Sophia Traexpo Ltd Management Discussions

A. INDUSTRY STRUCTURE & DEVELOPMENT

The global paper products market size was estimated at USD 268.8 billion in 2018 and is expected to register a CAGR of 0.3% from 2019 to 2025. This growth is primarily attributed to the rising demand for packaging paper by major companies in the retail, FMCG, pharmaceutical, and hospitality industries. Increasing technological developments for paper-based products have enabled the manufacturing of processed paper with higher strength and durability than plastic packaging materials.

It has been observed that packaging paper material is gaining acceptance in a wide range of industries, such as food and consumer products. Other factors affecting the market growth are rising awareness about environmental issues like biodegradability, global warming, and health problems created by plastic packaging materials. The Quick Service Restaurant (QSR) industry is also one of the major consumers of paper products.

Thus, the rapid expansion of the QSR market has added to the product demand. Shifting preference for off-premises consumption of food on account of busy schedules is expected to drive the product demand further. In addition, the availability of freshly cooked food in franchises and food trucks has also witnessed an upsurge and has added to the demand. For instance, the global food chain McDonalds provide all their orders in paper packages.

Recycled packaging paper has become a popular trend to reduce plastic waste. Cardboard, paper, and other materials can be recycled and used for different kinds of product packing and shipment. Leading companies are investing in paper products. For instance, PepsiCo, Inc. has committed to providing 100% recyclable packaging by 2025. Walmart has declared to provide recyclable packaging for all the private level brands.

Regional Insights

Asia-Pacific was the largest market for paper products in 2018 and accounted for 36.65% of the market share. Key factors behind this growth include growing industrialization across the region. The newsprint category is facing a little slowdown as consumers are shifting towards digital platforms. Asia Pacific is the fastest-growing regional market with a CAGR of 2.3% from 2019 to 2025.

Increasing awareness about the adverse effects of plastic products and growing disposable income, especially in developing countries like China and India, are expected to boost the market growth. Rapid industrialization is also projected to contribute to market development. China, in particular, is the largest market in the Asia Pacific due to the strong presence of key companies, such as Quanzhou Sinowise Machinery Co. Ltd. and Samson Paper Holdings Ltd. (Source: www.grandviewresearch.com)

INDIAN PAPER INDUSTRY

India holds 12th rank among paper producing countries in the world, however, the countrys share in global paper demand is gradually increasing with rising domestic demand while demand in the western nations is contracting.

The Indian paper industry has continued to witness steady growth and the domestic demand grew from 9.3 million tonnes in FY08 to 17.1 million tonnes in FY18 at a CAGR of 6.3%. Overall paper demand is expected to grow at a CAGR of 12% and is likely to reach approximately 24 million tonnes in 2024-25.

The per capita consumption of paper in India currently stands at about 15-16 kg which is relatively lower compared to global average which stands at 57 Kg per capita and 45-20 kg per capita for Asian peers. However, the per capita consumption is expected to touch about 17 Kg by 2024-25.

The paper Industry is fragmented with over 750 paper mills, of which less than 100 mills have a capacity of 50,000 TPA or more. Most of the paper mills are in existence for a long time and hence the existing technologies fall in a wide spectrum ranging from oldest to the most modern. However, the focus of paper industry is now shifting towards eco-friendlier products and technology. The mills use a variety of raw material viz. wood, bamboo, recycled fibre, bagasse, wheat straw, rice husk etc. The specie wise share is 30-35% wood based, 45-50% recycled fibre based and 20-22% agro residue based raw material.

The Indian Paper Industry currently has a turnover (net of taxes) of approximately 70,000 Crores and contributes over 10,000-15,000 Crores (USD 1.5-2.5 billion) per annum to the national exchequer. Even more importantly it provides employment opportunities to over 5-6 million people directly and indirectly, mostly in rural areas.

B. OPPORTUNITIES AND THREATS PAPER DIVISION

With the growth in GDP, the low per capita consumption of Paper & Paperboard in the Country is bound to improve, resulting in increased consumption of paper. As against the present per capita consumption of 13 kg, every one kg incremental per capita consumption results in additional demand of more than one million ton a year. This indicates there is a lot of scope for growth of paper demand in India.

Increasing population and literacy rate, improvement in manufacturing sector and changing lifestyle of individuals are expected to further boost the demand of paper in India. Additionally, increasing environmental concerns and awareness resulting in ban on single use plastic material by many states and the thrust of the Union Government to ban it in a phased manner, has opened up new market for paper industry.

However, there is increasing threat from imported paper as the Import duty on Paper & Paperboard for ASEAN countries has been reduced to Zero since 2014, which resulted in cheaper imports of 2.90 million tonnes of paper in 2018-19 from ASEAN Countries, with 8 Year CAGR of 33.51%. Overall Imports of paper was 14.78 million tonnes in the year 2018-19 with 8 year CAGR of 13.54%. During the 9 months period between April-December 2019, the overall paper and paperboard (excluding newsprint) imports has increased by 16% to approximately 1.3 million metric tonnes from approximately 1.1 million metric tonnes for the corresponding period of the previous year.

Imposition of definite Anti-Dumping duty in benchmark form by Govt. of India from 04.12.2018 for a period of 3 years on import of copier paper from Indonesia, Thailand and Singapore has not yielded desired result and still there is large price gap between imported and Indian copier paper.

C. RISKS AND CONCERNS

During the reporting period, the company remained inactive, with no significant business operations or revenue generation. Despite efforts to revitalize the business, challenging market conditions and internal constraints have hindered our ability to resume operations. We continue to assess our options and explore potential strategies for reactivation. In the meantime, we have maintained essential administrative functions and ensured compliance with regulatory requirements. We will provide updates on any material developments or changes in our status.

D. OUTLOOK

The long-term demand outlook for paper in the Indian market remained moderately positive, due to the relatively low per-capita consumption compared to global averages. The implementation of the New Education Policy (NEP) is expected to stimulate demand for printing and writing paper. The increasing use of specialized and traditional packaging in FMCG, healthcare, e-commerce, pharmaceuticals, and consumer industries is expected to drive demand; a focus on innovative and visually appealing packaging, and ongoing transition from plastic to paper-based packaging in the FMCG and food product sectors is expected to catalyze demand as well (Press Release by ICRA dated January 9, 2024.)

E. PERFORMANCE REVIEW

Discussion on Financial Performance with respect to Operational Performance:

1. Total Income:

2. Share Capital:

3. Net Profit:

4. Earnings PerShare (EPS):

G. SIGNIFICANT KEY FINANCIAL RATIOS:

The statements in this management discussion and analysis describing the outlook may be "forward looking statement" within the meaning of applicable laws and regulations. Actual result might differ substantially or materially from those expected due to the developments that could affect the companys operations. The factors like significant change in political and economic environment, tax laws, litigation, technology, fluctuations in material cost etc. may deviate the outlook and result.