south india paper mills ltd Directors report

To

The Members

Your Directors hereby present the 64^th Annual Report of the Company along with the audited accounts for the year ended 31^st March, 2023.

The Company has adopted Indian Accounting Standards (Ind AS), from die financial year 2017-18 as mandated by the Ministry of Corporate Affairs (MCA), in place of Indian GAAP, followed earlier. Financial statements for the current year, including figures of the previous year are based on IndAS and this adoption has no major impact for the Statement of Profit and Loss.

WORKING RESULTS	FY 2022-23	FY 2021-22	FY 2020-21
Finished Production of Paper & Paperboards	50,867 MTs	54,991 MTs	53,372 MTs
Conversion Quantity at the Box Plant (PPD)	28,068 MTs	29,225 MTs	29,166 MTs
	(Rs In Lacs )	(Rs In Lacs)	(Rs In Lacs )
Revenue from Operations	28,785.11	30,535.57	22,678.27
FINANCIAL RESULTS:
Profit/(Loss) before interest, depreciation & tax	(502.35)	3,822.44	3,817.18
Less : Finance costs	1,624.38	587.75	445.82
Gross/Cash Profit/(Loss)	(2,126.73)	3,234.69	3,371.36
Less : Depreciation	1,603.39	943.92	1014.38
Profit/(Loss) before Exceptional items & Tax	(3,130.12)	2,290.77	2,356.98
Add : Exceptional income	1,327.50	273.05	305.79
Profit/(Loss) after Exceptional items, before tax	(2,402.62)	2,563.82	2,662.77
Less : Provision for Current tax	—	(559.17)	(483.20)
Less/(Add): MAT credit (utilized)/ entitlement	—	—	(375.16)
Less/(Add): Deferred Tax (charge)/ credit	752.38	160.26	100.54
Profit/(Loss) after tax for the year	(1,650.24)	2,164.91	1,904.95
(Less) / Add :(Tax Provision for earlier years)/ Reversal	(16.95)	1.14	—
Net Profit/(Loss) after Tax	(1,667.19)	2,166.05	1,904.95

OPERATIONS

Revenue from operations for the financial year 2022-23 at Rs287.85 crores, decreased by 5.73% from Rs305.35 crores in the previous year.

Expansion project to increase paper manufacturing capacity by addition of a new paper plant has been completed and Hie processes are being optimised for improving efficiency. Current year results are negatively impacted by raw material price volatility, steep increase in energy costs and production losses due to optimisation and stabilisation activity of the new machinery. Production in the last quarter was low due to these activities and holidays in February and March 2023. Raw material prices went up during first half of the year started to decline in Q3, Q4, consequently

bringing down the selling price, resulting in reduction in turnover and margins. Fuel prices are decreasing gradually and operating volumes are gradually being increased. Paper from the new Paper Machine has been received well in the market.

During the second half of the FY 2022-23, realization was lower, as the market was depressed owing to global downturn and recessive conditions and could not get satisfactory unit variable margin, despite lower rawmaterial cost, as fuel prices did not correct as much.

Operation at the Paper Mill was lower. It reduced from @ 83% on old capacity to 44% of the new capacity, for the reasons stated above.

At Printing & Packaging Division Conversion tonnage was about 78% as against 81%, in the preceding year.

Profit before interest, depreciation, tax (PBDIT) in FY 2022-23 showed a loss ofRs 502 lacs, as against Rs 3,822 lacs profit in the preceding year. Finance costs were higher at Rs 1624 lacs from Rs 588 lakhs as the Project Term loan interest is getting charged as revenue expenditure, also with increased utilization of working capital facility, from banks. After making a depreciation provision of Rs 1,603 lacs (Previous year 944 lacs), loss before Exceptional income & tax was Rs 3,130 lacs(Previous year Profit Rs 2,291 lacs). Exceptional income ofRs 1,327 lakhs (previous year Rs 273 lakhs) on sale of part of an immovable property (held for sale), led the loss before tax to Rs 2,403 lakhs (previous year Profit before tax Rs 2,564 lakhs).

Company has opted for new regime of Income tax, wherein effective tax rate is 25.17% sans certain exemptions and allowances like additional depreciation, from FY 2021-22.

Provision for current tax Rs Nil (Rs 559 lacs) & deferred tax assets credit of Rs 753 lakhs is considered in view of loss (considering net effect of deferred tax ofRs 160 lakhs reduction due to opting of lower tax rate in the previous year),net loss for the year stood at Rs 1,650 lacs. (Previous Year profit Rs 2,165 lacs)

Considering the prevailing economic environment and the internal and external factors, the Company has assessed the carrying amount of property, plant & equipment, receivables, inventories, investments and other assets as at the Balance Sheet date, the current liquidity position including its cash flows, the business outlook and has concluded that no material adjustments are required in these financial results and the Balance Sheet as at 31-3-2023.

FINANCES

During the year, cash flow & liquidity remained comfortable for most of the time.

Sources of funds	Rs in lacs	Deployment of funds	Rs in lacs
Sale of Land	1,343	Repayment of Term Loans	1,114
		Repayment of Vendor Financing, STL	478
Interest receipts	41	Capital Expenditure & Advances	2,716
Term Loan drawn from Banks	1,746	Finance Cost incl capitalized interest	1,879
Proceeds from issue of shares	4,537	Income tax Paid for earlier years	278
Vendor Financing, Short term Loan drawn	840	Dividend payment	155
Decrease in Working Capital	409	Security Deposits paid	78
		Decrease in Bank Borrowing for Working capital	1,693
Increase Trade Deposit, others	18	Loss from operations	543
Total	8,934	Total	8,934

Installments of Term Loans and Interest on Term Loans and Working capital borrowings were paid within due dates.

RAISING OF FUNDS BY ISSUANCE OF EQUITY SHARES ON PREFERENTIAL BASIS AND CORRESPONDING CHANGE IN PAID UP SHARE CAPITAL

Pursuant to the shareholders approval received at the Extra-ordinary General Meeting held on 23^rd March, 2023, your Company has issued 37,50,000 equity shares of the face value ofRs 10 each, at a price ofRs 121 per equity share (including a premium ofRs Ill per equity share), aggregating to Rs 45,37,50,000 to Mr Harshad Natvarlal Modi and Mrs Rajul Harshad Modi, for cash consideration, by way of a preferential issue on a private placement basis in terms of provisions of Section 42, 62 and such other applicable provisions of the Act read with the rules made there under and Chapter V of the Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018. Post completion of the issuance, the equity paid up share capital of the Company has increased from 1,50,00,000 Equity Shares of Rs 10/- each to 1,87,50,000 Equity Shares ofRs 10/- each. There is no change in the Authorized Share Capital of the Company.

The utilization of proceeds of the Preferential Issue is as under

SI Description No.	Funds raised through Preferential Allotment on 28th March 2023	Funds utilized till 31st March 2023	Funds utilized from 1st April 2023 till the date of Directors report i.e 25th May 2023
1 Augmenting of working capital needs of the Company, and partly to reduce the term debt from Banks with a view to conserve cash hows by reduction of interest and repayment of instalments	Rs 45,37,50,000	Rs 31,25,25,000	Rs 14,12,25,000

As on Hie date of the Directors Report i.e as on 25^th May 2023, the entire amount raised through Preferential Allotment been fully utilized.

DEPOSITS

The Company has neither accepted nor renewed any deposits within the meaning of Section 73 of the Companies Act, 2013 and rules framed there under, during the financial year.

CREDIT RATING

ICRA has downgraded the Companys Long term Credit rating (for Fund based limits i.e. Term Loans and CC limits) from [ICRA)BBB+ stable to [ICRA)BBB with negative outlook and a short term rating (for Non Fund based limits

i.e LC & BG facilities) of [ICRAJA2. to [ICRAJA3+ in view of the losses incurred.

	31.03.2023	31.03.2022
Long Term Gross Debt to Equity Ratio	0.68	0.74
Current Ratio	1.12	1.15

CURRENT PROSPECTS

Current year, the operating levels improved in April 2023. May is below normal, owing to holidays and stoppages. Globally, Inflation has peaked out as per Central Banks due to strict measures, which now threatens to give rise to recessive conditions impacting the demand in the near term. Company is trying hard to cut losses and reach to cash profits by first half of the current Financial Year. Situation may improve further in the second half of FY 23 with optimum scale of operation, leading to positive earnings.

The market conditions for paper, though generally competitive, as the industry capacity has increased substantially over the years, is favorable for quality products in the segment in which the Company can operate with the new plant. The market for corrugated boxes has become extremely competitive, as more players shift towards the new technology paradigm in corrugation even as demand growth remains lackluster. The Company is exploring opportunities in new areas where the ban in single use plastic affords new opportunities

CAPITAL EXPENDITURE PLANS

Expansion project to increase paper manufacturing capacity by addition of a new paper plant has been completed and the processes are being optimised for improving efficiency.

New Production Capacity of 350 MTPD (Metric Tonnes Per Day) is operative, in place of 200 MTPD earlier. CORPORATE GOVERNANCE

As per SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 separate Report on Corporate Governance, along with Auditors Certificate confirming the compliance is attached.

Directors Responsibility Statement:

As required by Section 134(5) of the Companies Act 2013, we state that:

While preparing the Annual Accounts, the Company has followed the applicable Accounting Standards;

The Directors have selected such accounting policies and applied them consistently and has made judgements and estimates that are reasonable and prudent, so as to give true and fair view of the state of affairs of the Company as at 31-3-2023 & of the loss of the Company for the financial year 2022-23.

The Directors have taken proper & sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

The Directors have prepared the annual accounts on a going concern basis.

The Directors have laid down internal financial controls to be followed by the Company and the controls are adequate and operating effectively.

The Directors have devised proper systems to ensure compliance with the provisions of all the applicable laws and these systems are adequate and operating effectively.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

During the year, the Company did not give any Loan / Guarantee or has provided any security or make investment covered under Section 186 of the Companies Act, 2013

PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTY

None of the transactions with any of the related parties was in conflict with the interests of the Company. Details of transactions with related parties are furnished as an annexure in Form AOC-2.

CHANGES IN NATURE OF BUSINESS OF THE COMPANY

There was no change in the nature of business of the Company during the year.

MATERIAL CHANGES & COMMITMENTS

There was no change in the nature of business of the Company during the year.

There was no material changes and commitments in the business operations of the Company since the close of the financial year on 31^st March 2023 to the date of this report.

SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013

In terms of provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 tlie Company has formulated a Policy to prevent Sexual Harassment of Women at workplace. During the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANYS OPERATIONS

As per Rule 8(5)(vii) of the Companies (Accounts), Rules 2014, there were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and companys operations.

INTERNAL FINANCIAL CONTROL WITH REFERENCE TO FINANCIAL STATEMENTS

The Board has adopted policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Companys policies, 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 disclosures.

During the year, such controls were tested and no reportable material weakness in the design or operation were observed.

ISO 9001 CERTIFICATION

Companys Quality Management Systems (QMS) have been audited by Bureau Veritas Certification India Pvt Ltd and ISO 9001: 2015 Certification was awarded to the Printing & Packaging Division of the Company. This Certification issued is valid up to 17-5-2024.

FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATION

The Company continues to be certified under standards of FSC, namely FSC-STD-40-003, FSC-STD-40-004 and FSC-STD-40-007 for its product group. This is an assurance of environmental protection by providing sufficient documentary controls and tractability throughout the Chain of Custody.This certification means Company is capable of manufacturing FSC Recycled and FSC Mixed products.

RESEARCH & DEVELOPMENT

Several special application grades have been developed & successfully introduced during the year to cater to stringent customer specific requirements.

ENERGY CONSERVATION MEASURES

The particulars required under Section 134 (3) (m) of the Companies Act, 2013 with regard to energy conservation measures are furnished in the Annexure.

ENVIRONMENTAL PROTECTION

Your company has always endeavored to remain in harmony with its eco-sphere and tried to equitably balance the interest of all stakeholders in it, often going beyond the statutory impositions placed by regulatory authorities. In such efforts are included the installation of a 0.5 acre hold tank and a 2 km delivery pipeline for irrigating otherwise dry lands. ETP facility installed in the preceding year for conserving water and meeting the pollution control norms even on the expanded capacity of the paper mill is functioning satisfactorily. The treated effluent water is utilized for irrigation purposes in the nearby fields of third party farmers with excellent crop yields.

The Company has installed & been operating the Electro Static Precipitator (ESP) Systems for its Boilers for controlling dust emission and dust extractor system for controlling dust at its fuel handling system. Centrifuge and other machineries have been installed for effluent treatment.Fuel shed with roofing, controls dust emissions and conserves the resources.

In order to ensure environmentally safe disposal of solid wastes, the Company has started disposing Ash and plastic waste to recyclers authorized by KSPCB. Ash is used in brick manufacturing and plastic is being used in cement kilns.

The Company had engaged the expert services of University of Agricultural Sciences, Gandhi Krishi Vigyana Kendra, Bangalore for a study of ‘Utilisation of Paper Mill Effluent for Agricultural Purpose. After 4 years study, a final report has been issued concluding that the effluent generated by the paper mill contains small amount of nutrients, higher amount of salts and are within limits of Central Pollution Control Board norms. The finding further says that mill effluent along with additional dose of nitrogen has significant effect in increasing the crop yields.

DIVIDENDS

In view of the loss, no Dividend is recommended for FY 2022-23 (Previous year Dividend of 10% i.e. Re 1.00 per equity share of Rs 10 each was recommended). The total distribution amounts to Rs.Nil (Last year 150 lacs)

As per Ind AS 10, Events after the reporting period, Proposed Dividends on Equity shares being a non-adjusting event at the Balance Sheet date, was not recognised as as a liability in the accounts for the previous year ended 31^st March, 2022. This Dividend was recognised in the accounts in the year of payment i.e. FY 2022-23.

PARTICULARS OF EMPLOYEES

Particulars of employees as prescribed under the Companies Act, 2013 are annexed.

Annual Return

Copy of the Annual Return for the financial year ended 31-3-2023 is available on our website www.sipaper.com.

Managerial Remuneration

Requisite details as per Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 is annexed herewith and forms a part of this Annual report

Meetings of the Board

The number of meetings of die Board held and details diereof are mentioned in the Report on Corporate Governance forming a part of this Annual Report.

Whistle Blower Policy

In deference to Section 177 (9) of the Act,read with relevant Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Listing Regulations the Company has established a vigil mechanism overseen by the Audit Committee. The Company has formed Whistle Blower policy as required under the Companies Act 2013 and Listing Regulations and no personnel has been denied access to the Audit Committee.

Risk Management

The Company has a risk management framework to identify and evaluate business risks and opportunities. It seeks to create transparency, minimise adverse impact on the business objective and enhance the Companys competitive advantage. It aims at ensuring that the executive management controls the risk through means of a properly defined framework.

The Company has laid down appropriate procedures to inform the Board about the risk assessment and minimization procedures. The Board periodically revisits and reviews the overall risk management plan for making desired changes in response to the dynamics of the business.

The Board of Directors have constituted a Risk Management Committee as required under the Listing Regulations, vide Board Meeting held on 27.01.2015, to frame, implement and monitor the risk management plan of the Company. The Committee comprises of the following Directors.

Mr Manish M Patel - Chairman

Mr M G Mohan Kumar - Member

Mr S R Chandrasekara Setty - Member

The terms of reference of risk management committee include review of Risk management policy and its development within the Company, to monitor the effectiveness of risk management policy, review major risks of the Company and to advice on mitigation to the Board.

LABOUR RELATIONS

The industrial relations climate in the Company during the year was cordial and harmonius. A 6 year Wage settlement agreement signed with workers union at the Paper Mill was in force upto 31-3-2022. Negotiation for agreement for the subsequent period is in progress. In case of the Box unit, a 4 year Wage settlement agreement signed with workers union is in force upto 31-3-2024.

DIRECTORS

In terms of Section 152 of the Companies Act 2013, Mr Ajay D Patel (DIN 00466905) retires by rotation and he, being eligible offers himself for re appointment.

Your Directors recommend his reappointment.

DECLARATION BY INDEPENDENT DIRECTORS

The Company has received declaration from all the Independent Directors under Section 149(7) of the Companies Act 2013, in respect of meeting the criteria of independence as provided under Section 149(6) of the Act.

BOARD EVALUATION

The Board of Directors have carried out an annual evaluation of its performance, Board Committees and Individual Directors pursuant to the provisions of the Companies Act and SEBI (Listing Obligations and

Disclosure Requirements) Regulations, 2015.

The Board has recorded overall satisfaction.

In a separate meeting of Independent Directors held on 28-03-2023, the performance of Non Independent Directors, Board as a whole and the performance of the Chairman was evaluated.They have expressed overall satisfaction on such evaluation

POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION

The Companys Policy on directors appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a Director and other matters as provided under Section 178(3) is annexed hereto and forms part of this Annual Report.

Criteria for performance evaluation of Independent Directors as required by the Listing Regulations also forms part of this report.

CORPORATE SOCIAL RESPONSIBILITY

The Board has constituted a Corporate Social Responsibility Committee as mandated by Section 135 of the Companies Act 2013 vide Board Meeting held on 27.01.2015.

The broad terms of reference of the CSR Committee are as under:

• Formulating and recommending to the Board, the C SR Policy which shall indicate the activities to be undertaken by the Company.

• Recommending the amount of expenditure to be incurred on the aforesaid activities

and;

• Reviewing and Monitoring the CSR Policy of the company from time to time.

The Company has spent towards CSR activities during the year Rs 45.11 lakhs in full. There is no unspent amount. A report on CSR Activities is annexed herewith and forms a part of the Directors Report.

APPOINTMENT OF KEY MANAGERIAL PERSONNEL There are no changes in Key Managerial Positions during the year.

OTHER DISCLOSURES

The Company has not made any application, nor any proceeding is pending against the Company under the Insolvency and Bankruptcy Code, 2016 during the year under review.

The Company has not made any one time settlement with any Banks or financial institution during the year under review. Hence Rule 8(5)(xii) of Companies (Accounts) Rules 2014 is not applicable.

AUDITORS

There are no adverse comments by the Auditors in their report annexed herewith.

SECRETARIAL AUDIT

Pursuant to Section 204(1) of the Companies Act, 2013, read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr S N Hitaish Kumar, Practicing Company Secretary (C PNo. 6553), to conduct the Secretarial Audit of the Company for Financial Year 2022-23. The Secretarial Audit Report in Fonn MR 3 is annexed.

Explanation for observation / comments made by the Company Secretary in Practice.:

Version 3 of Ministry of Corporate Affairs website through which Report on Corporate Social Responsibility in Form CSR-2 was due for filing on or before March 31,2023 is popping up error message upon uploading and grievance in this regard has already been raised by the Company which is pending resolution.

INTERNAL AUDITOR

Pursuant to Section 138(1) of the Companies Act, 2013, the Company has appointed M/s Rau and Nathan Chartered Accountants (Firm Regn. No.003178S), Mysore, to conduct Internal Audit of die functions and activities of die Company for Financial Year 2022-23.

COST AUDIT

Companys products are not notified for Cost Audit in FY 2022-23.

APPRECIATION

Your Directors take diis opportunity to place on record dieir appreciation for services rendered by the employees, sales agents, Banks & Financial Institutions.

for and on behalf of the Board of Directors

Nanjangud	Manish M. Patel
25th May, 2023	Chairman & Managing Director