West Coast Paper Mills Ltd Management Discussions.

A. INDUSTRY STRUCTURE & DEVELOPMENTS GLOBAL PAPER INDUSTRY OVERVIEW

The Global Paper & Paperboard Packaging Market is expected to grow at a CAGR of 3.6% over medium to long term and reach USD 264 billion driven by expansion of businesses globally by 2025.

World paper output is expected to increase to 450 million metric tonnes by the year 2021 from 410 million in 2017. With Global economies transitioning towards digital interface the paper industry is undergoing a structural change. However, the Paper has found new applications across categories, like packaging, paper bags, paper towels / tissues, etc. The paper industry is witnessing the end of dominance by traditional Western Markets and a new, more competitive business environment is taking shape giving rise to dynamic playing fields for the worlds paper, tissue and packaging board industry.

The worlds three largest paper producing countries - China, the United States and Japan, collectively account for approximately half of the worlds total paper production. Last couple of years has been better for the paper industry as there has been few capacity withdrawals which helped to improve the utilization of the existing capacities.

The graphic paper market is expected to continue to face declining demand worldwide. But this decline should be balanced by the increase in demand for packaging - industrial as well as consumer and tissue products. All in all, demand for fiber-based products is set to increase globally with some segments growing faster than others. The one hazy spot in demand might be concerns over how fast it will grow in China. Given Chinas weight in the global paper and board market, even relatively modest slowdown can have significant impact.

Impact on Paper Industry post COVID-19

Noble Corona virus outbreaks have developed across the globe and is causing widespread concerns and hardship for consumers and business alike. With number of COVID-19 rising, the Anxiety levels is also on the rise. The manufacturing sector has been facing quite a few challenges like lower demand and uncertain outlook, the paper manufacturers are a no exceptions to this.

Potential negative demand impacts

i) Slowdown in Fast-Moving Consumer Goods - Concerns over the virus will, likely, affect consumer spending patterns, which will cascade across the entire economy. From a pulp and paper perspective, such a trend will most directly impact packaging demand across sectors except for e-commerce.

ii) Reduced Pulp Export leading to Domestic Oversupply- With reduced packaging demands, comes reduced demand for pulp to make those products. China is the key buyer of pulp, paper, wood, and chips. China accounted for one-third of the worlds market pulp imports last decade. If China stops importing as much product, countries reliant on exporting goods to China will have to look to domestic markets to mitigate oversupply issues. This is likely to impact the US exporters of Pulp and Paper products as it has been one of the largest exporters to China over the last decade.

Potential positive demand impacts

i) Towel and Tissue Consumption Could Increase - Health officials worldwide have stressed the importance of hygiene and disinfecting as efforts to contain COIVD-19 intensify. Arguably the simplest measure to avoid spreading the disease - washing your hands - could have the biggest impact for pulp and paper demand with the usage of disposable hand towels increasing multifold.

ii) Increased e-commerce - The public need much more than disinfectant to make it through a potential pandemic, and much of what it needs will be bought online and delivered to homes. And while some governments have mandated people stay in their homes, many will voluntarily shelter themselves and rely on delivery services for food and goods. This creates a need for packaging, which could drive an increase in demand for packaging paper and corrugated materials.

INDIAN PAPER INDUSTRY

India holds 15th 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 6-7% and is likely to reach approximately 22 million tonnes in 2021-22.

The per capita consumption of paper in India currently stands at about 13 kg which is relatively lower compared to global average which stands at 57 Kg per capita and 40 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 more eco-friendly 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 5,000 Crores per annum to the national exchequer. Even more importantly it provides employment opportunities to over 2 million people directly and indirectly, mostly in rural areas.

The Indian Paper industry is classified into four segments, Printing & Writing (P&W), Packaging Paper & Board, Specialty Papers & Others, and Newsprint. Printing & Writing (P&W) share has remained stable at around 30%, while Packaging Paper & Board share has increased from 46% in FY08 to 52% in FY19.

Packaging paper & board segment accounting for 52% of the total paper demand in India and is the largest segment in the industry. It grew at a CAGR of 7.8% from 4.3 mn tonnes during FY08 to 9.7 mn tonnes in FY19. Rising urbanization, increasing penetration of organized retail, higher growth in FMCG, pharmaceutical and processed food industries etc. are the growth drivers of the segment.

The Printing and Writing (P&W) paper segment forms 29% of domestic paper market. Domestic demand for P&W paper was 5.4 mn tonnes in FY19. Rising literacy rate and universalization of education through legislative steps like Right to Education, governmental measures like Sarva Shiksha Abhiyan and mid-day meal schemes, increased spending on education are the main reasons for growth in the demand for Printing and Writing Paper.

The Newsprint segment comprises 13% of the Indian paper and paper products Industry and grew at a CAGR of 2.5% during FY08-19 to 2.5 mn tonnes, on the back of improving literacy and increasing circulation of vernacular dailies. Imports account for a substantial portion of the consumption and the prospect of newsprint segment primarily depends on its consumption by print media industry which is currently facing competition from digital segment.

Specialty paper & others is the smallest segment, accounting for around 0.45% of the industry. This segment especially tissue papers is the fastest growing segment, albeit the on a much smaller base.

The demand drivers include rising income levels, growing per capita expenditure, likely pick up from the education sector, requirement of better quality packaging of FMCG products marketed through organized retail and increasing preference for ready to eat foods led by rapid urbanization and ban on single-use plastic by Government of India. A culmination of all these factors is expected to drive the overall demand at a rate of 6%-7% for the next two-three years.

Challenges for Indian Paper Industry post COVID-19

COVID-19 has severally disrupted the demand for paper and paper board across all segments since Q4 of 2019-20 and is expected to continue through H1 of 2020-21. For the year as a whole, the demand is expected to contract by 10-15% compared to last year.

i) Writing & Printing Paper - Demand is expected to be low for next few months due to disruption in consumption of printed books, note books and commercial grade printing as most of the educational institutions, Govt. and commercial establishments are shut during Lockdown period. However, in long run, demand will revive due to Govt. spending on education under RTE and gradual revival of economy. Demand for Copier segment will be low in short term but expected to revive due to Govt. and corporate supplies and jobbers requirement. Coated Paper demand will be impacted due to lower spending on calendars, brochures, magazines etc. although demand for labels is expected to be good.

ii) Packaging grade - Demand is expected to be positive for pharmacy, food and essential packaging but the demand for non essential segment will be impacted in short term. However, in the long run, overall demand growth will be better due to increase in e -commerce, pharmacy, FMCG and other consumer packaging. Demand for single use paper cup and disposables are expected to be high.

Demand for tissue paper is expected to register improvement in the wake of increased hygiene concerns. Demand for newsprint is expected to decline due to lower circulation owing to increased habit of digital newspaper reading, lower advertisement spending etc.

However, post Covid-19 pandemic, there will be growth opportunities for the Indian Print & Packaging Industry, disposable cups, bowls and cartons, overwrap, bags, corrugated boxes and branded packaging for online delivery and sealable paper products as substitute for single use plastics.

Raw material concerns

The availability of raw-material has always been a matter of concern for the Industry. Against the current demand of 11 million TPA for pulpable wood by paper Industry, domestic availability is 9 million TPA only. The projected demand is expected to increase significantly, and hence the Industry has been requesting the Government to allot degraded revenue and forest lands. This will not only fulfil the requirement of raw-material, but also would result in employment generation for rural unskilled population. However, the government has not considered the request. Nevertheless, the Industry in general has taken initiatives by taking up Farm / Social Forestry programme whereby plantation is taken in a big way on the unproductive revenue land and thus generating not only income to the farmers but also providing employment to the rural unskilled population.

Major Paper producing countries of Latin America, Europe and Asia, including China, Indonesia, Malaysia, etc., have adopted a policy of granting forest concessions to large Paper Mills to plant, protect and harvest pulpwood in a cost effective manner. In absence of similar enabling policies, Paper Mills in India have to necessarily depend upon small and scattered plantations developed through Industrys social forestry initiative or Government controlled forests. In the process, the cost of collection and transportation increase significantly. As a result, cost of raw-materials in India has been continuously going up and has become most uncompetitive in comparison to the major paper producing countries in the world.

Given the above status of availability, the Industry is facing severe shortage of wood apart from continuously increasing cost of procurement particularly in the context of unplanned expansion by the Industry without raw-material back-up and focusing only on Andhra Pradesh for sourcing the requirement.

CABLE DIVISION

Indian optical fiber cables market is growing by leaps and bounds due to expansion of telecom infrastructure throughout the country and is expected to continue its growth momentum for another next ten years with India launching 5G by 2020-21.

Annual global IP traffic is expected to increase three-fold from 1.5 ZB in 2017 to reach 4.8ZB (Zettabyte) in 2022, thus growing at a CAGR of 26%. Also, monthly IP traffic at 16GB per capita in 2017 is expected to reach 100 GB per capita in 2022.

Currently, the towers in India are connected with fiber to roughly 20% in comparison to 90% globally. This is expected to reach 60% in next 3 years.

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 Govt. 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.

CABLE DIVISION

Bharat Net completed 2.5 lakhs Gram Panchayats connected in phase I and another 2.5 lakhs are getting connected in phase II with cable requirement of 3 lakhs km (7.5 million km fibre). In phase III, there will be further cable requirement for ring structure of about 12 lakh km (about 50 million km fibre). Thus, there will be drastic increase of OFC layout in next 5 years. BBNL phase II tender are out under Turnkey - EPC contract basis which has again increased our scope for getting into EPC business to increase turnover and profitability.

The threat is current downtrend in Optical fiber prices due to US China trade barriers. This has resulted in slow down of 5G deployment in China. This could be looked as shift of opportunity by 1-2 years.

The major threat is likely imposition of safeguard duty on imported fibre to the tune of 25% by Ministry of Finance. Ministry of Commerce has already sent their recommendations and the matter is under active consideration.

C. SEGMENT-WISE PERFORMANCE

The Company operates in two business segments - Paper / Paperboard (including Duplex Board) at Dandeli and Telecommunication Cables at Mysore, besides having Wind Mills of 1.75 MW capacity in Tamilnadu for power generation. Detailed segment-wise performance is mentioned in the Directors Report.

D. OUTLOOK PAPER DIVISION

The Paper Industry is cyclical in nature and its performance depends on the global pulp and paper demand supply situation. The domestic paper sector is likely to see marginal improvement in demand from education and corporate sectors, aided by expected higher GDP growth of the Country over a medium to long term period. However the impact of COVID-19 will be felt in the overall working of the Company for the year 2020-21.

Import pressures are likely to be continued although US $ has appreciated against INR by more than 5% and could result in pricing pressures on paper products particularly maplitho segment. However, the Company has a well- diversified product base, which partially insulates it from the imports and cyclicity. The Company has developed new product variants like Walk up, Straw Base Straw Fold, Aqua base, Wax cote, Wesco Firma to improvise its product mix and capture new markets.

Further, recent launch of Plastic free coated cup stock paper will open new avenues for the Company with tremendous opportunities in the wake of single use plastic ban drive of the Central Government as well as ban by various State Governments. This segment having double digit growth prospect augurs well for increasing the market share in this segment.

The Company has been investing heavily into modernizing equipment, improving quality, and developing personnel to maintain its position as a global leader. The Company has fully integrated paper and pulp facility, right from processing pulp from the woods to using captive power source. This helps the Company manage the cost effectively. The size and scale of the operations gives us an edge in sourcing Raw Materials as well as in transporting finished goods at best possible rates. The scale benefits and improved productivity and efficiency that we have brought in the Company over the last few years has helped us to improve profitability. Also, this year your company significantly brought down its raw material cost by reducing the imports of costlier wooden chips from 43 percent to 17 percent.

With optimum capacity utilization, good demand outlook and progressive shift into environmental friendly and value- added products; the Company is expected to sustain its growth prospects.

CABLE DIVISION

We expect decent growth of 20-25% in our current business for Manufacture and supply of OFC. Several tenders on the cable supply got deferred during last financial year and we are hopeful of these tenders floating in the current financial year. In view of prolonged Lockdowns due to Covid-19, few of the tenders may get deferred into the next financial year.

We are expecting the approvals from Central govt regarding subsidy of our Draw Tower project for backward integration of our Cable division to manufacture optical fibre on its own, which is the prime raw material for Cable Division. Project investment will start once we get the approval letter. Thereafter, the new facility is expected to come into operation.

We have successfully completed pilot EPC project for laying cables and are fully geared up for taking up large projects, comprising of turnkey supplies and installations. We expect to execute 2-3 large projects in next 2 years.

E. RISKS AND CONCERNS

The Company has derived 94.18% of its revenue from Paper/ Paperboard and Cup stock Board business and 5.38% from Cable business in 2019-20.

The availability of conventional raw-material is a matter of concern and thereby causes pressure on raw material procurement prices. Threat from excessive inflow of imported paper at cheaper price will continued to be there in near future.

However, the company is fully geared to take advantage of single use plastic ban drive of the Govt. authorities and is in the process of developing some substitute paper products to take new market share.

Regarding Charter on Corporate Responsibility for Environmental Protection (CREP) guidelines which was launched in 2003, the Company has already taken the required actions to implement the same and all the parameters are well within the guidelines.

The Company has state-of-art Effluent Treatment Plant and has gone for 100% Elemental Chlorine Free bleaching from 14.02.2010. It is also meeting all the norms as prescribed under Environment Protection Act, 1986 and other environmental laws as well as CREP requirement consistently.

The Company is taking various actions to reduce water consumption in the Mills. Further all the actions are being taken to reduce the specific energy consumption to meet the norms prescribed under PAT-Cycle -II.

F. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has adequate internal control system for business processes with regard to efficiency of operations, financial reporting and controls, compliance with applicable laws and regulations etc., clearly defined roles and responsibilities for all managerial positions have also been institutionalized. All operating parameters are monitored and controlled. Regular internal audits and checks ensure that responsibilities are executed effectively. The Audit Committee of the Board of Directors periodically reviews the adequacy and efficacy of internal control systems and suggests improvement for strengthening these.

The Company has designed and implemented a process driven framework for Internal Financial Controls ("IFC") within the meaning of the explanation to Section 134(5) (e) of the Companies Act, 2013. For the year ended March 31,2020, the Company has sound IFC commensurate with the nature and size of its business operations and is operating effectively and no material weakness exist. The Company has a process in place to continuously monitor the same and identify gaps, if any, and implement new and/or improved controls wherever the effect of such gaps would have a material effect on the Companys operations.

G. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

This has been dealt with in the Directors Report.

H. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

During the year, the Companys industrial relations are cordial. The Company has entered into tripartite long term wage revision settlement with Joint Negotiation Committee (JNC) of Unions on 04.05.2016 for the period from 01.01.2015 to 31.12.2018. Process of tripartite long term wage revision settlement with Joint Negotiation Committee (JNC) of Unions is going on from 01.01.2019.

The Company has drawn specific programme to improve the skills of the workers and staff. Further, it is providing necessary training to the manpower with both locally and abroad suppliers. There is continuous interaction between the Management, Unions and Labour for improving the knowledge and training of the workers.

Total employees of the Company as on 31.03.2020 are 2378.

I. DETAILS OF SIGNIFICANT CHANGES (i.e. change of 25% or more as compared to the immediately previous financial year)

There is no significant change vis-a-vis the previous financial 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 statements" within the meaning of applicable securities laws or regulations. These statements are based on certain assumptions and expectations of future events. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and domestic demand supply conditions, finished goods prices, raw material cost and availability, changes in Government regulations, tax regimes, economic developments within India and other factors such as litigation and industrial relations. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events.