Seshasayee Paper & Boards Ltd Management Discussions

Paper and its Importance

Paper Industry occupies a prestigious position among the various manufacturing enterprises in view of its significant to the Society.

Paper is a versatile and indispensable material with numerous applications and a profound impact on society. It plays a crucial role in communication, learning, record-keeping, and various industries, from education and publishing to packaging and construction. Its ability to be easily printed, written on, and recycled makes it a valuable resource for preserving knowledge, facilitating learning, and supporting sustainable practices.

Heres a more detailed look at its importance:

A. Communication and Information

1) Paper is a fundamental tool for writing, printing, and recording information.

2) It has been used for centuries to preserve stories, traditions, and knowledge.

3) Newspapers, books, documents, and various printed materials rely on paper for disseminating information.

4) Studies suggest that reading on paper can improve comprehension and retention of information.

B. Education and Learning

1) Paper provides a tangible medium for learning, aiding in note-taking, writing assignments, and engaging in hands-on activities.

2) Research indicates that students who write on paper may perform better in math and language subjects.

3) Paper-based learning can offer a distraction-free environment, allowing students to focus on the content.

C. Record-Keeping and Documentation

1) Important documents like birth certificates, diplomas, and legal papers are frequently printed on paper for permanence and accessibility.

2) Paper provides a tangible record of events, transactions, and agreements.

3) Its durability and ability to be stored and retrieved easily make it an essential tool for record-keeping.

D. Industry and Economy

1) Paper is used in packaging, wrapping, and protecting goods, contributing to the efficiency of the supply chain.

2) It is a key component in various industries, including publishing, construction, and manufacturing.

3) Paper recycling plays a vital role in resource conservation and environmental sustainability.

E. Sustainability and Environmental Impact

1) Paper is a renewable resource, and recycling paper helps conserve trees and reduce waste.

2) Paper products are more easily biodegradable than plastic products, making them a more sustainable alternative for packaging and other uses.

3) The paper industry has made significant strides in reducing its environmental footprint through sustainable forestry practices and recycling initiatives. Paper is lightweight, easy to transport, and can be produced in large quantities at a relatively low cost. Paper products such as tissues and hygiene products are also an essential part of personal care and hygiene.

Despite predictions that the on-going digital revolution would make paper obsolete, paper remains central to our lives. Paper is interwoven with human life in innumerable ways. Think of the hundreds of times, we touch paper, everyday. Paper is a bio-degradable product with a benign foot print at the end of its life cycle and this addschanges further strength to this product, promoting its growing usage.

History of Paper Manufacturing

The history of paper manufacturing can be traced back over two thousand years to ancient

China, where the first paper was invented by

Cai Lun in 105 AD. This early paper was made from a mixture of mulberry bark, hemp, and rags, which were pounded into a pulp and then flattened into sheets.

The invention of paper soon spread to other parts of the world, with the technique arriving in Japan in the 7^th century and later in the Middle East and Europe in the 8^th and 12^th centuries, respectively. In Europe, the first paper mill was established in Spain in the 12^th century, followed by the first mill in England in the 15^th century.

During the Renaissance period, paper became more widely available and affordable, leading to an explosion in printing and publishing. This, in turn, helped to disseminate knowledge and ideas, contributing to the cultural and intellectual development of Europe.

The Industrial Revolution of the 18^th and 19^th centuries brought about significant in paper manufacturing technology. The invention of the Fourdrinier machine in 1803 revolutionized paper production, allowing for the mass production of paper and the creation of new types of paper products.

Today, paper manufacturing is a global industry, with China being the worlds largest producer of paper and cardboard. The industry faces challenges such as sustainability and the shift towards digitalization, but continues to evolve and adapt to meet the needs of modern society.

(i) Industry Structure and Developments

Paper Industry is a significant player in the

World Economy.

Global Paper demand has increased from ~ 170 Mn T p.a. (in Year 1980) to ~ 420 Mn T p.a. (in Year 2023) and is expected to reach ~ 473 Mn T p.a.by Year 2030.

Global demand for paper and paper board is forecast to grow to about 480 million tonnes in 2030, or 1.1 per cent per year, according to a global paper market insight study by Poyry Management Consulting. The study forecasts the graphic paper market facing huge challenges, in particular, due to shrinking of demand for newsprint as well as uncoated and coated wood containing and wood free papers.

Some of the key Trends in Global Paper demand by Region (2022-30) are P&W markets in Latin America and ROTW are in Marginal decline. (-) 0.2%/a.

P&W Markets in Europe at (-) 3%/a

Paper Market in Asia is robust as demand for Packaging & Tissue Paper will grow at 3%/a and 4%/a respectively.

Decline in P&W, Newsprint markets in North America & Europe will be offset by the growth in packaging markets.

Megatrends continue shifting from Graphic Papers to Packaging & Tissue.

Mixed Growth outlook in the west and emerging markets such as India.

Many Producers in the West are in Strategic Transformation with gradual exit from Graphic Papers.

Conversion activity in the West has been high for more than a decade. However conversion cant be the only exit route.

This could bring along interesting opportunities for Indian producers - Graphic Paper Market in the west is shrinking, but not disappearing.

Demand for tissue paper, container boards and carton board, is expected to grow upto 2030, driven by increasing packaging needs in emerging markets, booming e-commerce and the growing demand for convenience food and consumer goods. Global Paper Industry is led by China, followed by USA, Japan and Germany. India occupies 5^th position in the Global demand for Paper and boards.

The Indian Pulp and Paper Industry plays a crucial role in Indias economy and provides direct employment to 0.5 Mn persons and indirectly to 1.5 Mn persons. In terms of raw material used, about 71% of the paper is produced from recovered paper / recycled fibre;

21% is wood / bamboo based and balance 8% is from agro residue (bagasse / wheat straw). The Indian Paper Industry has strong linkages with the farming community and has agro based roots.

Market Pulp

Market pulp is the second largest major grade in the pulp and paper industry, making up about 16% of global capacity. Since 2020, it has experienced a CAGR of 1.87% and is the only major grade where Latin America takes the lead in production instead of the Asia Pacific region.

Market pulp, being an essential material in the paper production process, has consistently demonstrated impressive growth since 2009. And 2023 is expected to close out with the largest annual capacity growth with over 4 million tons of added capacity.

Latin America is playing a crucial role in driving the impressive growth of the pulp market, thanks to a wave of new pulp projects announced in the region. These Greenfieldprojects have the potential to significantly impact the global pulp market, resulting in a variety of outcomes.

Global Pulp Production

Global Pulp production registered a 7 year CAGR of 1.1%, which was 183.9 million tonnes in 2015 moved up to 198.5 million tonnes in 2022. Chemical Wood pulp accounted for 158.07 million tonnes (79.6%) while Mechanical / Semi-mechanical pulp was 28.91 million tonnes.

Market Drivers

Increasing Demand for Eco-Friendly Packaging Material

There are various factors as to why the demand for green packaging materials is increasing globally in recent years. Eco-friendly packaging materials such as paper releases fewer carbon emissions during production than traditional packaging does, and it also uses fewer energy-heavy resources. Also, eco packaging may be recycled and often even repurposed or composted if it is extremely biodegradable, unlike many other packaging types. And since paper-based packaging is recyclable, reusable, and has consistently had the highest recycling rate in recent years, it is one of the most sustainable and biodegradable materials available.

Asia-Pacific dominates the pulp & paper market, owing to the increasing demand for commercial printing and food packaging in the region. The rising population and increasing urbanization in APAC is the major factor driving the demand for commercial printing and food packaging. Owing to increasing environmental concerns across the world along with the rising need to reduce toxic emissions; fiber crops based recycled paper packaging is being extensively used to manufacture hygienic paper. This, in turn, is expected to propel the market growth, during the forecast period. A rise in the demand for paper packaging, owing to growing consumer awareness regarding the harmful effects of plastic on the environment along with the eco-friendly nature of fiber crops based paper packaging, is also projected to flourish the pulp & paper industry.

The rapid penetration of the worldwide e-commerce and retail sector has created an enormous demand for both wrapping and packaging paper. In addition, both customers and producers in the developing economies are embracing paper packaging goods with growing environmental consciousness. Also, packaging innovation has been critical in shaping the consumption of soft drinks, paper goods are easy to recycle paper and can minimize air pollution, clean up the atmosphere, leading to a rise in demand from the food and beverage industry for paper packaging.

Market Challenges

Shifting Trend Towards Digitalization

Printing markets is changing; many publishing companies have shifted towards electronic versions and replaced previously printed volumes. Major portions of their respective markets are taken up by e-books, on line newspapers, and magazines; while directories, catalogs, and brochures have electronic alternatives; more electronic transactions are reducing demand for currency and cheques; and advertisement investment is expanding into new areas, including online. In addition to the continued growth of social networking, these variables contribute to decreasing volumes of several print items, such as magazines, catalogs, books, and more. These factors affect pulp & paper market growth.

Environment Impact

Paper Industry, is often at the receiving end from environmental activists who are wary of environmental footprint of this resources-intensive industry. As per European Environmental Paper Network (EEPN), Paper Industry should enable a clean, healthy, just and sustainable future for all life on Earth. EEPNs vision encompasses 7 principles; namely:

Reduce global paper consumption and promote fair access to paper, maximize recycled paper content, ensure social responsibility, source fibre responsibly, reduce greenhouse gas emissions, ensure clean production and ensure transparency and integrity.

China is the largest consumer of paper and boards, more than 120 million tonnes annually. China is also the biggest importer of recovered paper and producer of recycled paper. The Chinese Environment Paper Network (CEPN) has flagged its major concerns like, Pollution of water from untreated mill effluent, unsustainable sourcing of fibre for Mills, imports of pulp from countries causing deforestation, insufficient levels of wastepaper recovery and wasteful use of paper.

According to CRISIL Research, Domestic paper demand (including newsprint) is estimated to reach 21-23 million tonnes in fiscal 25. The expansion is on the back of increased industrial activity and corporate spending on office stationery and advertisements following improving economic growth.

The newsprint segment continues to witness slow demand due to decline in English paper circulation.

SWOT Analysis of Indian Paper Industry

STRENGTHS	WEAKNESSES
Large / Growing Domestic Paper Market Relatively low personnel & fuel costs Well established Research Institute (CPPRI) Knowhow in non-wood pulping / application Well developed Printing Industry Local Market knowledge & English Language penetration	Inadequate and expensivefibrebase Small & fragmented Industry structure Lack of Govt. support for Large scale farming Non-availability of highly skilled / job specific manpower.
	High raw material costs / Energy costs from Grid / High financing costs.
	Lack of local capability design and development / machinery manufacture Low standard of converting industry
OPPORTUNITIES	THREATS
Enormous Domestic market potential - Low per capita consumption Forest plantation potential Combination of Recycled, Wood & Agro-based papermaking Plastic bans and consequent opportunities Govt. Literacy Programs Export potential	Duty free imports from China / SAARC & SE Asia Environmental pressures - Affecting / delaying expansion Lack of Govt. support leading to fragmented and expensive Tree Farming Digitization and its impact in P&W segment Competition in Wood sourcing from competing Industries - Plywood / Particle board / MDF

IPMA has identified Raw Material scarcity, threat of raising imports, unfavourable FTAs, Diversion of excess inventory to India, export on economic viability as major areas of concern for the domestic paper industry.

Paper Industry is capital intensive and yields poor returns on investments. To enhance the competitiveness of the Industry, Govt. must address the issues of creation of robust raw material base as well as extending fiscal incentives for assimilation of eco-friendly technologies, etc.

International Competitiveness is the key issue that is confronting the Indian Paper Industry, today especially in the context of Governments resolve to bring down import tariff every year and RTAs/ FTAs entered into with ASEAN / SAARC countries.

The major players, alive to the emerging international threats, have been aggressively pursuing quality improvement programmes, coupled with cost rationalisation and capacity additions. Increasingly, more up-to-date technologies are sought to be implemented, with added focus on environmental compliance.

Segment-wise or Product-wise performance

The Company is a single product Company and hence segment-wise or product-wise performance is not provided.

Risks and Concerns

Unprecedented and rapid spread of Covid-19 like pandemic and its impact on economic recovery affecting the industrys futures. Disruptions in supply-chain affecting availability and prices of key input materials. Printing and writing paper segment which is the prime grade among companys products, is expected to be impacted more severely in the near term due to increasing digitalisation. The company is taking necessary steps to weather this storm by expanding its product-mix to include Box-Boards, Virgin Kraft and Absorption Kraft and by strengthening its marketing network, as well as the supply chain in addition to maintaining its liquidity to overcome extended periods of low-sales and poor revenue collections.

Failure of Monsoon and absence of water flow in the River Cauvery, from where the

Company draws its water requirements, had created anxious moments to the Company in the past. The Company is taking various initiatives to curtail quantum of water used in the process and has taken steps to identify ground water resources (which are meagre) within the Mills premises. in the exchange rate

Continuous failure of monsoons resulting in scanty rainfall in the State of Tamil Nadu, had affected substantially planting of sugarcane in the past. This had brought down, significantly the availability of cane for ‘crushing by sugar mills in the State, including by our Group Company, Ponni Sugars. Bagasse availability, consequently, has been significantly affected in the past.

While there has been some improvement in the availability of wood from within the State, unprecedented shortage of wood is being felt in the State. This has seriously affected the availability and cost of wood for the Tamil Nadu based mills.

With the mismatch of supply and demand, exorbitantly by the recent pulp mill expansion under taken by TNPL, price of casuarina and Eucalyptus wood had skyrocketed, causing serious erosion in the profitability of operations. The Company has taken steps to step-up production of clonal seedlings and bare-rooted seedlings by the Companys nursery as well as by the company sponsored nurseries, to support planting of Casuarina and Eucalyptus seedlings in about 25,000 acres by small and marginal farmers in Tamil Nadu.

The Company depends largely on imported coal for operating its Captive Power Plant. The price of imported coal witnessed an unprecedented increase of more than 100% in the past. Presently, Coal prices have started softening. Profitability of the

Company will be impacted by price increases as well as by weakening of Indian Rupee.

Undue haste in reducing tariffs, for imports from countries covered by Government of Indias RTAs / FTAs, will likewise expose the Industry to inexpensive imports from low cost producers of paper.

Undue fluctuation between Indian Rupee and US Dollar will impact the margins of the Company.

The following trends are expected to dominate the demand revival of the Paper Industry

1. Increased Online Sales

The online sales of pulp and paper products are growing in the United States and China, which are the biggest markets. This is a trend that is expected to continue.

2. Higher Packaging Demand

The global demand for various types of packaging products will either remain stable or increase. This includes production in Japan, China, European countries, and the United States. In fact, one of the strengths of the pulp and paper industry is the fact that the demand for packaging products is always expanding. This is spurred by the boost in online shopping and the explosion of e-commerce entrepreneurial endeavors in recent years.

3. Use of Big Data

Another trend thats in play in the pulp and paper industry is the use of big data. This is for the purpose of analyzing industry trends and needs to optimize the results of production, marketing, and sales. Theres also the use of new technologies, including intelligent systems and connected devices, during the production process for improved outcomes. The capabilities will continue to develop, such as smart systems that assess pulp and paper products condition and quality.

4. Digital Revolution

Although the digital revolution did not destroy the pulp and paper industry, it did impact the P&W segment of the Industry, There was a clear shift to packaging materials from the print paper, , there is an increase in the number Specifically for reasons that are obvious given the tremendous demands associated with shipping products purchased online.

5. Lightweight Packaging

Lightweight packaging is being introduced as many benefits may accrue. One of the benefits of lightweight packaging is that it can support the growth of a business by cutting expenses. Lightweight packaging lowers pulp expenses, reduces CO2 emissions, and slashes shipping costs, which are just some of the many benefits

6. Recyclable Products

The ability to recycle pulp and paper products is non-negotiable for some consumers. As a result, there is an increase in recyclable products. This has been a challenge in that some products contained coatings that were waterproof and problematic for recycling. Now there is a push to use protective coatings that are recyclable, and its a trend that will further develop in the years ahead. The growing concern over the amount of packaging that could not be recycled has resulted in the involvement of the European Union in the area of plastic packaging. This offers many future opportunities for pulp and paper.

7. Hygiene Products Packaging

Another trend that will continue in the pulp and paper industry is the increasing growth of hygiene products and the subsequent need for packaging. This includes toilet paper, wipes, tissues, and paper towels, to name a few. The growth is partly due to the increased purchase of these items by the middle class. In some regions of the world, this is attributed to an actual increase in the middle-class population and thus an increase in the consumption of these products.

8. Thermal Market Growth

There is growth in the thermal market thats linked to the increase in food delivery services.

of restaurants that offer delivery options. This has created a need for thermal packaging that is expected to grow. As long as consumers expect to have hot food delivered to their homes expeditiously, there will be a thriving thermal market in pulp and paper.

9. Packaging for Food

Packaging for food seems to be in constant development. In recent years, there has been an increasing interest in packaging products that are resistant to grease. This type of product is currently used for a wide variety of packaged goods and in restaurants. The materials used to produce packaging thats resistant to grease are changing in an effort to eliminate fluoro chemicals and replace it with a natural option that doesnt contain any chemicals. Manufacturers will continue to innovate and evolve in this area to accommodate regulations and meet the current industry demands.

10. Anti-Plastic Sentiments

There are on-going efforts to reduce or eliminate the use of plastic for packaging.

This anti-plastic sentiment is beneficial to the pulp and paper industry in that it encourages biodegradable alternatives. Governmental agencies and consumers who are health conscious, are committed to finding eco-friendly options. Simply put, the development of alternative paper based products will continue into 2024 and beyond.

The Company, on its part, has taken steps to expand its portfolio to reduce its dependence on manufacture of printing and writing paper. As part of MDP Ill, Paper machine 2 has been modified to include manufacture of multilayer boards, which will facilitate manufacture of cup-stock, carton board and kraft liner board. The Company has also developed in-house pulp based virgin kraft packaging papers for the food industry. These papers will be able to secure FSSAI (Food Safety and Standards Authority of India) certification.

Pulp and paper will continue to play a major role in the world. Despite the changes that have occurred because of technological advancements, this is an industry that has thrived and will continue to do so in future as well. In fact, the digital revolution of recent years has led to an expansion in the pulp and paper industry. As the world continues to evolve, so will the industry.

There is a popular belief that the pulp and paper industry will eventually be hindered by the current digital age in which we live. While it sounds logical, thats not the reality of whats happening. In fact, the pulp and paper industry has been thriving and will continue to do so in future also. Leaders in the industry have continually innovated to meet the changing demands. Pulp and paper industry has adapted to the changes that have occurred in recent years and are continuing to thrive. Technology has contributed to the development of a global market that consists of consumers around the world who are committed to sustainability. As a result, manufacturers have sought alternatives to petroleum-based products and have identified biodegradable and environmentally-friendly options including paper.

Current status of the domestic paper industry

Indian Paper Industry is currently operating under challenging conditions which have been compounded by substantial quantities of paper and paper board being imported into the country at significantly lower costs, under the aegis of the Asean-India Free Trade Agreements.

The economic slowdown in developed economies and export dependent economies like ASEAN countries has led to significant excess inventories of paper and paper boards being pushed into the Indian market at attractive prices at NIL basic customs duty under AIFTA.

Domestic manufacturers of paper and paper boards do not have any cost advantage and being uncompetitive against the cheaper imports and are building inventories of unsold stock and reducing prices steeply to stay in competition, affecting the health of the Industry.

Imports from ASEAN countries have registered a CAGR of 8.58% in the last 12 years. Import from these countries in H1 of 23-24 had registered a staggering 43% growth over the corresponding period of previous year.

The Industry has appealed to the Govt. to provide a level playing field for the domestic paper industry and is hopeful of receiving appropriate reliefs.

(iii) Outlook for Indian Paper Industry The future of paper is expected to be shaped by a number of factors, including:

Digitalization potential for India. Reducing : The paper industry is likely to shift towards producing higher-value specialty papers, such as those used in packaging or printing.

Advanced materials : New types of paper products with enhanced properties, such as improved strength, water resistance, or flexibility, are likely to be created.

Sustainability : The paper industry is expected to continue its journey towards even greater sustainability through innovations in production, recycling and forest management.

Demand for packaging materials : The demand for packaging materials is expected to increase, driven by factors such as the online shopping boom.

Decline in print media : The overall trend is a decline in the use of paper for print media, such as newspapers and magazines.

Emerging trends to watch out for in the next few years in Indian market include:

Increasing demand for paper products:

There is a growing demand for paper and paper-based products in India. This trend reflects the essential nature of paper in various applications, from packaging to education.

Market fragmentation and consolidation: The Indian pulp and paper market is highly fragmented, with many small-sized mills operating in clusters. However, there is a trend towards consolidation with inefficient low-profit mills closing down.

Consolidating production into larger capacities optimizes resources and enhances efficiency, providing a competitive edge in the market.

Structured waste paper collection system: A more structured and organized waste paper collection system, similar to those in Europe and the US, holds significant dependency on imported waste paper and OCC can enhance the sustainability and cost-efficiency of the industry.

The future of Indias pulp and paper industry is bright, with numerous opportunities for growth and innovation. From expanding product lines to adopting advanced technologies, producers have several avenues to explore.

Focusing on sustainability, efficiency, and quality will be key to unlocking these opportunities and driving the industry forward. However, despite the promising outlook, the industry faces several challenges, including high raw material costs, supply chain disruptions, and market fragmentation. Addressing these challenges requires strategic planning, investment, and collaboration. Producers must remain agile and proactive, anticipating and responding to these challenges effectively. To thrive in this dynamic market, producers should focus on:

Investing in advanced machinery and technology.

Enhancing supply chain management and efficiency.

Expanding product lines to meet evolving market demands. Indias pulp and paper market is at a pivotal juncture, with numerous opportunities and challenges shaping its future. For paper industry, understanding these dynamics is crucial to navigating the market effectively.

Growth with Sustainability Growth

Per capita paper consumption in India is currently around 16 kgs. Global average is 57 kgs. Average is 200+ kgs for developed countries.

As per IPMA, the demand for paper in India is growing at 6-7% per annum, making it one of the fastest growing markets in the world.

Indian Paper Industry has made substantial investments over time to increase production capacities, and as a result, in almost all paper grades, India has enough domestic capacity to meet the growing domestic demand and also for exporting to other countries.

About 1 million TPA of integrated pulp, paper and paperboard capacity is required to be created in India on an annual basis over the current capacity to meet the growing demand.

Sustainability

Sustainability is at the core of Indias Paper Industry. Paper is one of the most environmentally sustainable products as it is biodegradable, recyclable and is produced from sources which are renewable and sustainable.

The paper industry is considered the most sustainable industry with renewable resources, recycling, and efficient processes across the value chain :

Renewable resources: Paper is made from trees and other agro-residues which are all renewable resources. Recycling: The industry uses recycled paper to make new products, and paper is highly recyclable.

Efficient manufacturing: The industry uses resources efficiently, reusing water and other resources, and optimizing the use of non-renewable resources.

Sustainable forests: The industry sources wood from sustainably managed forests, which helps reduce deforestation and resource wastage.

Circular supply chain: The industry has a circular supply chain, where sustainably managed forests are replanted to supply fibre, and recycled paper and packaging are turned into new products.

Biofuel: The industry uses wood residue as biofuel to power the mills operations.

Paper Industry is not only conserving the environment but also regenerating natural resources. Through the agro/farm forestry initiative of Indias Paper Industry, more than 1.2 million hectares of land has turned green and thousands of jobs in rural India have been created.

Of the total demand for wood by Indias Paper Industry, over 90% is sourced from industry driven agro/farm forestry. The industry is wood- positive, that is, it plants more trees than it harvests. Pioneering work has been carried out by the industry over the last three decades in producing tree saplings (e.g. Eucalyptus, Subabul, Casuarina, etc.) which are disease and drought resistant and can be grown in a variety of agro climatic conditions.

Substantial amounts have been spent by the industry on plantation R&D, production of high quality clonal saplings, technical extension services and hand holding of marginal farmers.

Indian Paper Industry is unique. Over 75% of Indias paper production is based on recycled fibre and agro fibre, while 90% of the wood requirements of the industry is met by industry promoted agro/forestry initiatives. The Industry, thus, has strong claims for sustainability. Indian Paper Industry, is thus well positioned to meet the challenges of the market in meeting the growth in demand.

Our Company continually invests in adopting cleaner production technologies to reduce the carbon footprint. The company is currently setting up a Wet ESP System in the Erode unit, which is first of its kind in the paper industry.

The Company has recently partnered with and has entered into Share Purchase Agreement (SPA), Share Subscription & Shareholders Agreement (SSSHA), Energy Supply Agreement and Performance Incentive Agreement with M/s.Ganeko Solar Private Limited (GSPL) (the Indian subsidiary / affiliate of Zelestra Corporacion S.A.U, Spain) and M/s.Navia One Power Private Limited (SPV promoted by GSPL) for the purpose of meeting the Solar Power & Wind Power requirements of the Company, which will help in significantly reducing the Scope 2 emissions of our company.

(iv) Internal control systems and their adequacy

The Company maintains all its records in ERP system developed in-house and the work flow and majority of approvals are routed through this system.

The Company has laid down adequate systems and well drawn procedures for ensuring internal financial controls. It has appointed an external audit firm as Internal

Auditors for periodically checking and monitoring the internal control measures.

Internal Auditors are present at the Audit Committee Meetings where Internal Audit Reports are discussed alongside of management comments and the final observation of the Internal Auditor.

The Board of Directors have adopted various policies, like Related Party Transactions Policy and Whistle Blower Policy and put in place budgetary control and monitoring measures for ensuring the orderly and efficient conduct of the business of the

Company, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information.

The Company has enlisted the services of an external firm of Chartered Accountants to evaluate the adequacy of the internal financial control systems adopted by the

Company. They have expressed satisfaction with the existing internal financial control system prevalent in the Company.

The Statutory Auditors have also expressed satisfaction with the existing system in their Audit Report to the Shareholders.

(v) Discussion on financial performance with respect to operational performance:

	2024-25	2023-24
	(in tonnes)	(in tonnes)
Production	2,46,431	2,40,383
Sales	2,39,073	2,23,254
	(Rs crores)	(Rs crores)
EBIDTA	181.49	391.34
Finance Cost	8.43	2.14
Depreciation	45.24	43.81
Exceptional Item	–	–
Profit before tax	127.82	345.40

The Management reviewed the significant changes in the financial ratios and the same presented in this section. The favourable movements in the ratios during the FY 2024-25 as compared to FY 2023-24 are mostly attributed to favourable market conditions, compared to previous year.

	Financial Year			% Change
	2024-25		2023-24	- Inc / (Dec)	Remarks
1 Revenue from Operations (RFO) - Rs crores	1754.11		1801.56	(-) 2.6 %	Increase in sales volumes by 7% and drop in average realisations by nearly 10%; resulting in overall drop in RFO.
			Ratios - % on RFO
2 Other Income	4.00%		2.86%	140 %	Due to increase in return from deposits with banks.
3 EBIDTA Margin	10.35%		21.72%	(-) 52 %	Reduction in margins is mainly due to significant
4 PBIT Margin reduction in in (Operating Margin)	7.76%	19.29%		(-) 60 %
5 PAT Margin increase in the price of	5.96%		14.40%	(-) 58 %	Net Sales Realisations mainly in Domestic Markets in FY25 compared to FY24 and due to significant wood, a key Raw Material.
			Other P&L Ratios
6 Return on Net Worth (PAT / Average Shareholders Equity)	6.2%		16.8%	(-) 63 %	Mainly due to significant reduction in profit margins.
7 Debt Service Coverage Ratio (in times) **	18.77		141.05	–	Commencement of Availment of PCFC Working Capital loans during FY25 and accordingly interest service in FY25.
			Balance Sheet Ratios
8 Debt to Equity Ratio	0.044		0.012	–	Due to availment of Working Capital Loans in the form of PCFC Loans in FY25.
9 Current Ratio	3.41		3.34	2.1 %	Impact of lower cash and bank balances offset by increase in inventory.
10 Debtors Turnover Ratio (times)	12.96		16.62	(-) 22 %	Drop is mainly due to adverse market conditions resulting in increased credit period.
11 Inventory Turnover Ratio (times)	5.07		5.50	(-) 8 %	Mainly due to higher finished goods inventory as on 31.03.2025.

** Same for interest service coverage ratio (since long term loan principal repayment was NIL in both the years)

(vi) Material developments in Human Resources / Industrial Relations front, including number of people employed

Relations between the Management and the labour were cordial throughout the year under review.

The five-year wage / salary agreement with labour unions / staff association expired on March 31,

2024. Negotiations are underway for entering into a new agreement.

Currently, the Company employs 1446 persons of all ranks in its three Units.