Subam Papers Ltd Management Discussions

Industry Overview

Packaging currently stands as the fifth largest sector in the Indian economy, reflecting its pivotal role in driving industrial growth and innovation. With an annual growth rate of 10-12%, the industry has become a preferred hub for packaging solutions, bolstered by advancements in technology and infrastructure. Notably, the industry boasts a robust structural framework, comprising over 900 paper units with an installed capacity of nearly Twenty Three Million tons.

In response to global sustainability imperatives, the packaging industry in India is undergoing a paradigm shift towards eco-friendly practices and materials. Government initiatives aimed at minimizing plastic packaging and promoting sustainable manufacturing methods are driving industry-wide transformation. Additionally, the industrys focus on food safety and quality aligns with the burgeoning food processing sector, amplifying demand for innovative packaging solutions.

The expansion of the middle class, enhancements in supply chain infrastructure, and the rise of e-commerce platforms are primary factors driving the packaging industrys growth trajectory. Furthermore, the increasing market size of packed food products, projected to reach US$ 3.4 billion by 2027, underscores the industrys pivotal role in supporting diverse sectors. As the industry continues to evolve, leveraging technological innovations and sustainable practices, it is poised to contribute significantly to Indias economic landscape. Investments/ Developments.

Sector Outlook

The outlook for the paper and packaging industry in India is optimistic, driven by several factors including the countrys growing population, increasing urbanization, and rising disposable incomes. The rapid expansion of e-commerce is fuelling demand for packaging materials, while a growing focus on sustainability is prompting the industry to innovate greener solutions. Government initiatives like "Make in India" and infrastructure development projects are expected to boost manufacturing activities and streamline supply chains.

Technological advancements are enhancing productivity and quality, while rising export potential offers opportunities for market expansion. Despite challenges such as fluctuating raw material prices and competition from alternative materials, strategic investments and a commitment to sustainability can help the industry capitalize on opportunities and strengthen its position in the global market.

The growth in the sector is being driven by a surge in e-commerce, food processing, pharmaceuticals, FMCG, manufacturing industry and healthcare sector. Additionally, numerous government initiatives including Make in India had positive impact on the packaging industry. The paper and packaging industry is currently the fifth largest sector in the Indian economy and has the potential to achieve pricing levels that are about 40% cheaper compared to European regions.

The Indian packaging sector has distinguished itself with its exports of flattened cans, printed sheets and components, crown cork, lug caps, plastic film laminates, craft paper, paper board and packaging machinery. The packaging segment with the fastest growth include laminates and flexible packaging, particularly PET and weaved sacks.

India uses paper as a major source of packaging. The paper industry accounts for 5% of global production. Demand for paper continues to rise for the packaging of FMCG products and ready-to-eat food. Packaging-grade paper accounts for 55% of the main types of paper produced domestically in the paper and paperboard industry.

The Indian packaging sector is diverse and caters to a broad sector of industries and products. The government, through its positive promotion of the Make in India policy, has set the packaging sector to grow rapidly due to companies setting up their manufacturing units in the country and using these domestic facilities as a base to export to other countries. The government has implemented a strategy to lower tax rates for new manufacturing companies in order to turn India into a global manufacturing hub. Furthermore, given the need for domestic firms to compete with MNCs, the government is planning to further level the sector among players by launching various initiatives with the aim of promoting the development of packaging, along with technological advancements.

Overview of the Company

The Company is engaged in the manufacturing of Paper and Paper Product and is a packaging solution providing company. Subam started its journey in the year 2004 with manufacturing of paper cones and later expanded the product base by adding Duplex board and Kraft paper in its portfolio. The company is not like the traditional paper manufacturers, wherein the Company does not manufacture the products from wood pulp but instead uses wastepaper as raw material. The Company aims to preserve mother nature and tends to drive the Company on the principle of recycling. The Company leverages wastepaper as the primary raw material in the production of Kraft Paper and Duplex Board.

To further minimize the environmental impact, the Company harnesses renewable energy through its own wind and solar power installations. The captive wind energy infrastructure includes two windmills: with a capacity of 850 KW each totalling approximately 1.7 MW. Additionally, the Company operates solar plant with a capacity of 14 MW. These renewable energy sources enable the Companys manufacturing facilities to significantly reduce their carbon footprint, aligning with the Companys goals of sustainable and eco-friendly operations.

As an ISO 9001:2015 and FSC Recycled certified organization, the Company follows a strong Quality Management System. The Company ensures top-quality materials, workmanship, schedules, and public service, meeting all project standards. The Company focuses on quality control upholds high safety and environmental standards, consistently meeting client expectations. The FSC Recycled certification of the Company, showsthe Companys commitment to sustainability by using 100% recycled materials. The Companys success is due to understanding customer needs, offering cost-effective and consistent quality products, adhering to delivery schedules, being flexible with sizes, and providing responsive customer service. The Company has a well-trained team dedicated to meeting special quality requirements.

The Company features an infrastructure facility, supported by a dedicated team of professionals, focused on the production of Kraft Paper and Duplex Board to meet customer demands promptly. With the capability to manufacture and supply Kraft Paper and Duplex Boards in various shades, our products offer GSM ranging from 120 to 300, Busting Factor of 16 to 35, and Deckle sizes from 2,000 MM to 4,400 MM and with reel diameters up to 1,400 MM. Furthermore, the Company maintain a substantial raw material storage facility to ensure ample reserves, enabling consistent production of high-quality products for the packaging industry.

The Company has two wholly owned subsidiaries namely Subam Paper and Boards Private Limited which is also into manufacture of Paper Products and Subam Agro Ventures Private Limited. The Company is located at Tirunelveli, Tamil Nadu and is also in proximity to the Harbour city of Tuticorin, Tamil Nadu. Since inception, the Company has prioritized focus towards continual improvement based on specific product quality and end user application. The success narrative of the Company is shaped by a clear and consistent business strategy that has propelled the Company to its current standing.

Sustainability

The Company uses wastepaper as its primary raw material for paper manufacturing which has significant environmental benefits. Recycling one ton of paper extends far beyond waste reduction, making a substantial contribution to environmental conservation. By opting to recycle, the Company collectively saves the equivalent of 17 trees, thereby conserving precious forests and promoting biodiversity. Furthermore, the conservation of 7,000 gallons of water and the sparing of 380 gallons of oil highlight the resource efficiency achieved through recycling. Notably, reducing landfill space by 3.3 cubic yards eases the burden on waste disposal systems, while the energy savings of 4,000 kilowatts underscore the inherent efficiency and sustainability of recycling processes.

By recycling paper, the Company actively contributes to the preservation of natural resources, reducing the need for new raw materials. This process also results in significant energy savings, minimizing the environmental impact associated with paper production. Moreover, recycling paper helps reduce greenhouse gas emissions, contributing to a healthier and more balanced ecosystem. Equally important, it ensures that landfill space is spared for non-recyclable waste, fostering efficient waste management practices. This holistic approach underscores the multifaceted benefits of paper recycling, aligning with a broader commitment to environmental responsibility and a more sustainable future.

Initial Public Offering and fund utilisation

During the year under review, the Company raised Rs. 9,370.50 crores through an initial public offering and the same was utilised as given below:

The shares of the Company are listed on BSE SME platform w.e.f. October 8, 2024.

Key strengths of the Company

Recycling of paper waste and sustainable packaging solutions

We use wastepaper as our primary raw material for paper manufacturing has significant environmental benefits. Recycling one ton of paper extends far beyond waste reduction, making a substantial contribution to environmental conservation. By opting to recycle, we collectively save the equivalent of 17 trees, thereby conserving precious forests and promoting biodiversity. By recycling paper, we actively contribute to the preservation of natural resources, reducing the need for new raw materials. This process also results in significant energy savings, minimizing the environmental impact associated with paper production. Moreover, recycling paper helps reduce greenhouse gas emissions, contributing to a healthier and more balanced ecosystem.

Significant advantage due to proximity of Subams factory location

The company has invested in water pumping stations and connecting pipelines, which are fully operational, ensuring efficient water distribution throughout the facility. Moreover, our strategic location offers a distinct advantage, with the Thamirabarani River situated within a mere 6 km proximity. Renowned for its extensive catchment area and the receipt of both South-west Monsoon and North-east Monsoon rains, this river serves as a reliable water source for our operations.

The company has successfully obtained water drawl permission from the Government of Tamil Nadu, we have been authorized to withdraw the quantity of water at the rate of 25,000 gallons per hour from the river Thambaraparani, supplemented by an additional ten lakh litres per day from our rainwater harvesting system. This prudent water management strategy aligns with our commitment to sustainability and responsible resource utilization.

For paper-based industries, water quality is paramount in ensuring the production of high-quality paper. The proximity of Subams factory location to the perennial water source of the Tamirabarani River, which flows throughout the year, is a significant advantage.

Efficient Inventory Management

Efficient Inventory Management lies at the core of our operations, seamlessly integrated with ERP technology that invigorates all our processes and systems. This integration empowers our company to respond to requirements while maintaining a keen focus adeptly and efficiently on effective inventory management. The utilization of ERP technology not only streamlines the tracking and control of inventory but also enhances the overall responsiveness of the organization, ensuring a swift and well-coordinated approach to addressing dynamic market demands

Manufacturing of odor free paper

The demand for odor-free paper is on the rise, driven by heightened public awareness, particularly in the realm of food product packaging and carry bag consumption. With our advanced ETP technology, our company is well positioned to meet this growing demand while simultaneously demonstrating our commitment to environmental responsibility. By investing in modern ETP infrastructure, we not only ensure compliance with regulatory standards but have also set a new benchmark for sustainability within the industry. This strategic initiative aligns with the companys vision of delivering high-quality paper products that meet the evolving needs of consumers and contribute to a healthier environment.

Advantage of producing all grades of paper

Subams unique advantage of producing a wide range of paper grades all on one campus creates substantial demand in the market for their products. This includes several specific applications, which further enhance their market presence and appeal.

No other company in South India offers such a comprehensive facility. This setup allows Subam to use raw materials and resources efficiently.

Our products serve various industries, each requiring several types of paper with specific properties, coatings, and finishes. This diverse approach helps us meet many customer needs and adapt to changing market demands. By offering a variety of products with unique features and uses, we stay competitive and meet our customers evolving preferences. Our Network of Raw Material Suppliers

Our primary raw material is recycled paper, which we utilize to manufacture our diverse range of paper products. By relying on a mix of imported and local sources for our raw materials, we maintain flexibility and resilience in our operations. This approach not only supports our sustainability goals by emphasizing the use of recycled materials but also enhances our ability to meet diverse customer needs with quality products. Our commitment to environmental responsibility and quality control is evident throughout our production process, from the initial sourcing of raw materials to the final manufacturing stages.

Strategic Investment made by the Company

The Company has entered a Limited Liability Partnership with Nellai Subam Packaging LLP vide LLP Agreement on 26/12/2024, where in Subam Papers Limited holds80% of the profit share and Mr. Devanathan Aavudainayagamholds20%. Nellai Subam Packaging LLP is into manufacture of corrugated paper and paper board and paper and paper board containers. The Company believes that this partnership would enable business synergies.

Subam Paper and Boards Private Limited, wholly owned subsidiary of the Company, has entered into a Limited Liability Partnership Agreement with Mercury Pack and Paper Products LLP dated January 31, 2025 wherein the wholly owned subsidiary would invest Rs. 10,00,00,000/- (Rupees Ten Crores only) as capital contribution for a profit-sharing ratio of 51%.

Mercury Pack and Paper Products LLP is engaged in the business of Corrugated Boxes and other paper products and Subam believes that the acquisition of 51% stake by the wholly owned subsidiary in the LLP would enable various business synergies.

Mercury Pack and Paper Products LLP is in the business of manufacture of Corrugated boxes, printed cottons and other paper products. Mercury Pack and Paper Products LLP is in the same line of business as that of the Company and its subsidiaries.

The Turnover of Mercury Pack and Paper Products LLP for FY 2024 was about Rs. 9.03 crores and its Turn Over was increased to 14.76 Crores for the FY 2025.

The turnover of Mercury Pack and Paper Products LLP for the last 3 years is given below:

Subam Paper and Boards Private Limited, the wholly owned subsidiary of the Company, has entered into a one More Limited Liability Partnership Agreement with M/s.Rajapalayam Success Packagings LLP on 19/04/2025, wherein Subam Paper and Boards Private Limited holds51% of the profit shares and Mr. Ramasubramanian Deepak Chandar holds 49%. M/s.Rajapalayam Success Packagings LLP, is into manufacture of corrugated paper and paper board and paper and paper board containers. The Company believes that this partnership would enable business synergies