seshasayee paper Management discussions

(i) Industry Structure and Developments Global

Paper Industry, occupies a prestigious position, among the various manufacturing enterprises, in view of its significant contribution to the Society. Role of paper in promotion of literacy and education, propagation of information and knowledge and in packaging of commodities of commercial value, makes it an indispensable product. Its hygiene products offer appropriate solutions to society?s needs.

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.

Paper Industry is a significant player 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).

As per Fisher International; share of major players in global production capacity in 2019 was:

China	26%	India	4%
USA	15%	Germany	4%
Brazil	6%	Canada	4%
Japan	5%	Others	36%

The four key Paper and Board categories are: Newsprint, Printing and Writing Papers, Paper Boards for packaging applications, Tissue Papers & other Speciality Papers. Packaging grades account for over 55% of consumption, printing and writing grades over 32%, tissue papers 8-10% and others about 3%.

Tissue and packaging grades are expected to witness higher growth rates, in future while newsprint and printing and writing grades may witness declining trend.

Global demand for paper and paper board is forecast to grow to about 480 million tonnes in 2030, or 1.1 percent 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 percent.

Market Drive

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

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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.

Segment Analysis - By Geography

Asia-Pacific region held the largest share in the pulp & paper market in 2020 up to 36%, owing to the increasing demand for pulp & paper from the packaging industry in the region. The V

rise in e- commerce, food and beverage industry, automotive, health, and cosmetic industry is contributing to the increasing packaging industry of China. The packaging industry in China is anticipated to record a compound annual growth rate (CAGR) of 13.5 percent during the forecast period, according to the Sea-Circular Organization (2020-2025).

China?s food processing sector continued to expand in 2017, according to the United States Department of Agriculture (USDA). Revenue rose to $1.47 trillion, a rise of 6.3 percent compared to 2016. According to the United States Department of Agriculture, total retail food and beverage revenues in Japan totaled $479.29 billion (53,339 billion) in 2018, an increase of 2.3 percent. The increasing population and rapid urbanization in these countries are enhancing the demand for the packaging industry thereby, accelerating the growth of the pulp & paper market in the Asia-Pacific during the forecast period.

Pulp & Paper 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.

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.

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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. EEPN?s 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 green house 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.

The above perceptions, however, does not reflect truly the environmental compliance and sustainability practices of the Paper Industry.

Environmental Sustainability is at the core of Indian Paper Industry, where 90% of the raw material requirements of the Indian Paper Industry is met by recycled fibres, agro-fibres and Industry sponsored farm forestry programs for raising wood for the industry.

(ii) Domestic

India?s paper production is estimated at about 20 million tonnes. IPMA estimates the domestic market size of paper to be around 18.6 million tonnes per annum. By 2025, consumption is projected to rise to 23 million tonnes. As per FAO, India?s paper production is around 17.28

million tonnes in 2018. FAO also estimates India?s imports at 1.5 million tonnes and imports at 2.86 million tonnes. Thus 18.64 million tonnes will be India?s domestic market size.

The Indian Pulp and Paper Industry provides direct employment to 5.00 lakhs persons and indirectly 15.0 lakhs persons. An annual turnover of the industry is over INR 70,000 crores.

About 1 million tonnes of paper production capacity is to be created in India on annual basis, over the current capacity, to meet growing demand. The Indian Pulp and Paper Industry has made significant capital investment to ramp up capacities, but the gestation period is long and economic viability of operations has been impacted significantly by raw material scarcity and high prices as well as rising import.

India ranks as the 5th largest producer of paper in the world. However, the Indian Paper Industry accounts for a meagre 4% of global paper demand. The per-capita consumption of 14-15 kgs is significantly lower than the world average of around 57 kgs. India?s per capita consumption is considerably lower than China?s 65 kg, Indonesia?s 22 kg, Malaysia?s 25 kg, and of course USA?s 312 kg consumption levels. This indicates the ample scope available for expansion of the Indian Paper Industry.

While the market size and per capita consumption are relatively low, they have exhibited a rising trend over past several years, from 9.3 million tonnes in 2008 to 17.37 million tonnes in 2016. As per CARE Ratings, the total paper consumption has grown at a CAGR of around 6.4% over last decade with none of the last ten years showing a decline in consumption demand. The long-term demand outlook for the Indian paper industry remains favorable, driven by increasing literacy levels, growth in print media (particularly in the vernacular languages), higher government spending on education sector, changing urban lifestyles as well as economic growth. Given that these factors are likely to be sustained, the paper industry is likely y

to continue growing at a rate of 6-8% per annum in the medium to long term although there may be aberrant years given the cyclical nature of the industry.

As indicated in a CRISIL study, demand for P&W paper fell by a sharp 25-30% in fiscal 2021 because of 1) most of the schools and colleges were shut and shifted to digital based education, 2) fall in demand from office space as majority of them were working from home and also fall in advertising spaces and bill boards, 3) Govt ban on printing & distribution of all kinds of diaries, calendars and festival greeting cards by all ministries, depts & public sector undertaking to cut costs and promote digitalisation.

However, demand picked up and grew by 10-15% in fiscal 2022 with schools, colleges and office spaces opened up and drove the demand.

Going ahead, CRISIL expects demand for P&W paper to grow at a muted 1-3% CAGR and reach 5.5 million tonnes by fiscal 2025. Enrolment of students is expected to increase at a relatively faster pace of 0.5 - 1% CAGR over the next 3 years, compared with de-growth of 0.4% CAGR during the past 3 years. Also with new education policy, coming into effect and a gradual rise in education spend by the Govt (~20% higher spend) and increased thrust on education are likely to support demand for creamwove and maplitho (60-65% P&W segment).

Demand for copier paper (~20% of P&W segment) is expected to increase at 3 - 4% CAGR through fiscal 2025, primarily on account of moderation of spends on stationary by corporates due to focus on digital based commercial.

Demand growth for coated paper is expected to remain moderate at 1-2% CAGR led by slow down in the circulation of magazines and newspapers.

Paperboard demand de-grew in fiscal 2021, on account of muted demand across major end-user industries along with lower export demand (paperboard used for packaging of goods). In fiscal 2020, paperboard demand registered a moderate growth 3.9% on-year due to moderation in demand from FMCG and consumer durables sectors. However, we expect growth to recover to 5-6% CAGR in the next five fiscals to 12.5 million tonne by fiscal 2025. This revival will largely emanate from growth in sectors such as consumer durables, readymade garments, FMCG, pharmaceuticals: and rising penetration of e commerce during this period. (CRISIL study report)

• Demand for consumer durables is expected to recover and increase at 3-4% CAGR between fiscals 2020 and 2025. This will be marked by better affordability, shorter replacement cycles, etc.

• FMCG volumes are expected to remain flat this fiscal, which is the major demand driver for paperboard. But over the long term, rise in population and gradual increase in private spends would keep demand from the FMCG segment afloat.

• Demand from the readymade garment industry, too, is expected to de-grow 2530% on-year in volume terms this fiscal. However, long-term demand is expected to remain steady at 4-6% CACR.

• E-retailing growth is expected to register a healthy 15-20% growth this fiscal but rapidly rising shipments in the e-retail industry (estimated at 1.2-1.5 million shipments per day) and rise in penetration levels in overall retail will provide a fillip to the volumes within the segment over the medium term.

• Similarly, Pharma is also expected to grow by a healthy 9-11% on-year, supporting the paperboard demand.

Within paperboard, the consumer packaging segment (40-50% of volumes), is expected to clock 5.5-6.5% CAGR up to fiscal 2025, driven by rise in demand for FMCG, pharmaceuticals, cosmetics and apparels. Higher disposable income and higher demand for ready-to-eat foods will support overall volumes. Demand from pharmaceuticals will also be aided by increased exports and new drug launches. Further the ban on single-use plastics is expected to augur well for the paper industry.

Over the next five fiscals, the specialty paper segment is expected to grow at robust 10-12% CAGR to 1.8 million tonne by fiscal 2025 from 1.1 million tonne in fiscal 2020. 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 organised 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 2021, demand for newsprint to de-grow sharply by 30-35% on account of severe contraction of newspaper circulation and reduction in no of pages. Demand for newsprint is expected to de-grow at 4-5% CAGR between fiscals 2020 and 2025 on account of decrease in circulation of both vernacular as well as English newspapers due to increased smartphone and internet penetration and shift in preference towards e-newspaper.

While fortunes of the Paper Industry appears muted, according to Poyry, Indian Paper Industry will witness highest annual growth of about 6.5% per annum while China?s growth is projected to be in the order of 5.25%, in the near term. North America and Japan may witness marginal or negative growth. Amongst the various grades, Container Boards, Tissue Paper, followed by Carton Boards will witness higher rates of growth, while growth rate of Coated / Uncoated wood-free Paper is expected to be under 2%.

According to the recent report by Rating Agency CRISIL, a strong revival in consumer spending amid the waning impact of the Covid-19 pandemic, will help the Paper Industry bounce back with a revenue growth of 15% this fiscal.

As per IPMA, booming e-commerce, rising health care spending, growth in pharma sector, packaged foods and textile sectors etc, will lead to increased demand for paper board / packaging paper.

The reopening of educational institutions across the country, should revive the demand for the writing and printing segment. Implementation of the National Education Policy (NEP) 2020 in the coming months, should also significantly contribute to the increased demand for writing and printing paper.

With the waning of Covid-19, Pandemic, demand for all paper grades will show a positive trend and surpass the pre-covid levels in the coming year. Simultaneously the expected shift from single-use plastics to sustainable materials like paper will further add to the growth in demand for paper in India.

IPMA has estimated current domestic production to be 21 million tonnes per annum and the domestic market size to be close to 20 million tonnes as per ‘Category-wise? estimate presented below:

Paper Grade	Domestic Market Size in Million Metric Tonnes	Expected Annual Growth Rate (%)
1 I Newsprint	1.273	-1.00
2 i Writing & Printing Paper (a-b)	4.880	2.99
(a) Uncoated Paper (i+ii+iii)	4.174	3.09
(i) Creamwove / Low Bright Maplitho	1.908	2.34
(ii) Maplitho - High Bright 88+ Brightness	1.453	3.05
i (iii) Copier Paper	0.813	4.97
j (b) Coated Paper	0.706	2.38
3 j Packaging Paper I Paperboard (a+b)	12.456	9.08
I (a) Kraft Paper / Board (i+ii)	7.223	10.47
i (i) Kraft Paper (Low BF <35BF)	5.773	10.33
: (ii) Kraft Paper (High BF >=35BF)	1.450	11.00
(b) Duplex Paperboard (i+ii)	5.233	7.17
(i) Recycled Fibre Based	4.200	6.45
I (ii) Virgin Fibre Based (excluding Cup Stock)	1.033	10.10
4 I Cup Stock	0.319	13.00
5 j MG Variety I Poster	0.248	1.50
6 j Tissue	0.230	14.25
7 j Other Paper I Paperboard	0.466	1.04
l Total (1+2+3+4+5+6+7)	19.872	6.78

IPMA has also estimated the annual growth rate to be 6.78%, which will make India, the fastest growing country in the Global Paper Industry.

Major areas and concern

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.

+ Government?s 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.

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+ 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. 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 Government?s 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

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technologies are sought to be implemented, with added focus on environmental compliance.

(iv) Segment-wise or Product-wise performance

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

(v) Risks and Concerns

+ Unprecedented and rapid spread of Covid-19 and its impact on economic recovery affecting the industry?s futures.

+ Disruptions in supply-chain affecting availability and prices of key input materials as well in shipping costs.

+ Printing and writing paper segment which is the prime grade among company?s products, is expected to be impacted more severely in the near term.

+ 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 Mill?s premises.

+ Continuous failure of monsoons resulting in scanty rainfall in the State of Tamil Nadu, had also affected substantially planting of sugarcane. 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.

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+ While there has been some improvement in the availability of wood from within the State, unprecedented shortage of wood 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. If this trend is to resurface again in future, the Company may have to resort to import of wood logs/chips at higher prices, to sustain production.

The Company has taken steps to step-up production of clonal seedlings and bare- rooted seedlings by the Company?s nursery as well as by the company sponsored nurseries, to support planting of nearly 20 crores of Casuarina and Eucalyptus seedlings in about 25,000 acres by small and marginal farmers in Tamil Nadu.

+ The Company depends on imported coal for about 30% of the energy needs of its Erode unit and for about 80% of the energy needs of its Tirunelveli unit. The price of imported coal witnessed an unprecedented increase of nearly 200%, during Covid period. 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 India?s RTAs / FTAs, will likewise expose the Industry to inexpensive imports from low cost producers of paper.

+ Undue fluctuation in the exchange rate 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 that?s 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. There?s 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 it?s a trend that will further develop in 2022 / 2023 and beyond. 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 that?s 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 that?s resistant to grease are changing in an effort to eliminate fluoro- chemicals and replace it with a natural option that doesn?t 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 2023 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

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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, that?s not the reality of what?s 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.

(vi) Future of Indian Paper Industry 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.

India?s 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.

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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.

Sustainability

Sustainability is at the core of India?s 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 India?s 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 India?s Paper Industry, over 90% is sourced from industry driven agro/farm forestry. The industry is woodpositive, 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 India?s 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 is demand.

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(vii) 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.

+ Audit trail feature, as mandated by the Companies (Accounts) Rules, 2014 (as amended) with effect from April 01, 2023, has been enabled in the accounting software used by the Company. The Company also a set up practices for daily backup of the entire database and applications in remote locations.

(viii) Discussion on financial performance with respect to operational performance

	2022-23	2021-22
	(in tonnes)	(in tonnes)
Production	241145	212086
Sales	240649	220344
	(Rs in crores)	(Rs in crores)
EBIDTA	564.58	182.24
Finance Cost	3.19	2.87
Depreciation	45.25	40.83
Exceptional Item	--	--
Profit before tax	516.14	138.54

The Management reviewed the significant changes in the financial ratios and the same are presented in this section. The favourable movements in the ratios during the FY 2023-23 as compared to FY 2021-22 are mostly attributed to favourable market conditions, compared to previous year.

	Financial Year		% Change - Inc / (Dec)	Remarks
	2022-23	2021-22
1	Revenue from Operations (RFO) - Rs in crores	2082.53	1354.93	54%
o Increase in volumes by 9% and balance due to increase in prices.
Ratios - % on RFO
2 Other Income	1.47%	1.23%	19 %	o Increase in margins mainly due
3 EBIDTA Margin	27.11%	13.45%	102 %	to substantial increase in Net Sales Realisations in FY 2022-
4 PBIT Margin (Operating Margin)	24.94%	10.44%	139 %	23 compared to FY 2021-22 and due to increase in Pulp and
5	PAT Margin	18.56%	7.61%	144 %
Paper production volumes.
Other P&L Ratios
6	Return on Net Worth	30.0%	9.7%	209 %
Mainly due to significant increase in profit margins.
7	Debt Service Coverage Ratio (in times)	57.39	20.47	180%
Due to significant increase in EBIDTA Margins.
Balance Sheet Ratios
8	Debt to Equity Ratio		0.003
o IFST Dues which were pending as of last year, settled in full current year.
				Also, Company continues to have NIL Bank Borrowings.
9	Current Ratio	3.03	2.41	25 %
Mainly due to increase in overall inventory and cash / Bank balances.
10	Debtors Turnover Ratio (times)	20.27	14.47	40%
Increase is mainly due to better market conditions resulting in shorter credit period.
11	Inventory Turnover Ratio (times)	8.29	6.61	25%
Mainly due to lower proportionate increase in inventory value compared to Sales Value Increases.

(ix) 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 has been finalised and a formal agreement, valid until March 31,2024 had been entered into by the Company during FY 2022-23. Currently, the Company employs 1364 persons of all ranks in its two Units.