 10.36%, from H447.60 Crores in FY17-18 to H493.99 Crores inFY18-19.

EBITDA increased to H82.12 Crores in FY18-19 compared to H74.17 Crores in FY17-18.

Profit after tax increased by 5.84% from H38.02 Crores in FY17-18 to H40.24 Crores in FY18-19.

Gross profit margin was 23.28% in FY18- 19. Total expenses for FY18-19 stood at H433.06 Crores compared to H396.15 Crores in FY17-18.

Depreciation and amortisation stood at H13.09 Crores in FY18-19 compared to H11.97 Crores in FY17-18.

Key Financial Ratios:

Unit Year ended 31.03.2019 Year ended 31.03.2018
Current Ratio Times 1.60 1.31
Debt Equity Ratio Times 011 0.21
Interest Coverage Ratio Times 12.09 11.37
Debtors Turnover Days 47 38
Inventory Turnover Times 6.56 7.71
Operating Profit Margin % 13.97 13.10
Net Profit Margins % 814 8.42
Return on Net Worth % 16.29% 19.98%

Risk management Demand risk: Digitisation has had an adverse effect on the demand for writing and printing paper. However, digitisation also accelerated economic growth, which in turn has led to enhanced paper and kraft paper consumption. Ruchira has been the fore-runner of writing and printing paper and kraft paper manufacturing in north India, benefiting from demand growth.

Raw material risk: The unavailability of raw materials can disrupt the day-to-day operations of paper mills. To mitigate this challenge, the Company uses bagasse (byproduct of the sugarcane industry), wheat straw, Sarkanda and long-fibres like indigenous and imported waste paper and a nominal quantity of imported softwood pulp.

Liquidity risk: A liquidity crunch could adversely affect long-term viability. The Companies working capital cycle remains at 86 days during FY18-19, while its debt-equity ratio strengthened from 0.21 to 0.11.

Quality risk: Inability to service the customers with quality products could affect the demand for the Companys products. The Company strives to manufacture quality products. Ruchira is accredited with ISO 9001:2015, validating its quality management.

People risk: Lack of qualified talented manpower can decelerate growth. The Companys people- centricity strengthened productivity.

Environment risk: Inability to comply with environment norms could attract censure. To address this challenge, the Company invested in a state-of- the-art effluent treatment plant and chemical recovery plant to recycle black liquor generated in the pulping process.

Human resources

In recent times the traditional responsibilities of the HR department have evolved towards equitable benefits and compensation, employee engagement and retention, enhancing diversity and addressing workplace issues among others.

At Ruchira Papers, we focus on enhancing employee well-being and potential.

The Company provides an invigorating workplace environment, attractive career growth, fair performance management, compensation and operational transparency.

The Companys employee strength was 1007 as on 31st March 2019.

Internal control systems and their adequacy

The Company believes that safeguarding of assets and business efficiency can be prolonged by exercising adequate internal controls and standardising operational processes. The internal control and risk management system is structured and applied in accordance with

the principles and criteria established in the corporate governance code of the organisation. It is an integral part of the general organisational structure of the Company and Group and involves a range of personnel who act in a coordinated manner while executing their respective responsibilities. The Board of Directors offers its guidance and strategic supervision to the Executive Directors and management, monitoring and support committees.

Cautionary statement

The statement made in this section describes the Companys objectives, projections, expectation and estimations which may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Forward-looking statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forwardlooking statements on the basis of any subsequent development, information or events.