Satia Industries Ltd Management Discussions

REVIEW OF ECONOMY

GLOBAL ECONOMIC SCENARIO

The war in Ukraine has triggered an expensive humanitarian disaster that must be resolved peacefully. At the same time, the conflicts economic consequences will cause a considerable slowdown in global economy in 2022, as well as an increase in inflation. Fuel and food prices have risen significantly, disproportionately affecting vulnerable populations in low-income countries. The global economy is expected to decelerate from 6.1% in 2021 to 3.6% in 2022 and 2023. (Source: IMF)

INDIAN ECONOMIC SCENARIO

The Indian economy has fully recovered to the prepandemic real GDP level of 2019-20, according to the provisional estimates of GDP released on May 31, 2022. Real GDP growth in FY 2021-22 stands at 8.7%, which is 1.5% higher than the real GDP in FY 2019-20. These figures are associated with stronger growth momentum, indicating increased economic demand. The investment rate in the fourth quarter increased to its highest level in the previous nine quarters. Moreover, capacity utilisation in the manufacturing sector rose in the fourth quarter, as against the third quarter, implying a build-up in demand, which is consistent with the growth objectives of the Indian economy.

Future capital spending of the government in the Indian economy is expected to be supported by factors such as tax buoyancy, streamlined tax system, thorough assessment and rationalisation of the tariff structure and digitisation of tax filing. In the medium term, an increase in capital spending on infrastructure and asset-building projects is set to increase growth multipliers. Furthermore, revival in monsoon and Kharif sowing helped the agriculture sector gain momentum. As of July 11, 2022, the South-West monsoon has covered the entire country, resulting in 7% higher rainfall than the normal level.

India has emerged as the fastest-growing major economy in the world, and is expected to be one of the top three economic powers globally over the next 10-15 years, backed by its robust democracy and strong partnerships.

The long-term outlook for the Indian economy is supported by a number of key growth drivers:

• The important positive factor for India is its large and fast-growing middle class, which is helping to drive consumer spending and the countrys consumption expenditure is expected to double from $1.5 trillion in 2020 to $3 trillion by 2030

• Large public infrastructure investments together with the PM Gati Shakti initiative to improve Indias logistics infrastructure, increased financial and technical support to states to expand capital investment will boost infrastructure spending.

• The governments production-linked incentive (PLI) scheme is expected to provide a thrust to the manufacturing sector in FY2022 and FY2023.

INDUSTRY STRUCTURE AND DEVELOPMENT

GLOBAL PAPER INDUSTRY

The pulp and paper industry is one of the largest industries in the world. Paper and paper board are used in a wide range of writing & printing and packaging applications in end-user industries such as consumer goods, hygiene, food and industrial packaging. The global pulp and paper market are projected to grow from $351.51 billion in 2021 to $370.12 billion in 2028 at a CAGR of 0.74% (Source: Fortune Business Insights). The World largest paper producing country is China followed by United States and Japan. These top three paper producing countries account for over 50% of the worlds total paper production. North America holds the largest market share of the paper and pulp market due to its growing requirement in the packaging and consumer goods industry. India embraces 15th rank among paper manufacturing countries in the world. 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 in global output and consumption of paper and paper boards.

INDIAN PAPER INDUSTRY

The Indian Paper industry is expected to see increased demand coming from manufacturing sector, requirement of better-quality packaging of FMCG products marketed through organised retail and the demand for the upstream market of paper products, such as copier paper, cup stock paper board, base paper for making straws & paper bags and other single use paper (SUP) products are expected to drive the paper & paper products market in India in coming years.

Paper consumption in India is approximately 22.05 MT and expected to reach 23.5 MT by 2025 (Source: Ministry of Commerce & Industry, Govt. of India), of whichcartonboardsandcontainerboards(corrugated boards) constitute the largest share of 55%, followed by writing and printing paper by 25%, specialty paper 10% and newsprint by 10%. Paper industry in India is expected to derive an annual average growth rate of 8-9% (Source: Money control) over the next 5 years led by a robust growth in packaging grade. Within consumer packaging segment it is expected to clock 9.5% CAGR in the same period driven by increased volumes in end-user segments such as household appliances, FMCG products, ready-made garments, pharmaceuticals and e-commerce. Further, the ban on single-use plastics is expected to fuel the demand for paper-based alternatives.

Consolidation: Indian paper industry could witness a round of consolidation and co-operation among various players in the next few years to collectively leverage fast changing manufacturing technologies and smoothen backward integration for raw materials.

Review and analysis of our performance Opportunities & Threats:

Writing & Printing papers

While the Writing & Printing segment is facing challenges in the short term, we believe once normalcy returns, we shall see a V shaped recovery due to emergence of the demand.

Further the impending changes in the education policy and curriculum are bound to create a huge demand for Writing & printing papers to meet the needs of new books etc.

Our performance for 2021-22

Our Company recorded a phenomenal growth of 54.04% with the turnover of Rs 91675.18 Lakh as compared to Rs 59515.57 lakh in the previous year.

Profit before Tax for the year 2021-22 was Rs 12266.88 lakh as against Rs 6683.58 lakh in the previous year. Profit after Tax for the year 2021-22 stood at Rs 10067.44 lakh as against Rs 4954.86 lakh in the previous year.

Successful commissioning of Paper Machine 4

Satia Industries Limited (SIL) has successfully commenced commercial production from Paper Machine 4 (PM 4), having an installed capacity of 100,000 TPA. PM 4 is a state-of-the-art paper machine and one of the most advanced machines from Allimand, France. The new PM 4 will be producing value added paper products like Copier, Surface sized Maplitho, Cup stock, Wedding base and Carry bag paper. PM 4 gives SIL an opportunity to manufacture superior quality paper and allows it to add new products to its current product mix and serve wider spectrum of the Paper market with quality at par with wood-based mills. PM 4 will enable SIL to have an additional capacity of 300 TPD and will yield higher price realization and margin as SIL is planning to foray into newer product segments and markets emerging with single use plastic ban coming from July 2022 as announced by the govt. The total aggregate installed capacity of SIL, now with the commissioning of new machine is 205,000 MTPA

CSR

Corporate Social Responsibility has always been an integral part of our operating philosophy irrespective of the statutory requirement. As in the past, we have this year also spent Rs 194.80 lakh on CSR activities. A detailed report of CSR initiatives FY 2021-22 is covered in a separate section forming part of this report

Human resources and industrial relations

The Company continues its policy of continuous training and motivation to achieve greater efficiencies and competencies. The total number of permanent employees as of 31 March 2022 was 2012.

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 Company has established adequate internal controlsystems,whichprovidereasonableassurances with regard to safeguarding Companys assets, promoting operational efficiencies and ensuring compliance with various statutory provisions. In addition to we have appointed a firm of prctising Chartered Accountants as Internal Auditor to regularly review internal control systems in business processes and verify compliance with the laid down policies and procedures. Reports of these internal audits are reviewed by the senior management and are also placed before and comprehensively discussed in meetings of the Audit Committee. The Audit Committee reviews the adequacy of internal control systems, audit findings and suggestions. The internal audit group also keeps a track of and monitors the progress on implementation of suggestions for improvements.

The Companys statutory auditors regularly interact with the Audit Committee to share their findings and the status of further improvement actions under implementation.

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 upon 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 on the basis of subsequent developments, information or events.

Financial Statement Highlights for FY22 v/s FY21

Particulars (INR MN)	FY22	FY21
Revenue from Operations	8,909.30	5,884.40
Other Income	258.22	67.16
Total Revenue	9,167.52	5,951.56
Total Expenses (including Depreciation and Finance cost)	7,940.83	5,283.20
EBITDA	1,812.45	1,361.18
EBITDA Margin (%)	20.34%	23.13%
Depreciation & Amortization Expenses	635.76	584.26
Finance Cost	208.22	175.72
PBT	1,226.69	668.36
Current Tax	195.02	154.95
Deferred Tax	24.93	17.92
Tax	219.95	172.87
PAT	1,006.74	495.49
Other comprehensive profit / loss	(0.22)	3.16
Net PAT	1,006.53	498.64
PAT Margin %	11.30%	8.42%
Diluted EPS	10.07	4.95

Financial Comparison Summary of FY22 v/s FY21

• Revenue from operations recorded a growth of 51.41% from 5,884.40 MN in FY21 to 8909.30 MN in FY22 mainly driven by higher volumes with better price realizations.

• The EBITDA increased by 33.15% from 1,361.18 MN in FY21 to 1,812.45 MN in FY22 mainly due to the higher sales volumes with higher realizations in our key products.

• EBITDA margins is 20.34% in FY22 and 23.13% in FY21. There is a marginal decline in EBITDA margins mainly due to increase in the input prices.

• Net profit stood at 1,006.74 MN in FY22, compared to 495.49 FY21 recording an absolute growth of 2.03x.

• Volume grew exponentially from 1,18,502 MT in FY21 to 1,43,716 MT in FY22 due to rise in demand of our premium products and operationalization of PM4.

Consolidated Balance Sheet

Assets (Rs: MN)	FY 22	FY 21
Fixed Assets
Tangible Assets	7,995.43	4,315.91
Intangible Assets	24.70	0
Capital Work in Progress	873.62	3,178.05
Total Fixed Assets	8,893.75	7,493.96
Non-Current Investment & Other Financial Assets	77.06	48.59
Loans	0	0
Deferred Tax & Other Tax Assets	0	0
Other Non-Current Assets	123.83	80.69
Total Non-Current Assets	9,094.63	7,623.23
Current Assets
Inventories	1,466.71	917.75
Biological Assets Other than bearer plants	374.16	299.71
Trade Receivable	1,064.61	908.01
Cash & Cash Equivalent	10.62	6.85
Bank Balances other than cash & cash equivalent	116.47	104.73
Other Financial Assets	49.40	46.88
Current Tax Assets	0	0
Other Current Assets	193.79	107.55
Total Current Assets	3,275.74	2,391.47
Total	12,370.38	1,0014.70
Liabilities (Rs: MN)	FY 22	FY 21
Fixed Assets
Shareholders Fund
Share Capital	100.00	100.00
Reserve & Surplus	5,349.98	4,353.45
Total Shareholders Fund	5,449.98	4,453.45
Non-Current Liabilities
Long term Borrowings	2,715.38	2,279.06
Other Financial Liabilities	1,165.77	1,129.69
Other Non-Current Liabilities	236.12	101.92
Long Term Provision	98.34	102.56
Deferred Tax Liabilities	55.97	31.15
Total Non-Current Liability	4,271.58	3,644.38
Current Liabilities
Short Term Borrowing	365.45	674.29
Trade Payable	1,106.80	502.55
Other Financial Liabilities	1,046.79	630.66
Other Current Liabilities	104.94	43.22
Short Term Provision	11.10	14.30
Current Tax Liabilities	13.75	51.86
Total Current Liabilities	2,648.82	1,916.87
Total	12,370.38	10,014.70

Financial Comparison Summary of FY22 v/s FY21

• Total Fixed Asset grew by 18.68% from Rs. 7,493.95 Mn in FY21 to Rs. 8,893.74 Mn in FY22

• Current Asset stood at Rs. 3,275.74 Mn in FY22, compared to Rs. 2,391.47 Mn in FY21.

• Long term borrowing stood at Rs. 2,715.38 Mn in FY22, compared to Rs. 2,279.06 Mn in FY21 and Short-term borrowing at Rs. 365.45 Mn in FY22, compared to Rs. 674.29 Mn in FY21. The company projects to be debt free by end of Q4 FY 25

• Debt Equity ratio has decreased marginally, to 0.74x in FY 22 compared to 0.77x in FY 21, which is in line with the companys aspirations of becoming debt free.

• Cash flow from operations stands at 1,834.49 Mn for FY 22 compared to 1,574.28 Mn for FY 21

• Return On Capital Employed improved by 14.52% for FY 22 compared to 10.41% FY 21

• Return On Equity improved to 18.47% for FY 22 compared to 11.13% FY 21

 

*ROCE= (PBT+ Inton Term loan)/Net Worth+ Long Term borrowings Including current Maturities of long term debt+DTL) *ROE= (PAT)/(Net Worth)