Simplex Papers Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENTS

Amidst an uncertain and challenging global macroeconomic environment, the Indian economy presents a picture of confidence, positivity, and optimism. Recent growth outturns have surprised most forecasts on the upside. After clocking real gross domestic product (GDP) growth of 7.2 per cent in 2022- 23, real GDP is expected to grow by 7.3 per cent during 2023-24 according to the latest release by the National Statistical Office (NSO). As per RBI, FY 2025 growth to remain robust at 7% driven by private capex and consumption demand.

With strong domestic demand, India remains the fastest growing major economy and is now the fifth largest economy in the world. In fact, in purchasing power parity (PPP) terms, India is already the third largest economy. The International Monetary Fund (IMF) has projected that Indias contribution to world growth will rise from the current 16 per cent to 18 per cent by 2028. Strong domestic demand remains the main driver of growth, although there has been a significant increase in Indian economys global integration through trade and financial channels. Higher reliance on domestic demand cushioned India from multiple external headwinds. As per RBI Monetary policy, CPI inflation expected to moderate to 4.5% in fY 2025 from 5.4% in FY 2024.

The estimated annual turnover of the paper industry in India is 70,000 crore, with a domestic market size of 80,000 crores. The contribution of the paper industry towards the exchequer is 5,000 crore. The industry provides direct employment to 500,000 persons, and indirectly to around 1.5 million

The growing popularity of ready to eat products and perishable foods is expected to grow the demand for packaging paper. Demand for duplex board and kraft paper is expected to rise, higher than the global average.

The Indian Industry has become an attractive industry for many foreign players to enter into India and establish or take over existing mills for paper production.

OPPORTUNITIES AND THREATS

The paper and board industry in India is considering this transition phase as a great opportunity coupled with the challenge of providing affordable alternatives. Paper mills are conducting various trials to make paper and paperboard for the intended use, like carrying, wrapping, protecting, packing and holding as a container.

The Indian paper industry is expected to grow at about 6-7% CAGR. The per capita paper consumption in India stands at 15 kg which is well below the global average of 57 kg and significantly below 200 kg in developing economies, which highlights an opportunity in terms of potential growth of paper demand in India. The demand will be driven and supported by higher Government spending on education initiatives, corporate spending on stationary and healthy growth in services sector. Inspite of advancement in technology, like the usage of Tabs, Smart Phones, digitization, the increased preference for online storage and dissemination of data, the paper industry is poised for a consistent growth in demand over the next few years.

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

With a number of countries replacing plastic bags with paper equivalents, paper industry opportunities are growing. Increasing literacy is driving higher writing & printing paper consumption in developing economies. Paper and Paperboard touches all aspects of life and its production is vital for education, packaging and several other sectors of the economy.

THREATS

Indian paper mills are categorized based on raw materials used by them in the manufacture of paper - wood/forest based mills, agro-based mills and wastepaper based mills. Wood accounts for 30-35% of production, while wastepaper and agri-residues account for 45-50 percent and 20-22 percent, respectively. India has a total land area of 3.3 million sq km with forests covering only 0.7 million sq km. About 78 percent of the total land area is non-forest area. With diminishing forest resources and limitations on enlarging man-made forests, there is scarcity of raw material for paper mills. Moreover, the limited raw material can be put to many alternative uses.

India is wood fibre deficient country - inadequate raw material availability domestically is a major constraint for the paper industry. Over 90 percent of wood demand met through industry driven agro/farm forestry (1.2 million hectares); 10 percent through Government sources and other sources. Current demand for

pulpable wood by paper industry is about 11 million tonnes per annum (TPA) while domestic availability is 9 million TPA (demand projected to rise to 15 million TPA by 2024-2025).

Wastepaper collection /recovery mechanism is not very strong in the country and largely in the unorganised sector.

The development challenges faced by the Paper industry are as follows:

• Consolidation of the fragmented industry

• Achieving economies of scale

• Modernisation of mills, productivity improvement and building new capacities

• Quality benchmarking

• Creation of a robust raw material base

• Enhancement of the industry competitiveness to face global competition

• Environment standards and regulatory compliances

• Increasing digitisation is seen as a threat, replacing paper with virtual equivalents.

RISKS AND CONCERNS

The Companys risk management strategy encompasses the proper and in-depth identification, assessment and prioritization of risks, followed by speedy mobilization of resources to minimize, monitor and control the probability of unfortunate events.

Export duties and taxes on wood exports are raising concerns. For instance, fibrous raw material represents the highest share of production costs, and so its availability at affordable prices is very important for the sector. Due to digitalisation, the consumption of graphic paper is reducing.

INTERNAL CONTROL SYSTEM AND ADEQUACY

The Company has proper and adequate internal control system to ensure maintenance of proper accounting records, their accuracy and that all the assets are safeguarded from loss or damages.

PERFORMANCE

Your Company has reported total income of 164.55 thousands as compared to total income of Nil in the previous period. Net profit is 1,143.95 thousands during the year ended 31st March, 2024 as compared to net loss of 2,216.87 thousands in the previous financial year. The profit has arised due to reversal of expected credit loss of 3,218.00 thousands provided in previous period.

KEY FINANCIAL RATIOS

The Key Financial Ratios for the financial year ended 31st March, 2024 are as under:

Particulars	2023-24	2022-23
Debtors Turnover	-	-
Inventory Turnover	-	-
Interest Coverage Ratio	-	-
Current Ratio	0.12	0.11
Debt Equity Ratio	-1.05	-1.03
EBIDTA Margin (%)	695.20	-
Net Profit / (Loss) Margin (%)	695.20	-
Return on Net Worth (%)	0.96	-1.86

There were no debtors and inventory for the current as well as in previous year. During the year, there was a reversal on expected credit loss which resulted into an exceptional item, hence EBIDTA margin and net profit/(loss) margin are high. In current year, Return on net worth is high due to an exceptional item and interest coverage ratio is nil as there was no interest cost and principal repayment during the year.

CAUTIONARY STATEMENT

Statements in this report on Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations or predictions may be forward looking, considering the applicable laws and regulations. These statements are based on certain assumptions and expectation of future events. Actual results, could, however differ materially from those expressed or implied.