MANAGEMENT DISCUSSION AND ANALYSIS REPORT
GLOBAL ECONOMY
Hostilities between Russia and Ukraine continue to overshadow the world economy. In
addition, measures by Central Banks to control inflation have led to fear of recession in
the Western Hemisphere. The outlook remains fragile and downside risks predominate.
Concerns about financial vulnerabilities have risen, including in financial institutions,
housing markets and low-income countries. While headline inflation has started declining,
it remains elevated and could persist longer.
Amidst these challenges, there is a brighter spot in China, where reopening efforts
have raised hopes of improvement in Global economic activity. Supply chain bottlenecks
previously hindered global trade have eased, leading to smoother trade operations and
potentially lower prices for global merchandise.
KEY TRENDS AND FACTORS INFLUENCING THE GLOBAL PAPER MARKET
Digitalisation and Electronic Substitution:
The shift towards digital media and electronic platforms has resulted in declining
paper consumption for specific applications such as newspapers, magazines, and office
documents. The increasing adoption of digital technologies and electronic substitution has
impacted the overall demand for traditional paper products.
Sustainability and Environmental Concerns:
The paper industry faces a growing emphasis on sustainability and environmental
responsibility. Consumers and regulatory bodies are demanding eco-friendly practices,
including responsible sourcing of raw materials, using renewable energy, and implementing
recycling initiatives. Paper manufacturers increasingly focus on sustainable production
methods and develop eco-friendly paper products.
Packaging Sector Growth:
The packaging industry is a significant driver of the global paper market. The rising
e-commerce sector, increased focus on product safety and branding, and growing demand for
sustainable packaging solutions have contributed to the expansion of the packaging
segment. Paper-based packaging, such as corrugated boxes and cartons, is gaining
popularity due to its recyclability and biodegradability.
Economic Growth and Urbanisation:
Economic growth, urbanisation, and rising disposable incomes in developing countries
are driving the demand for paper products. Increasing literacy rates, growing education
sectors, and administrative requirements also contribute to the demand for writing and
printing papers.
Technological Advancements:
Technological advancements, such as automation, digital printing, and advanced
manufacturing processes, are transforming the paper industry. These advancements enhance
operational efficiency, reduce production costs, and enable the development of innovative
paper products with improved functionalities and performance.
INDIAN ECONOMY & PAPER INDUSTRY
Overview of the Indian Economy
Amidst the challenges faced by the global economy, the Indian economy has exhibited
remarkable resilience. India has emerged as a prominent player, surpassing the $3.75
trillion mark, and becoming the worlds fifth-largest economy in 2023. While India is not
entirely insulated from global headwinds, the likelihood of a recession is extremely low.
In fact, India has a 0% probability of recession in 2023, according to the Recession
Probabilities Worldwide 2023 data. In contrast, some other prominent countries
particularly Germany have much higher recession probability.
Indias growth prospects remain strong. According to the World Banks Global Economic
Prospects report, India is projected to achieve growth rates of 6.3%, 6.4%, and 6.5% in
2023, 2024, and 2025, outpacing many developed countries. The Reserve Bank of India (RBI)
has played a proactive role by maintaining less aggressive interest rate posture compared
to countries like the US and UK, which have struggled with rising inflation despite
significant rate hikes.
Indias proactive approach and resilience play a vital role to position it relatively
well for steady growth. The country remains cautiously optimistic and determined to
maintain the growth momentum in the near future.
Growth Prospects and Opportunities in the Indian Paper Industry
The Indian paper industry is poised for growth, with increasing demand driven by
population growth, urbanisation, and rising literacy rates. Government initiatives
promoting education, skill development, and sustainability further contribute to the
industrys positive outlook. Opportunities lie in adopting sustainable practices,
leveraging the growth of the packaging sector, embracing technological advancements, and
exploring export potential. Paper companies should focus on innovation, diversification,
sustainable practices, and strategic collaborations across the value chain to capitalise
on these prospects.
SWOT Analysis
Strengths:
• The Indian economy benefits from a robust domestic demand driven by a
demographic dividend, with a significant population of students and working-class
individuals.
• The governments focus on improving education and literacy and Indias position
as one of the fastest-growing economies provide a solid foundation for the Paper Industry.
• The focus on recyclable materials, e-commerce, and other factors enhances growth
prospects for the Industry.
Weaknesses:
• The Industry faces challenges of higher input costs, expensive energy,
small-scale operations, limited access to raw materials at competitive prices, and
capital-intensive nature.
• The highly fragmented nature of the Indian Paper Industry leads to
inefficiencies and a lack of economies of scale.
Opportunities:
• Indias lower per capita paper consumption and organised retail and e-commerce
growth present significant potential for the Industry.
• With the Indian Paper Industry comprising only 5% of global paper production,
there are opportunities for capacity building and expansion.
• The booming e-commerce sector and the increased demand for packaged consumer
goods create avenues for supplying paper based packaging materials.
Threats:
• India faces challenges in cost competitiveness related to capital charges,
fibre, and energy prices, key production factors.
• The Paper Industry in India faces competition from imported paper products,
particularly from countries with competitive factors of production and covered with FTAs.
• Imports of paper have started increasing in the recent past. Russia and South
American Countries are approaching Indian market with aggressive pricing. Input prices
remain at elevated levels. Overall demand-supply balance is likely to be adversely
impacted if these trends continue.
SOCIAL FARM FORESTRY
The company has developed social farm forestry near its catchment areas to ensure local
wood sourcing and to reduce logistics cost.
The company has R&D set-up to develop high yielding clones with a shorter gestation
period. The company distributes these high yielding saplings to farmer with buyback
flexibility to generate livelihoods, local prosperity and raw material security.
The Social Farm Forestry programme continues to progress significantly with extensive
plantation on farmers land during the year. In FY2023, your Company facilitated the
plantation of approximately 65 lakhs seedlings, contributing to the programs momentum.
RISKS & CONCERNS
Every business face risks and uncertainties, and it is crucial to recognise and address
them proactively. In the context of the Companys operations, some concerns include higher
wood and energy costs, changes in government regulations, and market risks. STAR
acknowledges and assesses these risks, taking appropriate measures to manage them
effectively. Risk management is integrated into the Companys business planning and
control process, ensuring a comprehensive approach to risk mitigation.
INTERNAL CONTROL SYSTEM
The Company has implemented robust internal control systems to safeguard its assets,
enhance operational efficiencies, and ensure compliance with statutory requirements. These
internal control systems undergo periodic reviews to ensure effective and efficient
business conduct. The key objectives of the internal control system are as follows:
Accurate Recording of Transactions:
Internal controls are in place to ensure the accurate recording of transactions,
supported by internal checks and timely reporting.
Adherence to Accounting Standards:
The internal control system ensures compliance with applicable accounting standards,
promoting transparency and reliability in financial reporting.
Working Capital Management:
Regular reviews of the internal control system are conducted to effectively manage
working capital, optimising the Companys financial resources.
Capital Investments and Business Plans:
The internal control system includes a review mechanism for capital investments and
long-term business plans, ensuring prudent decisionmaking and strategic alignment.
Compliance with Statutes and Regulations:
The Companys internal control system is designed to ensure compliance with relevant
statutes, policies, and listing regulations, minimising legal and regulatory risks.
Efficient Resource Utilisation and Asset Safety:
The internal control system promotes the effective utilisation of resources while
ensuring the safety and security of company assets.
PRODUCT REVIEW
Star Paper Mills Limited offers diverse products across three main product lines:
cultural papers, industrial papers and other grades.
The cultural papers product line includes various products catering to different
applications such as printing, envelope manufacturing, security paper printing, diary and
calendar printing, card manufacturing, and childrens scrapbooks. The industrial papers
segment provides products for specific applications, including carry bags, soap packaging,
paper cups, crockery surface printing, biri wrappers, laminations, wedding/greeting cards,
tobacco packing, wallpaper, grocery bags, and cooler pads. The other grades segment offers
a range of products serving similar applications as the industrial papers line. Star
Papers diverse product portfolio enables it to meet the needs of various Industries and
applications while maintaining a strong focus on quality and customer satisfaction.
The Company possesses a diversified product portfolio catering to the needs of various
customers across different Industries. Sales volume in Writing-Printing and Packaging
segment increased to 28,052 MT and 36,226 MT, respectively, for the year ended 31st
March, 2023.
FINANCIAL PERFORMANCE
For the fiscal year ended on March23, STAR witnessed significant growth in sales,
indicating a robust revenue performance. Sales increased from Rs.330.54 Crores in March,
2022 to Rs.492.69 Crores in March, 2023 showcasing a substantial rise in the Companys
top-line figures.
Profit before exceptional items and tax also experienced noteworthy improvement during
this period. It stood at Rs.44.19 Crores for FY2021-22 which increased significantly to
Rs.95.60 Crores for FY2022-23. This demonstrates enhanced operational efficiency and
profitability, indicating that the Company effectively managed its costs and improved its
margins. The operating profit margin increased from 13.6% for FY2022 to 19.5% for FY2023.
Net profit, which reflects the Companys bottom-line performance, showed substantial
growth during this period. The Net profit of the company increased from Rs.36.64 Crores
for FY2021-22 to Rs.65.67 Crores for FY2022-23. This signifies improved profitability and
efficient management of expenses, contributing to the Companys overall financial success.
Earnings per share (EPS), a key measure of profitability, also witnessed significant
growth. The EPS increased from Rs.23.48 in FY2022 to Rs.42.08 in FY2023, indicating
improved earnings for shareholders and highlighting the Companys ability to generate
higher profits per share.
KEY FINANCIAL RATIOS
The changes in key financial ratios as compared to the previous financial year are as
under:
| Particulars |
2022-23 |
2021-22 |
| Operating Profit Margin (%) (Substantial increase in operating profits for FY2023
resulted in an increase in ratio) |
19.5 |
13.6 |
| Net Profits Margin (%) (Increased sales and better efficiencies resulted in an
increase in ratio for the year) |
13 |
11 |
| Debtors Turnover ratio (No. of times) (Due to faster realisation resulted in an
increase in ratio) |
189 |
54 |
| Stock Turnover ratio (No. of times) (Increase in sales for FY2023 vis-a-vis the
previous year resulted in an increase in ratio) |
5.65 |
4.28 |
| Debt-Equity ratio (%) (Reduction in lease liability resulted in a decrease in ratio) |
0.02 |
0.13 |
| Current ratio (No. of times) |
5.25 |
4.27 |
| Interest-Service Coverage Ratio |
NA |
NA |
| Return on Net worth (%) (Increase in net profits for FY2023 vis-a-vis the previous
year resulted in an increase in ratio) |
^:l2% |
7% |
HUMAN RESOURCES
Continuous learning is an essential aspect of personal and professional growth.
Training programmes are vital in providing employees with opportunities to improve their
skills and enhance their efficiency at work.
The Companys training initiatives are designed to equip employees with the necessary
tools for career advancement, fostering better interpersonal relationships, achieving
individual and organisational goals, and adapting to the dynamic challenges of the
evolving business environment. We have established a conducive and productive learning
environment within the organisation that benefits all employees. It is worth mentioning
that the Company currently employs 409 individuals on its rolls who contribute to its
operations and growth.
FUTURE OUTLOOK
Amid various challenges and constraints, your company is committed to undertake
suitable measures and adopt strategies to make efforts for achieving its growth momentum
in the near future. However, we look at the coming year with cautious optimism in view of
the developments narrated above.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect to the company.
The Company cautions readers that no forward-looking statement guarantees future
performance and that actual results, other financial conditions, or performance measures
could differ materially from those contained in the forward-looking statements. By nature,
forward-looking statements involve uncertainty because they relate to future events and
circumstances. Actual outcomes may differ materially from those expressed in the
forwardlooking statements.
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