West Coast Paper Mills Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

Global Economy

Overview: Global economic growth dipped from 3.5% in 2022 to an estimated 3.1% in 2023, with Asia driving much of the growth despite challenges like weaker recovery in China, sustained US weakness, higher energy costs in Europe, weakened consumer sentiment due to conflicts, and increased logistics costs from crises. Tightened monetary policies led to higher policy and interest rates, hampering new investments.

These factors are poised to slow growth in advanced global economies from 2.6% in 2022 to 1.5% in 2023 and an estimated 1.4% in 2024 due to policy tightening, European sluggishness, recessions in Britain and Japan, and heightened energy costs from global conflicts. Emerging markets and developing economies show a more optimistic outlook, with a slight growth decline from 4.1% in 2022 to 4.0% in 2023, sustained through 2024. Despite a nearly US$2 trillion drop in global trade in goods in 2023, trade in services is expected to have grown by US$500 billion.

Global inflation is anticipated to decrease from 8.7% in 2022 to 6.9% in 2023 and further to 5.8% in 2024, aided by tight monetary policies and lower international commodity prices. Core inflation’s decline is expected to be slower, with a return to target not anticipated until 2025 in most cases. The US Federal Reserve approved a significant interest rate hike, bringing benchmark borrowing cost to their highest level in over 22 years; in the latest review, interest rates were kept unchanged. In 2023, the average cost of Brent crude oil decreased to US$83 per barrel from US$101 per barrel in 2022, providing relief to oil-importing nations. Russian crude oil found alternative markets beyond the European Union, contributing to a shortfall in global demand and moderating prices.

Global equity markets concluded 2023 on a high note, with major benchmarks yielding double-digit returns. This was driven by decreasing global inflation, a decline in the dollar index, lower crude prices, and heightened expectations of rate cuts by the US Federal Reserve and other central banks

Regional growth (%)_	2023	2022
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

 

(Source: UNCTAD, IMF)

Performance of major economies, 2023

United States: Reported GDP growth of 2.5% in 2023 compared to 1.9% in 2022 China: GDP growth was 5.2% in 2023 compared to 3% in 2022 United Kingdom: GDP grew by 0.4% in 2023 compared to 4.3% in 2022 Japan: GDP grew 1.9% in 2023 unchanged from a preliminary 1.9% in 2022 Germany: GDP contracted by 0.3% in 2023 compared to 1.8% in 2022

 

(Source: PWC report, EY report, IMF data, OECD data, Live mint)

Outlook: Asia emerges as a beacon of global growth in 2024-25, with its economy projected to represent 49% of the world’s GDP and grow at a rate of 4.5%, remaining the largest contributor to global economic expansion. Inflation is expected to ease as cost pressures lessen, with headline inflation in G20 countries anticipated to decline. Despite high inflation and monetary tightening, the global economy displays resilience, maintaining growth levels for the next two years. (Source: World Bank, globaltimes.cn)

Indian Economy

Overview: The Indian economy had a strong year, reflecting long-term structural reforms, robust consumption, and sustained government infrastructure investments, leading to increased personal incomes. With a growth rate of 7.8% in the 2023-24 fiscal year compared to 7.2% in 2022-23, India maintains its position as the fifth-largest economy.

In 2023-24, India’s real GDP reached Rs 171.79 lakh crore, up from Rs 160.06 lakh crore in 2022-23, with a growth rate of 7.3%. Nominal GDP for 2023-24 was estimated at Rs 296.58 lakh crore compared to Rs 272.41 lakh crore in 2022-23.In FY 2023-24, CPI inflation averaged 5.4%, with rural inflation surpassing urban inflation due to lower production and erratic weather, causing spiked food inflation. Core inflation averaged 4.5%, a notable drop from 6.2% in FY 23, attributed to the softening of global commodity prices.

India’s net direct tax collection surged by 19% to Rs 14.71 lakh crore by January 2024, with gross collection up by 24.58% compared to the previous year. Gross GST collection reached Rs 20.2 lakh crore, marking an 11.7% increase, with an average monthly collection of Rs 1,68,000 crore, surpassing the previous year’s average of Rs 1,50,000 crore. The Indian rupee showed resilience compared to the previous year, opening at Rs 82.66 against the US dollar on the first trading day of 2023 and closing at Rs 83.35 on 27 December, marking a depreciation of 0.8%.

India’s foreign exchange reserves soared to a historic high of US$645.6 billion by the end of FY 24. Indian companies maintained strong credit quality from October 2023 to March 2024, supported by deleveraged balance sheets, sustained domestic demand, and government-led capital expenditure. The gross non-performing asset ratio for scheduled commercial banks decreased to 3.2% as of September 2023, down from 3.9% in March 2023. Rating upgrades continued to outnumber downgrades in the second half of FY24. UPI transactions in India witnessed a record 56% increase in volume and a 43% rise in value during FY24.

 

Growth of the Indian economy

	FY 21	FY 22	FY23	FY24
Real GDP growth (%)	-6.6%	8.7	7.2	7.8 E

 

E: Estimated

 

Growth of the Indian economy quarter by quarter, FY 2023-24_

	Q1FY24	Q2FY24	Q3FY24	Q4FY24E
Real GDP growth (%)	8.2	8.1	8.4	8 E

 

Source:( Budget FY24; Economy Projections, RBI projections, Deccan Herald)

India experienced its lowest monsoon rainfall in five years in 2023, with August being the driest month in a century, receiving only 94% of its long-term average rainfall from June to September. Despite this, wheat production was anticipated to reach a record 114 million tonnes in the 2023-24 crop year due to higher coverage. However, rice production was expected to decline to 106 million metric tons compared to 132 million metric tons in the previous year. Total kharif pulses production for 2023-24 was estimated at 71.18 lakh metric tonnes, lower than the previous year due to adverse climatic conditions.

According to the first advance estimates by the NSO, the manufacturing sector is projected to grow by 6.5% in 2023-24, up from 1.3% in 2022-23. Similarly, the Indian mining sector is estimated to grow by 8.1% in 2023-24 compared to 4.1% in the previous year. Additionally, financial services, real estate, and professional services are expected to see growth of 8.9% in 2023-24, an increase from 7.1% in FY 2022-23. India’s export of goods and services was anticipated to reach US$900 billion in 2023-24, up from US$770 billion the previous year, despite global challenges. Merchandise exports were projected to grow to between US$495 billion and US$500 billion, with services exports expected to reach US$400 billion during the year. In 2023-24, the agriculture sector was expected to grow by 1.8%, down from 4% in the previous year, while trade, hotel, transport, communication, and broadcasting services were estimated to expand by 6.3%, a decrease from 14% in 2022-23. Despite global supply chain disruptions and increased ownership costs, the Indian automobile segment was projected to grow by 6-9% in FY 2023-24. In 2023-24, the construction sector was expected to grow by 10.7%, up from 10% in the previous year, while public administration, defence, and other services were estimated to grow by 7.7%, compared to 7.2% in FY 2022-23. Gross value added (GVA) at basic prices was projected to increase by 6.9%, slightly lower than 7% in 2022-23. India entered a pivotal phase in its S-curve, marked by accelerated urbanization, industrialization, rising household incomes, and increased energy consumption. As the fifth-largest economy, India achieved a GDP of US$3.6 trillion and a nominal per capita income of INR 123,945 in 2023-24.

In FY 2023-24, India’s Nifty 50 index surged by 30%, elevating India’s stock market to the world’s fourth-largest, boasting a market capitalization of US$4 trillion. Foreign investment in Indian government bonds saw a significant increase in the last quarter of 2023. India secured the 63rd position among 190 economies in the World Bank’s ease of doing business rankings. Furthermore, India’s unemployment rate plummeted to a low of 3.2% in 2023 from 6.1% in 2018.

 

Outlook: India withstood global headwinds in 2023 and is likely to remain the world’s fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass US$ 4 trillion in 2024-25.

 

Union Budget FY 2024-25:

The Interim Union Budget 2024-25 maintained its focus on capital expenditure, prioritizing investments in infrastructure, solar energy, tourism, medical ecosystem, and technology. The top 13 ministries accounted for 54% of the total expenditure, with the Ministry of Defence receiving the highest allocation of Rs 6,21,541 crore, constituting 13% of the total budgeted expenditure. Other ministries with notable allocations included Road Transport and Highways (5.8%), Railways (5.4%), and Consumer Affairs, Food, and Public Distribution (4.5%). The Ministry of Road Transport and Highways aims to construct 12,000-13,000 km of national highways in the current financial year, slightly below the targeted 13,814 km but still the second-highest annual construction in India. The capital expenditure outlay for the upcoming year sees an 11.1% increase to Rs 11,11,111 Cr, accounting for 3.4% of GDP. The projected fiscal deficit for 2024-25 stands at 5.1% of GDP. Foreign Direct Investment (FDI) inflow from 2014-23 totalled US$ 596 billion, showing a significant increase compared to the previous decade. To promote innovation and research, Rs 1 Lakh Cr corpus will be established, offering long-term financing with low or nil interest rates. This initiative seeks to boost private sector participation, especially in deep-tech and defence technologies. Additionally, the government is focusing on the development of the eastern region, prioritizing initiatives like PM Awas Yojana (Grameen) and rooftop solarization to provide housing and electricity to millions of households.

Schemes like Pradhan Mantri Kisan Sampada Yojana and Pradhan Mantri Formalisation of Micro Food Processing Enterprises Yojana have made significant impacts, benefiting farmers and creating employment opportunities. The budget focuses on empowering youth through technological advancements and fostering an environment conducive to sustainable growth and innovation. (Source: Times News Network, Economic Times, Business Standard, Times of India)

PULP AND PAPER INDUSTRY

Global

The global pulp and paper sector are one of the primary sectors, renowned for its wide-ranging applications in writing and printing. The global pulp and paper market size was worth around US$ 365.60 billion in 2023 and is projected to surpass the valuation of US$ 434.36 billion by 2031 at a CAGR of 2.35% between 2024 and 2031. Increasing consumer awareness of health and wellness is a key catalyst propelling the pulp and paper market forward, driving increased demand for related products. Concurrently, technological progressions within the industry are fostering the adoption of more efficient and sustainable production methods, amplifying market expansion.

The containerboard market size is estimated at US$146.96 billion in 2024 and is expected to reach US$ 162.63 billion by 2029, growing at a CAGR of 2.05% during the forecasted period (2024-2029). The demand for containerboard is expected to increase over the next decade, reaching 226 million tons by 2032. The e-commerce business is expected to grow to over US$100 billion by 2025. The carton board market is significantly influenced by the burgeoning e-commerce logistics industry, driven by evolving consumer behavior and the increased prevalence of online shipping. The global carton board market size is estimated at US$ 71.93 billion in 2024 and is expected to reach US$ 98.41 billion by 2029, growing at a CAGR of 6.47% during the forecast period (2024-2029).

 

Indian

India is the 15th largest paper producer in the world. Demand for paper products, including writing papers, printing papers, and specialty papers, has been steadily increasing. India accounts for about 5% of the global paper market. The market value of the Indian paper industry is expected to reach US$ 19.1 billion in 2033. The market value of the Indian paper industry is expected to grow from 2024 to 2033 at a CAGR of around 7.5%.

The Indian paper industry is set to witness selective growth of 5-7% in FY24. In 2024, the projected output in the pulp & paper market in India is forecasted to reach US$23.79 billion, with a CAGR of 4.65% from 2024 to 2028. With the increase in literacy rate, more and more students are entering the education system and the demand for notepads, textbooks and supplementary materials is increasing and giving a positive boost to the paper industry. The future growth trend of the Indian paper industry is also being driven by the increasing demand for corrugated and household paper products.

 

(Source: oneindia.com, manufacturing today india.com, economic times, giireasearch.com)

Outlook

The Indian paper and paper products market is expected to reach US$13.4 billion by 2024, with paper consumption in India expected to reach 30 million tonnes by March 2027. India’s paper industry is flourishing both within the country and also globally, fueled by an increase in global demand. This growth is driven by the lifting of pandemic-related restrictions and the prohibition of single-use plastics.

 

Sectoral opportunities

Opportunities within the paper industry comprise applications like printing, stationery, hygiene products, and specialty papers for applications in construction, electronics, and automotive. Printing: The India commercial printing market size reached US$ 34.5 Billion in 2023 and is expected to grow to US$ 45.3 Billion by 2032 at a CAGR of 3% during 2024-2032. Paper remains the primary substrate for printing materials (newspapers, magazines, books, and marketing collateral).(Source: imarcgroup.com)

Stationery: The stationery products market was valued at US$ 140 billion in 2023 and anticipated to grow over 3.7% between 2024 and 2032. The stationery sector sources paper products like notebooks, journals, writing pads, and envelopes. Customizable eco-friendly stationery options are gaining popularity, offering opportunities to manufacturers to cater to niche markets. (Source: gminsights.com)

Hygiene products: In 2024, hygiene product revenues are placed at US$14.31bn. Paper is an essential component in the production of hygiene products like tissue paper, toilet paper, and paper towels. With increasing awareness about hygiene and sanitation, there is a growing demand for quality, soft, and environmentally friendly paper products. (Source: statista. com)

Specialty papers: The specialty papers market in 2023 is estimated at 26.5 million tonnes. Specialty papers serve the construction, electronics, and automotive sectors. Applications range from materials for electronic gadgets to filter papers and specialty coatings for automotive components. These sectors offer opportunities for growth, innovation, and market expansion within the paper industry, driven by evolving consumer preferences, technological advancements, and sustainability considerations.

 

Sectoral threats

Environmental concerns: Deforestation and other sustainability issues alarmed various institutions about the paper industry’s impact on ecosystems.

 

Digital alternatives: The growing preference for digital solutions diminishes the demand for traditional paper products.

 

Fluctuating raw material costs: Instability in raw material prices can affect the profitability of paper manufacturers.

 

Regulatory changes: Evolving waste management and recycling priorities may present compliance challenges for the paper industry.

 

Segment mix and market outlook

Writing and printing: The writing and printing (W&P) paper, integral to the education sector and corporates, retains a significant 30% market share. The printing and writing paper market size is forecasted to increase by US$ 9.64 billion at a CAGR of 2.06% between 2023 and 2028. The growth rate of the market depends on several factors such as the emergence of various types of printing and writing paper, the increasing demand for inkjet printing paper, and the demand for printed catalogs. ( Source: technavio.com )

 

Paper cup stock: Paper cups are disposable containers crafted from paperboard, typically coated with a thin layer of plastic or wax, to enhance durability and prevent liquid penetration. The India paper cups market reached a volume of about 8.59 billion units in 2023 and is expected to grow at a CAGR of 3.2% between 2024 and 2032 to reach a volume of about 11.38 billion units by 2032. (Source: expertmarketresearch.com)

OPTIC FIBRE CABLE INDUSTRY

Global

The optic fibre cable market size is expected to grow from US$78.56 billion in 2023 to US$84.85 billion in 2024 at a compound annual growth rate (CAGR) of 8.0%. The fiber optical cable market size is expected to see strong growth in the next few years and could grow to US$111.97 billion in 2028 at a CAGR of 7.2%. The growth in the forecast period is attributed to increasing data consumption, internet expansion, cloud computing/edge computing growth, smart cities and (IoT) adoption, e-commerce, and digital services. Major trends comprise 5G network expansion, internet of things (IoT), data center expansion, cloud computing demand, and broadband internet access. (Source: thebusinessresearchcompany.com)

Global growth drivers

Fibre to the Home (FTTH): Fiber-to-the-home (FTTH) market size was US$ 48.8 billion in 2023. Fiber to the home (FTTH) acts as a growth driver in the cable industry by providing higher bandwidth capabilities and enabling the delivery of advanced services such as high-speed internet, HD television, and digital voice services directly to residential and business customers.

 

Europe: The total number of homes passed with fibre to the home (FTTH) reached 244 million homes in September 2023 in Europe. USA: The new projects, totalling US$772.6 million in investments, will benefit more than 1 million people living in remote areas of the country by providing reliable high-speed internet access, clean, safe water, and a range of support for rural families, agricultural producers, and small businesses.

 

Indian Optic fibre cable industry

The Indian government’s investments in fibre optic cable network infrastructure through ambitious Bharatnet Project is anticipated to drive market expansion.

The Indian optical fiber market is poised for growth due to ongoing data cost reductions, growing demand for high-speed networking and services, increasing broadband access, technologies, and the expanding adoption of fiber-to-the-home (FTTH) connectivity. The Budgetary allocation under the Ministry of Electronics in the Budget for 2024-2025 is Rs 21385.2 Cr, which is a 29.2% increase from the previous financial year’s budget. (Source: wirecable.in, communicationstoday.co.in, bonafidereasearch.com)

Sectoral opportunities

Growing demand: Increasing reliance on high-speed internet, telecommunications, and data transmission fuels the demand for fiber optic cables.

 

Infrastructure development: Government initiatives and investments in infrastructure projects, such as Bharatnet and broadband expansion, create opportunities for fiber optic cable deployment.

 

Industrial automation: Adoption of Industry 4.0 technologies like the Internet of Things (IoT) and automation require robust and high-speed data transmission, boosting the need for fibre optic cables in industrial applications.

 

Utilities: Need of monitoring the performance of utilities such as Power, Gas & Oil through Scada system fuels demand of optical fibre cable.

 

Sectoral threats

Increasing competition: Competition from alternative technologies, like wireless communication systems, poses a threat to the fibre optic cable industry in the last mile connectivity.

 

Geopolitical tension: Geopolitical tensions can disrupt supply chains, affecting the availability of materials crucial for fiber optic cable production.

 

Raw materials: Fluctuations in raw material prices can impact production costs, posing a challenge to the profitability of the sector.

 

Company overview

West Coast Paper Mills Ltd. (WCPML), the leading entity of the SK Bangur Group, is headquartered in Kolkata and serves as the vanguard of industrial endeavours. Since its inception in 1955, WCPML has been operating a state-of-the-art manufacturing facility (Paper Division) in Dandeli, Karnataka, boasting a production capacity of 320,000 metric tonnes per annum. With a self-sustained pulp capacity of 255,000 MTPA and a captive power generation capability of 74.8 megawatts, WCPML ensures operational independence. Its products reach across India through an extensive network of dealerships.

West Coast Optilinks, Cable Division (WCO), formerly recognized as Sudarshan Telecom, stands as a leading Indian manufacturer and exporter of optical fiber cables. Situated in the hi-tech electronics zone in Mysore, the company operates a state-of-the-art manufacturing facility. Commencing commercial operations in 1996, WCO has continuously manufactured a diverse array of optical fiber cables tailored for various applications. The Company has doubled its manufacturing capacity for Optical Fiber Cable by setting up a new manufacturing unit at Fab City, Hyderabad, Telangana. The newly commissioned plant has started its commercial production w.e.f 14th Feb 2024. This development aligns with the Company’s commitment to meeting the rising demand driven by global 5G rollouts and is in line with the objectives of Atmanirbhar Bharat and the Digital India initiative. The Company is in the process of setting up a unit, on the same premise, for manufacturing Optical Fiber which is a key raw material for manufacturing of Optical Fiber Cable. The project is under progress and would be operational in the current financial year. This Optical Fiber Plant will ensure seamless availability of Optical Fibers, a key raw material for optical fibre cable factories at Mysore and Hyderabad.

 

Business segments

Paper and paperboard division (93% of revenues, FY24): West Coast Paper Mills Ltd., a key player in the Indian paper sector, manufactures quality paper branded as WESCO. The company’s diverse portfolio, including office stationery, premium printing goods, and value-added products, contributed to 93% of its revenue in FY24.

Cables division (7% of revenues, FY24): The company’s cable division operates a manufacturing facility in Mysore, producing optical fiber cables to meet the needs of the Indian telecom and utilities sectors. Additionally, the company exports its optical fiber cables to several countries in Europe and the MEA region.

 

COMPANY STRENGTHS

Paper segment

Market position: With its extensive experience, nationwide dealer network, and technical proficiency, West Coast Paper Mills Ltd., holds a prominent position in India’s writing and printing paper segment. The paper plant in Dandeli comprises a production capacity of 3.2 lakh MTPA, while the APL plant comprises a capacity of 2.5 lakh MTPA. The company’s focus is on developing value-added products to expand product range and market share.

 

Integrated: The company possesses an integrated manufacturing facility that includes pulp, paper, captive power plants, and a chemical recovery system, ensuring competitive cost structures across market cycles. Capacity utilization: Utilizing 95% of its production capacity for paper and paperboard manufacturing, the company maximizes economies of scale.

 

Distribution network: The Company comprises 66 longstanding dealers and six zonal offices; it exports to 15+ countries.

 

Optic fibre cable segment

Greenfield: The greenfield plant in Fab City, Hyderabad, Telangana will ensure seamless availability of optical fibres, a key raw material for optical fibre cable factories at Mysore and at Hyderabad.

 

Robust R&D: The business widened its portfolio to include multiple products addressing telecom networks and utilities, facilitated by its R&D team and application engineers. The Company is also developing several products required for the 5G network. Value-chain: The backward integration into the manufacturing of optical fibres will widen the value chain and enhance competitiveness. Reference: The Company supplies major telecom companies and network integrators for large projects like TANFINET, which aims to connect all Tamil Nadu villages with internet and connectivity. This project is servicing as a reference to be enlisted for similar projects. Exports: The Company exports optical fibre cables to 25 countries, validating its superior price-value proposition.

 

Our performance over the years Operational review

Production	FY2024	FY2023	FY2022	FY2021	FY2020
Paper and paper board segment (Tonnes)	303766	314919	296785	229017	313876
Optical fibre cable segment (Km)	84719	72246	63630	54396	37392
Sales
Paper & paper board (tonnes)	304950	310349	303715	234667	304762
Optical fibre cable (km)	79387	81388	63470	54982	37510

 

Value impact (production)

In our paper and paper board segment, we experienced a significant year-on-year production decrease of approximately 3.54%. Production volume stood at 303766 tonnes in FY2024 from 314919 tonnes in FY2023. In the past year, the Company faced challenges including increased wood costs, lower paper prices due to market conditions, and a major crash at Dandeli in Q3. Moving forward, our priority is enhancing operational efficiency by refining product mix and trimming manufacturing costs, which will bolster our financial performance. This significant improvement positions us favourably in the industry, empowering us to capture a larger market share and expand our customer base.

In the Optical Fibre Cable segment, we observed a significant year-on-year production rise of approximately 17%. Our production levels escalated from 72,246 kilometres in FY2023 to 84,719 kilometres in FY2024. This expansion underscores our capability to respond to the increasing demand for optical fibre cables, affirming our dedication to maintaining a leading position in a dynamic market landscape. With an expanded production capacity, we are poised to meet the growing demands of our clientele and leverage emerging prospects.

 

Financial review

This has been dealt with in the Director’s report.

 

Key performance indicators

Value impact (sales)

In the paper and paper board segment, we observed a moderate year-on-year sales volume decrease of approximately 1.74 %, with volumes totalling 310,349 tonnes in FY2023, we saw a slight decrease to 304,950 tonnes in FY2024. Last year, the Company faced challenges with rising wood costs, lower paper prices due to market conditions, and a major breakdown at Dandeli in Q3, leading to a slight performance downturn. Looking ahead, focus is on improving operational efficiency by optimizing product mix and cutting manufacturing costs to enhance financial performance. In the optical fibre cable segment, we observed a slight year-on-year sales volume decrease of about 2%. Sales volumes decreased from 81,388 kilometres in FY2023 to 79387 kilometres in FY2024. The current decrease in demand is led by drop in global demand led by US & China market. However key initiative like Government subsidy program (e.g. BEAD program) in US and Indian Government’s ambitious Bharatnet Project may drive growth in later part of FY 2024-25. Also, ASEAN, ME

& Africa market is showing growth year on year. So, current decrease in demand seems to be temporary and overall there seems to be surge in demand in the market in second half of FY 2024-25.

Particulars	FY24	FY23	(%) change	Comments
Debtor’s turnover(times)	13.81	17.63	-21.67%	The decrease is due to drop in sales volume and price.
Inventory turnover (times)	6.97	10.08	-30.85%	The decrease is due to drop in sales volume and increase in total inventory.
Interest coverage ratio (times)	39.34	32.31	21.74%	The increase was due to lower interest expenses (repayment of borrowings).
Current ratio (times)	3.37	2.62	28.63%	The increase is due to increase in overall current assets.
Debt-equity ratio(times)	0.06	0.08	-25.00%	The decrease is due to repayment of loan.
Operating profit margin (%)	24.99%	32.11%	-22.17%	The decrease is due to decrease in
Net profit margin (%)	18.15%	20.89%	-13.12%	margin owing to decreased realization
Return on net worth (%)	20.98%	31.91%	-34.25%	and significant rise in wood prices.

 

Risk Management

The company has adopted a robust risk management framework to systematically identify, evaluate, and address risks. The Board and the risk management committee oversee the risks, recommending measures to manage or mitigate them. These actions are guided by a clearly defined risk management policy.

 

Environmental sustainability: In 2010 the company made significant investments in a cutting-edge effluent treatment plant and adopted 100% elemental chlorine-free bleaching processes. The company also in the process of upgrading ETP through inclusion of TERTIARY treatment for pulp effluent & secondary stage treatment for paper machine effluent. These initiatives ensure compliance with all regulations outlined in the environment protection act, 1986 and other environmental standards, including the requirements set forth by the CREP.

 

Water and energy conservation: Water and energy conservation efforts were implemented by the Company, leading to a reduction in water consumption. Additionally, specific energy consumption was lowered to meet the standards outlined in PAT Cycle II.

 

Business environment risk: The paper industry, characterized by maturity and capital intensity, faces challenges from competition and unpredictable market dynamics.

 

Mitigation: To address this risk, the Company ensures sufficient access to low-cost resources, enhancing its competitiveness throughout market fluctuations. Realizations risk: A decrease in realizations could potentially impact the Company’s profitability.

 

Mitigation: The Company has diversified its portfolio risk across writing and printing paper, packaging paper, and specialty paper to capitalize on the rising literacy rates, expanding e-commerce sector, and growing demand for product packaging.

 

Raw materials risk: The Company’s operations could be affected by a failure to procure raw materials.

 

Mitigation: The Company initiated farm forestry/ plantation programs in the catchment area of the mill to enhance the availability of wood. Additionally, the company procures 75% of Pulpwood from within the State of Karnataka and balance from Andhra Pradesh and Maharashtra. Furthermore, it imports pinewood pulp for the production of specialty paper.

 

Quality risk: An inability to address customer demand for quality products could impact the Company’s brand.

 

Mitigation: The Company has made investments in systems and processes to ensure the production of high-quality products. Its commitment to quality is affirmed by accreditations such as ISO 9001:2015 QMS, 14001:2015 EMS, ISO 45001:2018 OHSMS, and certification for FSC-compliant products.

 

Human resource risk: Unexpected loss of talent could impact the Company’s competitiveness.

 

Mitigation: The Company has introduced several HR initiatives aimed at talent retention, alongside structured training programs and succession planning for key positions. Additionally, attrition analysis is conducted through the exit interview process. Liquidity risk: The paper industry demands significant capital investment, raising concerns about liquidity risks.

 

Mitigation: The company benefits from robust cash flows from operations, a solid cash reserve, and a conservatively utilized working capital limit. The Company can fulfil near-term obligations through accruals while maintaining a significant cash reserve. Environmental risk: Regulations imposed on paper mills to mitigate environmental impact often necessitate expensive investments and can constrain their ability to expand.

 

Mitigation: The company implemented water-saving initiatives, resulting in a reduction of water usage per tonne of product from 58 m3/MT in FY2023 to 57.20 m3/MT in FY2024. The Company sourced pulp wood from various entities including private parties, captive plantations, agricultural forestry programs, and the Karnataka State Government. The Forest Stewardship Council Chain of Custody and Forest Stewardship Council Managed Wood certifications for pulp wood confirmed the social and ecological responsibility of the paper made from wood.

 

Internal control systems and their adequacy

The company has instituted a robust internal control system to ensure operational efficiency, financial transparency, and compliance with relevant laws and regulations. Clear roles and responsibilities have been defined for all managerial positions, with continuous monitoring and control over operating parameters. Regular internal audits are conducted to ensure the effective execution of responsibilities. The Company has implemented a process-driven framework for Internal Financial Controls (IFC) in accordance with the explanation of Section 134(5) (e) of the Companies Act, 2013. The audit committee of the board of directors periodically reviews the performance of the Statutory Auditors and Internal Auditors, the adequacy and effectiveness of these internal control systems, suggesting improvements as needed.

 

Human resources

The company places great value on its employees, recognizing them as its most valuable asset. It acknowledges the importance of aligning human resource practices with business goals and objectives. The workforce serves as a crucial strategic pillar, driving the company’s business processes to achieve its vision. Maintaining a positive and cooperative industrial relationship with its employees is a priority for the company, as they are integral partners in implementing company policies and meeting operational targets. As of March 31, 2024, the company employed [2420] individuals.

 

Cautionary statement

The statements provided in this report under Management Discussion and Analysis, detailing the company’s objectives, projections, estimates, expectations, or predictions, may constitute "forward-looking statements" as per applicable securities laws or regulations. These statements are based on certain assumptions and anticipations of future events. Actual results may vary significantly from those expressed or implied. Key factors that could impact the Company’s operations include global and domestic demand-supply dynamics, prices of finished goods, availability and cost of raw materials, alterations in Government regulations and tax structures, macroeconomic conditions, as well as other factors such as litigation and industrial relations. The Company does not undertake any obligation to publicly amend, modify, or revise any forward-looking statements based on subsequent developments, information, or events.