Seshasayee Paper & Boards Ltd Management Discussions

Paper and its Importance

Paper Industry occupies a prestigious position among the various manufacturing enterprises in viewofitssignificantcontribution to the Society.

Paper is a versatile and widely-used material made from cellulose fibers, derived from wood pulp, agro residues pulp and recycled pulp. It has been an integral part of human society for over two thousand years, with a vast range of applications including writing, printing, packaging, and more.

The importance of paper lies in its ability to convey information and ideas, as well as its convenience and accessibility. Paper is lightweight, easy to transport, and can be produced in large quantities at a relatively low cost. It has played a critical role in the development and dissemination of knowledge, allowing for the spread of ideas and information across vast distances and time periods.

In addition to its communicative and informational properties, paper also has practical applications in everyday life. It is used in packaging for products ranging from food to electronics, providing protection and stability during transportation and storage. 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 adds 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 broughtsignificantchanges about 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 Global

Paper Industryis significantplayer in the

World Economy. Its annual revenue exceeds

US $ 500 billions. World consumption of paper and paper boards grew from 169 million tonnes in 1981 to 253 million tonnes in 1993 and to 352 million tonnes in 2005. Current consumption is in excess of 400 million tonnes. Paper usage has been declining in North America and Europe since 2006 while steeply rising in China and other Asian Economies. About half of the paper produced each year is recycled. (200 million tonnes).

The four key Paper and Board segments are: Newsprint, Printing and Writing Papers, Paper Boards for packaging applications, Tissue Papers & other Speciality Papers. Global paper production was 406 million tonnes in 2015, which moved upto 414 million tonnes in 2022. Graphic paper (Newsprint and writing and printing paper) accounted for 125.6 million tonnes in 2015 (30.93% of total production). This came down sharply to 91.2 million tonnes (22% of total production) in 2022 mainly on account of steep fall in packaging paper and paper board, on the other hand, surged between 2015 and 2022. Production of this grade was 231.70 million tonnes (56.98% of total) in 2015 which grew to 265.02 million tonnes (64.00% of total production) in 2022, registering a CAGR of 1.94% during this 7 year period.

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.

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. The annual consumption of packaging material and tissue / hygiene products is estimated to rise by upto 2.9 per cent.

Global Paper Industry is led by China with an annual production of 99 million tonnes followed by USA (75 million tonnes), Japans annual production is 26.6 million tonnes while Germanys annual production is 22.69 million tonnes. Germanys Paper Industry is dominated by Exports (nearly 70% of production).

India ranks 5^th in size - accounting for about

20 million tonnes of annual production. However, India is rated the fastest growing paper market in the world. It is expected to register an annual growth rate of 6% - 7% in the coming years.

Major Grades Container board

Container board, the dominant major grade in the industry, continued to maintain its stronghold, accounting for roughly 39% of annual capacity production. Since 2020, it has witnessed a compound annual growth rate (CAGR) of 3.67%. This was driven by a surge in demand that swept the sector in 2020 and 2021. Various factors from increased sustainability initiatives to the exponential rise of the e-commerce sector during pandemic lockdowns can be attributed to this growth.

Printing and Writing Paper

Accounting for 13% of global pulp and paper capacity, printing and writing paper has experienced a negative CAGR of -1.68% since

2020. Despite a short-term bump in capacity production in 2022 due to a slight economic recovery and easing of COVID restrictions, printing and writing paper have been a declining grade for as far back as 2013. However, unlike many other countries, the printing and writing capacity in some Asian countries like China and India is witnessing noteworthy growth.

The increase in demand for printing and writing paper in this region is primarily fueled by the thriving education sector and the growth of the e-commerce industry.

Tissue and Towel

Despite accounting for only about 9% of global pulp and paper capacity, the tissue and towel sector is currently one of the fastest growing in the industry. Since 2020, it has experienced an impressive compound annual growth rate (CAGR) of 4.25%.

China saw a capacity growth of approximately 3 million tons in the first half of 2023 compared to the same period in 2022. Similarly, Turkey witnessed an increase of nearly 153 thousand tons, while Mexico recorded a rise of around 149 thousand tons. These three nations stood out as the top performers in terms of capacity growth in 2023 compared to the previous year among the top ten producing countries.

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 are pulp & paper market growth.

According to experts, North America could fully recover in 2022 / 2023 adding + 3 milliongrowth in tonnes.

Regarding printing & writing paper, output is declining. Market share of this segment was 31% in 2015, compared to 26% in 2019. The decrease is due to digitalisation as well as remote working.

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.

(ii) Domestic

The Indian paper industry is also a significant player in the global market. India is the worlds fastest growing paper market and the 5^th largest paper producer, with a production capacity of 26 million tons annually. According to the Indian Paper Manufacturers Association (IPMA), the industry is expected to grow at a CAGR of 6% to reach 27 million tons by 2023-24.

The Indian Paper Industry has witnessed significant years due to favourable government policies, rising literacy rates, and increasing demand for paper products in various sectors such as packaging, printing, and writing. The Industry also contributes significantly to the Indian economy, providing employment to over 0.5 million people directly and indirectly.

In terms of production, the Indian Paper Industry is dominated by the packaging sector, which accounts for approximately 40% of the total paper consumption. the printing and writing segment is the second largest consumer of paper, accounting for around 35% of the total consumption, while the remaining 25% is consumed by other segments such as tissue, specialty papers, and newsprint.

The paper and paperboard (including newsprint) demand are estimated to grow by

5-7% on-year in fiscal 2025, after an estimated rise of 4-6% in fiscal 2024. In fiscal 2024,

Segment-wise, W&P segment is estimated to post a moderate growth of 3-5% on-year post recovery in previous fiscal. Whereas the paperboard segment is estimated to grow by a robust 6-8% growth rate (FY25-27) on back of healthy demand from the end use industries.

The newsprint segment is expected to witness a de- growth of (0-1) % in fiscal 2025 after witnessing a steep 18-20% rise in fiscal 2022. Specialty paper is estimated to grow at a healthy pace.

We expect demand to grow at a healthy two-year CAGR (FY25-FY27) of 4-6% to ~24-25 million tonne by fiscal 2027 driven by paperboard demand.

Demand will be led by healthy growth in paperboard volume, which is expected to clock 6-8% CAGR over fiscal 2025 to fiscal 2027.

This growth would be driven by increased volumes in end-user segments such as household appliances, fast-moving consumer goods (FMCG), ready-made garments, pharmaceuticals, e-commerce, etc.

W&P demand is expected to increase at a modest 2-4% CAGR over fiscal 2025 to fiscal 2027, compared to growth of 2-4% over fiscal 2022 to fiscal 2025.

Specialty paper (majorly tissue and thermal paper) is expected to continue to log a robust 11-13% CAGR over fiscal 2025 to fiscal 2027.

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.

CRISIL Research estimates that in fiscal

2024, W&P paper demand to witness a 3-5% growth. As the effect of the pandemic weaned out from the start of fiscal 2023, the spurt in demand for W&P paper persists.

Demand for copier paper (~20% of the W&P segment) is expected to increase at 5-7% CAGR through fiscal 2027, primarily on account of moderation spends on stationery by corporates due to focus on digital-based communication.

Demand growth for coated paper is expected to remain moderate at 2-4% CAGR through fiscal 2027

Paperboard demand is estimated to grow by 7-9% on-year in fiscal 2024, Growth is primarily driven by moderate demand from end use sectors. In fiscal 2022, paperboard demand registered a robust growth 6-8% on-year due to moderate demand from FMCG and consumer durables sectors along with robust demand from e-commerce and pharma sector accelerated the demand growth. We expect growth to be 6-8% CAGR over fiscal 2025 to fiscal 2027 ~13-14 million tonne by fiscal 2027.

Growth in sectors such as consumer durables, readymade garments, FMCG, pharmaceuticals; and rising penetration of e- commerce during this period.

CRISIL Research estimates demand for specialty paper to increase 11-13% on-year in fiscal 2024, driven by strong demand for tissue paper. Over fiscal 2025 to fiscal 2027, we expect this segment to grow at robust 11-13% CAGR to

~2.3-2.5 million tonne by fiscal 2027 from ~1.9 million tonne in fiscal 2025. The main varieties of specialty paper are tissue, decor, thermal, fine printing, cigarette, and business card paper.

Rise in urbanisation, emphasis on hygiene through increased government thrust (via initiatives such as Swatch Bharat), and steady rise in healthcare and hospitality demand will lead to rise in demand for tissue paper consumption. Moreover, rise in the number of cashless transaction (ATM, debit/credit card purchase, etc.) and increased billing (owing to rise in share of organized retailing) will boost demand for thermal paper. Increased usage of tissues, napkins, toilet, and towel grade paper coupled with increasing penetration of international brands such as Paseo, Tempo, etc., will lead to healthy demand for the segment.

In fiscal 2024, demand for newsprint is estimated to register a de-growth of 3-6% after witnessing a sharp revival of an estimated 19% in fiscal 2022 on account of demand revival post nationwide lockdown in fiscal 2021. Fiscal

2023 volumes are estimated to be primarily driven by moderate circulation activity and gradual decrease in the no. of pages. Demand for newsprint is expected to fall at (0-2)% CAGR betweenfiscals2025 and 2027 on account of shift to digital medium depicting slow growth.

Major areas of concern for the Domestic Industry

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.

(iii) Opportunities and Threats

The competitive strengths and the opportunities that are available to the Indian Paper Industry are: its large and growing domestic paper market and potential for export.

Governments thrust for improving education and literacy levels in the Country.

growing urbanisation and e-commerce activities.

fast growing contemporary printing sector. (e-commerce).

availability of qualified technical manpower with capability to design, build and manage world scale pulp and paper mills.

well established Research and Development (R&D) facilities / activities encouraging innovation.

Potential for creation of sustainable raw material base through farm plantations for wood and agro residues.

The following competitive weaknesses and threats confront the Industry: high cost of raw materials, including wood, non-wood and waste paper.

poor collection of used paper resulting in low recovery rate and undue dependence on imports to meet domestic needs.

absence of policy measures for creation of sustainable raw material base through industrial plantations and used paper recovery.

likely closures, owing to increasingly stringent environmental regulations. lack of global competitiveness in cost and consistency in quality of products.

increasing imports consequent on numerous Regional Trade Agreements (RTAs) / Free Trade Agreements (FTAs) entered into by the Govt. without adequate safeguards. increasing competition from electronic media and digital communication alternatives 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.

Continuous failure of monsoons resultingin 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. the exchangeUndue fluctuation rate between Indian Rupee and US Dollar will impact the margins of the Company.

The trends 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, 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. Specifically, there is an increase in the number 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 multi-layer 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.

(iv) Outlook for Indian Paper Industry

Growth with Sustainability Growth

Per Capita paper consumption in India is currently around 15-16 kgs, while the global average is 57 kgs (200+kgs for developed countries). Per Capita paper consumption in India is projected to increase over time with increasing level of literacy, higher growth of organised retail and need for packaging, and overall economic development.

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.

IPMA expects Indian Paper Industry will register an annual growth rate of 6-7% per annum in the coming years.(Ref: IPMA)

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.

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.

(v) 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.

(vi) Discussion on financial

	2023-24	2022-23
	(in tonnes)	(in tonnes)
Production	2,40,383	2,41,145
Sales	2,23,254	2,40,649
	(Rs. crores)	(Rs. crores)
EBIDTA	391.34	564.58
Finance Cost	2.14	3.19
Depreciation	43.81	45.25
Exceptional Item	–	–
Profit before tax	345.40	516.14

The Management reviewed the significant changes in the financial ratios and the same are presented in this section. The adverse movements in the ratios during the FY 2023-24 as compared to FY 2022-23 are mostly attributed to challenging market conditions, compared to previous year.

	Financial Year		% Change
	2023-24	2022-23	- Inc / (Dec)	Remarks
1 Revenue from Operations (RFO) - Rs. crores	1801.56	2082.53	(-) 14%	Decrease in sales volumes by 7% and balance due to decrease in prices
Ratios - % on RFO
2 Other Income	2.86%	1.47%	95 %	Due to increase in Bank Balances and consequent increase in interest income from fixed deposits with banks
3 EBIDTA Margin	21.72%	27.11%	(-) 20 %	Reduction in margins is mainly due to significant
4 PBIT Margin (Operating Margin)	19.29%	24.94%	(-) 23 %	Net Sales Realisations both in Domestic and Export Markets in in FY 2023-24 compared to FY
5 PAT Margin	14.40%	18.56%	(-) 22 %	2022-23 and due to significant increase in the price of wood, a key Raw Material.
Other P&L Ratios
6 Return on Net Worth	16.8%	30.9%	(-)45 %	Mainly due to significant reduction in profit margins
7 Debt Service Coverage Ratio (in times)**	141.05	57.36	146 %	Due to reduction in finance charges, with principal payment being NIL in current year.
Balance Sheet Ratios
8 Debt to Equity Ratio	0.012	–	–	Due to availment of Working Capital Loans in the form of Export Packing Credit in FY 2023-24
9 Current Ratio	3.34	3.03	10 %	Mainly due to increase in cash / Bank balances
10 Debtors Turnover Ratio (times)	16.62	20.27	(-)18%	Drop is mainly due to adverse market conditions resulting in increased credit period
11 Inventory Turnover Ratio (times)	5.50	8.29	(-)34%	Mainly due to higher finished goods inventory as on 31.03.2024 ( Finished Goods Inventory was NIL as on 31.03.2023).

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

(vii) 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 and the labour unions have submitted their charter of demands for the renewal of the agreement. Currently, the Company employs 1456 persons of all ranks in its two Units.