Yash Pakka Management Discussions


Global economy

The year 2020 was an exceptional and unprecedented one for the world economy, as it grappled with the onset of the Covid-19 pandemic and the resultant challenges to public health, lockdowns and a virtual closure of international borders for an extended period of time. Trade, commerce, businesses and supply chains were majorly disrupted, and governments around the world placed emphasis on healthcare delivery and infrastructure and other ancillary priorities.

With a view to minimise the socio-economic impact of the pandemic triggered by the lockdowns and fill the output gap to the extent possible, large-scale stimulus measures were announced by major economies to support businesses and individuals, save jobs, and provide some succour from the drastic implications of an extended period of economic downturn.

Multilateral bodies such as the International Monetary Fund and the World Bank called for concerted and collaborative efforts to support the vulnerable economies. The impact on businesses has not been fully comprehended on account of the persistent nature of the pandemic and high uncertainty levels. However, there was an irrevocable change in the way of working, viability of some industries (especially high-touch and high-contact ones), nature of some jobs and various aspects of social life. At the same time, it became clear that the digital transition was not an option anymore, and that e-commerce and connectivity solutions were an imperative in the new post-pandemic economy.

In the second half of the calendar year 2020, as the virus began to lose potency and its severity dropped, restrictions began to be lifted, albeit phase-wise, across the world. Few green shoots became visible across countries and sectors as the world began to embrace the new reality and prepared for resumption of business and trade.

The spirited global race to make a vaccine saw inspiring outcomes, and the approval, commercialisation and mass production of multiple vaccines proved to be a shot in the arm and also an economic stimulus. Resultantly, the International Monetary Fund, in its April 2021 World Economic Outlook (WEO) report, calculates a decline of 3.3% in global GDP for CY2020, as against an earlier estimate of a contraction of 3.5% in January 2021 and a much more severe contraction of 4.4% in October 2020.

However, with the mutation of the virus, insufficient availability of vaccines and rising inflationary pressures, growth outlook could be subdued for 2021. Towards this extent, governments and central banks are anticipated to maintain supportive policies till the pandemic is completely under control.

Indian economy

The Indian economy, which was firmly on the path of recovery in the second half of FY2020-

21, was hit by a rather unexpectedly virulent second wave of Covid-19. That caused a severe strain on healthcare facilities in many parts of the country, leading to localised lockdowns and containments and a fall in mobility to levels seen a year ago.

As a silver lining, disruptions to production and supply chains have been far less severe during the second wave than during the first wave. Vaccinations are picking up pace, which would support faster normalisation of mobility levels and of related economic activities. Furthermore, continued accommodative monetary policy of the RBI (Reserve Bank of India) and the expected increase in capex from the government are factors that will support the growth recovery process. In addition, global growth prospects provide the country with export opportunities as an additional strong driver of growth.

The longer-term prospects for the Indian economy continue to be robust. Various initiatives, including privatisation of public sector enterprises, monetisation of assets, implementation of the National Infrastructure Pipeline (NIP), targeted investment incentives through the Production-Linked Incentives (PIL) scheme and the new Labour Code, are likely to trigger a virtuous cycle of investments and growth over the medium- to long-term.

Overall, FY2020-21 began on a weak note, as the onset of the pandemic triggered panic and brought most economic activities to an ostensible halt in the first quarter. While annual estimates of contraction varied, the first quarter saw an unprecedented 23.4% decline in the gross domestic product (GDP). With the second quarter also being one of decline, albeit at a slower pace than that in the first, the economy entered into a technical recession with two successive quarters of contraction. This happened only the second time since Independence and for the first time since economic liberalisation in 1991.

However, following fiscal and monetary measures undertaken by the government and the RBI, Indias economic growth returned to positive territory, with pent-up demand playing out and festive demand coming to the fore. Successive quarters of the fiscal year demonstrated Indias resilience, and the countrys ability to bounce back was evident, and this continues to provide confidence to the industry.

Road to recovery

As per the first advance estimates of the National Statistics Office, 96% of prepandemic economic activity has been restored. Manufacturing activity has witnessed a sharp growth, the fastest in over a decade. This was led by the recovery in demand and output growth, post the Covid-19 shock. High frequency indicators, which showed an uptick from the third quarter of FY2020-21, indicate robust recovery in the near-term, as evidenced by the PMI - Manufacturing and IIP - Industrial.

Thus, India has bounced back strongly and is in a better position than several other economies. The IMF pegs Indias real GDP growth at 12.5% in FY2021-22, as the vaccine rollout picks up pace and economic activities continue to normalise.

Going forward, the economic scenario can be expected to be driven by pent-up positive savings, vaccine deployment, expanding stimulus, low interest rates, accommodative monetary policy and increasing public expenditure. However, oil prices are on the rise and commodity prices are seeing significant highs too and so inflationary pressures may have an impact on economic growth. Moreover, the pandemic scenario remains dynamic too, with the possibility of a third wave and stretched lockdowns and associated disruptions likely to keep the economy on the edge at least in the near-term.

Global paper and pulp industry

The year 2020 proved to be a highly challenging and difficult one for the paper industry. Due to lockdown restrictions and subsequent shutting down of economies and markets, the structural demand for paper, which was already on the wane on account of the rise of digital media, eroded at a rapid pace. Also, as work-from- home and online education became mainstay during the lockdown months of the pandemic and even subsequently, the demand for printing and writing paper faced a rapid decline.

The global paper products market is anticipated to decline to USD 868.8 bn in 2020 from USD 896.6 bn in 2019. Global paper consumption was 17% lower in 2020 vs. 2019. Due to an unforeseen decline in demand, consumption contracted and supply and demand proved to be unfavourable for paper producers. The result was a decline in the price of paper. Thus, demand for paper in Europe was 18% weaker in 2020, compared to 2019. This resulted in declining paper prices. In North America, demand declined by a much sharper 22% and in Asia by 13%, as compared to the previous year.

However, wide variation in demand between different paper grades was witnessed during the year. The decline in global demand for uncoated paper was to the extent of about 14%, whereas the demand for standard newsprint and coated mechanical paper declined by as much as 25%.

On the brighter side, the paper products market is expected to recover to USD 1,030.7 bn by 2023, growing at a CAGR of 7% between 202123. The factors attributed to this growth include resumption of schooling and educational activities, restoration of office demand for paper and other paper-based products and rise of e-commerce, among other factors.

Also, with growing awareness on sustainability, climate change and the impact of deforestation on the environment, paper manufacturing companies are looking at alternative sources of raw materials to manufacture paper and generate fuel power. Recycling has also been growing as a trend, and so is consumer preference for environment-friendly decomposable end-use products.

On the pulp front, global inventories came close to a balanced level by the end of 2020, after being elevated since 2018. Due to the pandemic raging in the early parts of the year, and the subsequent lockdowns and work- from-home restrictions, there was a sharp decline in the demand for printing and writing paper, leading to high pulp inventories and low prices. According to Cepi, a European agency representing the paper industry, the member countries paper and board production decreased by 5% in 2020, compared to the previous year. This declining trend was also observed in countries including China, the US, Japan, Canada and Korea, where the paper production decline ranged between 2-17%.

In a long-term perspective, consultants FnF foresee the global pulp market to generate revenues of about USD 64,930 mn by the end of 2026, growing at a CAGR of around 4.6% between 2020-26.

Indian paper and pulp industry

Just like the rest of the world, the nationwide lockdown to curb the spread of the Covid-19 pandemic impacted demand for paper and paper products in India too, which is likely to have caused a decline of 10-15% year-on-year in 2020-21, according to Crisil Research. The annual domestic demand for paper stands at about 19 million tonnes, or 4% of the global demand share, making India the fifth largest paper consumer after China (109 million tonnes or 21% of the global share).

With schools and colleges shut due to the pandemic, as also work-from-home necessitating online interactions, the demand for writing and printing witnessed a decline. The use of industrial paper also crumpled due to weak demand in the fast moving consumer goods (FMCG) channel, consumer durables and apparel segments, which account to nearly 50-60% of the demand.

Yet, according to Business Wire, the Indian paper and paper products market is expected to grow to USD 13.4 bn in 2024, up from USD 8.6 bn in 2018, demonstrating a CAGR of 7.8%.

On top of the challenges of the pandemic, the industry also suffered from shortage of raw materials and limited availability of labour, thus affecting capacity utilisation. Moreover, with Indias paper capacity clustered around 6 states, nearly 45% were in the Covid Red zones, while another 45% were in Orange zones, leading further challenges for the sector. On the other side though, the India Brand Equity Foundation (IBEF) has forecast that that with less-stringent restrictions on e-commerce, the Indian packaging industry is riding the e-tailing wave where consumers are increasingly turning online to make purchases. Another major factor is continuing government efforts to curb the usage of plastic and switch to paper instead.

The e-commerce market in India is projected to grow from USD 38.5 bn in 2017 to USD 200 bn in 2026. The re-opening of the markets post lockdown saw marketplaces as well as direct brand websites cashing-in on demand, witnessing a 130% increase in online orders.

Further, the lockdowns and mobility restrictions also accelerated digital adoption and today many consumers have become comfortable in making online purchases.

Thus, according to the Indian Institute of Packaging, the Indian packaging industry will continue to be amongst the top growing segments, with the industry, which was pegged at about USD 50 bn in 2019, is expected to reach a size of over USD 200 bn by 2025, growing at a rate of over 25% every year. When it comes to the usage share, food processing is the largest consumer of packaging at 45%, followed by pharmaceuticals at 25% and personal care products at about 10%.

Under food and beverage packaging, the demand for grocery and dairy products subsequently spurred the demand for trays and vacuum packaging. With rising urbanisation, requirement of better quality packaging of FMCG products through organised retail, and increasing preference for ready-to-eat foods, the segment is expected to witness an exponential growth in the forthcoming years.

Ban on single-use plastic in India

The government has adopted a 6-pronged approach to curb single-use plastic in India. Nearly 90% plastic packaging is discarded and dumped in landfill and in water bodies. In order to deal with the problem, the government has set the ambitious target to completely phaseout single-use plastic by 2022. The 6-pronged strategy includes - reduce, reuse, recycle, recover, redesign, re-manufacture to curb the menace of single-use plastic.

According to some estimates, nearly 10 million tonnes of plastic waste is generated in the country every year and most of it is discarded and dumped in the land and water bodies. In order to deal with this problem, the Centre has notified Plastic Waste Management Rules, 2016.Under the new rules, the government has asked generators of plastic waste to take steps to minimise plastic waste and also to ensure segregated storage of waste at the source.

Source: www.financialexpress.com

Foodservice disposables market

The market size of the global foodservice disposables market is estimated to grow at a CAGR of 4.19% between 2019-25, from USD 61.25 bn to USD 78.35 bn in the respective years, according to Arizton Advisory & Intelligence. Within this, the market size revenue of foodservice disposables made from paper was valued at USD 19.80 bn in 2019, and is expected to reach USD 27.54 bn by 2025, registering a CAGR of 5.65% and witnessing the highest growth among other materials.

2019 2020 2021 2022 2023 2024 2025 CAGR
Plastic 25.17 25.57 26.21 27.17 28.28 29.43 30.61 3.32%
Paper 19.80 21.21 22.45 23.67 24.89 26.19 27.54 5.65%
Aluminium 9.92 10.27 10.63 10.99 11.32 11.76 12.17 3.46%
Others 6.36 6.67 7.01 7.24 7.47 7.68 8.02 3.95%
Total 61.25 63.72 66.31 69.08 71.97 75.07 78.35 4.19%

The Asia Pacific (APAC) region dominates the global market for foodservice disposables after North America, accounting for 27.57% share and valued at USD 16.89 bn in 2019. It is expected to reach a size of USD 22.64 bn by 2025, growing at a CAGR of 5.01%, led by China, Japan and India, where the market is witnessing a surge owing to the fast-growing economies and rising food consumption rates.

China and India are considered among the top nations that are driving the global market due to high demand from various end-user segments.

In India, the demographic dividend, including 65% of the population below the age of 35, and a high percentage of working individuals and students, provides a strong growth impetus for the foodservice disposables market. The market in the country was valued at USD 2.82 bn in 2019, and is expected to reach USD 3.82 bn by 2025, growing at a CAGR of 5.2%. Notably, the demand for products in all pack sizes is high in India. The large population, as well as organised and liberalised retail, has had a positive impact on the market.

Foodservice disposables market in India 2019-25 (USD bn)

Opportunities and enablers

Lower standardisation: Improper disposal and absence of any significant regulatory oversight has led to increasing consumer activism that has resulted in a gradual shift to the use of biodegradable and environment-friendly products.

Convenience: Among the effects of the pandemic-induced lockdowns was a need for convenience, with home delivery coming to the fore. Moreover, with life and lifestyle becoming busier and work-from-home gaining prominence, calling over for food has become a repeatable and frequent habit.

Third-party food delivery: Home delivery options have increased and third-party food delivery aggregators have stepped up their offerings to add to the convenience of online food ordering. It was estimated that by 2020, foodservice providers were expected to capture over 60% share of the food expenses from consumers the world over.

Demand for packaged food: The factors of convenience, delivery and rising disposable incomes have led to an increasing demand for packaged, processed and ready-to-eat food items.

Key takeaways

The growth of the Indian paper and foodservices disposable sector is anchored on several positive trends:

• Replacement emerging from the prospective ban on single-use plastic packaging materials

• Demand from customers (paper convertors, etc.) seeking to enhance their green credentials and for ensuring supply chain sustainability

• Demand from end consumers interested in green, clean and environment-friendly disposable products with a back story

• Demand restoration from the education and office sectors, as schools and offices reopen

• Growth in e-commerce players as they introduce more products to more pin- codes

• Low per capita paper consumption in India (14 kg vs. global average of 57 kg)

• Demand for convenience and time pressures have accelerated in-home food ordering and hence expanded demand for disposable packaging products

Sustainability and CSR

Sustainability has been at the forefront of the Company since its inception. It has been the Companys constant endeavour to formulate, adopt and continuously improve and augment its business model, embracing both the sustainability and growth agendas. As part of its sustainability agenda, the Company focuses on conservation of the environment and natural resources and ensures energy efficiency. The Companys operational strategy is built on the long - term commitment to experi ment and implement new ideas for improving efficiency and minimising the use of input resources. During the year, the Company continued pursuing its sustainability agenda with the same intensity and rigour. Notable initiatives in this area included concerted efforts on lowering water, energy and chemical consumption, identifying process transformation initiatives to maximise yield and curb waste, and enhance asset efficiency and productivity to optimise input consumption and use.

As part of its triple bottom-line approach to the business factoring the 3 ‘Ps, the Company has always considered the community and society around its operations as its key stakeholder. It believes that the community around its operations should also grow and prosper, keeping with the times. Accordingly, Corporate Social Responsibility has been ingrained as an integral part of the Companys business philosophy. In order to oversee its CSR initiatives and activities, the Company has constituted a Board-level Corporate Social Responsibility Committee. The major thrust areas of the Company include healthcare, education, women empowerment, infrastructure support, integrated rural development, etc., which are aligned to the areas specified under Schedule VII to the Companies Act, 2013.

Human resources

Built on the foundations of trust and empowerment, we strive to provide a safe, vibrant and rewarding workplace environment for our employees. Our diverse, experienced and talented employees are our key strength.

A diverse and skilled workforce, an able leadership and right culture are crucial inputs for business success. The skills of our people, their experience, ingenuity and efforts enable us to achieve all-round excellence. Our employees are at the core of our organisational objectives and are the primary enablers of our vision. Thus, we have designed our people policies to create a future-ready workforce, while empowering and enriching their experience at the Company.

In these times of global crisis such as the Covid-19 pandemic, we came together as a family and supported each other, creating connection and community in an inclusive way. Thus, in response to the pandemic outbreak, we acted with urgency to ensure the safety of our employees while continuing to support business continuity. We rapidly transitioned to a remote workforce model, while accelerating employee engagement with consistent flow of communication and information. We also reinforced safe behaviour across our manufacturing location, besides ensuring hygiene of high-contact areas. Furthermore, we also offered emergency support to our employees with hospitalisation treatment and insurance. We also established a regular communication channel with all our employees, under which our senior management interacted with them on a regular basis, providing health and safety updates and our efforts to manage the crisis. As the number of cases went down and upon government consent, we re-opened our factory and offices with rigorous mandates to follow Covid-safe behaviour, like social distancing, restriction of in-person meetings, etc., besides regular cleaning and sanitisation.

Attracting, enabling and retaining talent have been the cornerstone of our human resource function. Our talent acquisition strategy is to get candidates with the right competencies required by the business, involving a balanced mix of developing and promoting internal talent, lateral hires and trainees. Within the Company, we offer career acceleration and role enlargement opportunities for young talent who have displayed resilience, leadership skills and performance during this tough period. This has provided a significant boost to internal talent development. Additionally, we have also leveraged opportunities to inject top talent from the industry for specific focus areas across our business.

At the close of FY2020-21, we had an employee count of 462 members.

Risk management

Your Companys risk management process has been designed to identify and mitigate risks that have the potential to materially impact its business objectives and maintain a balance between managing risk and making most of the opportunities. The Board is responsible for overseeing the overall risk management framework of the Company. The Audit and Risk Management Committee of Board keeps an vigilant eye on execution of the risk management plan and framework of the Company and advises the management on strengthening mitigating measures, wherever required. The actual identification, assessment and mitigation of risks are however done by key executives of the Company in a systematic and judicious manner through regular meetings and dialogue and engagement/consultation with relevant stakeholders. The risks are prioritised according to significance and likelihood and the Company adopts all possible steps with a view to protect the business from any negative impacts of risks, while also focusing on capitalising on opportunities after thorough risk-benefit analysis. Key risks facing the Company are presented in the heat map below.

Internal control system and their adequacy

Your Company has put in place adequate internal control systems that are commensurate with the size of its operations. Internal control systems comprising policies and procedures are designed to ensure sound management of your Companys operations, safekeeping of its assets, optimal utilisation of resources, reliability of its financial information, and compliance.

Clearly defined roles and responsibilities have been institutionalised, and systems and procedures are periodically reviewed to keep pace with the growing size of your Companys operations.

AUDITORS CERTIFICATE ON COMPLIANCE WITH THE CONDITIONS OF CORPORATE GOVERNANCE UNDER REGULATION 15(2) OF SEBI (LODR) REGULATIONS, 2015

To,

The Members,

YASH PAKKA LIMITED,

(CIN - L24231UP1981PLC005294)

2ND FLOOR, 24/57 Birhana, Road Kanpur,

Uttar Pradesh - 208001

1. We have examined the compliance of conditions of Corporate Governance by Yash Pakka Limited ("the Company"), for the year ended on March 31, 2021, as stipulated in regulation 17 to 27 and clauses (b) to (i) of regulation 46(2) and paragraphs C, D and E of Schedule V of the SEBI Listing Regulations for the period April 01, 2020 to March 31, 2021.

2. The compliance of conditions of Corporate Governance is the responsibility of the Management. Our examination was limited to a review of the procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company.

3. We have examined the relevant records of the Company in accordance with the Generally Accepted Auditing Standards in India, to the extent relevant, and as per the Guidance Note on Certification of Corporate Governance issued by the Institute of Chartered Accountants of India. The procedures selected depend on the auditors judgement, including the assessment of the risks associated in compliance of the Corporate Governance Report with the applicable criteria.

4. In our opinion and to the best of our information and according to our examination of the relevant records and the explanations given to us and the representations made by the Directors and the Management, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in regulation 17 to 27 and clauses (b) to (i) of regulation 46(2) and paragraphs C, D and E of Schedule V of the SEBI Listing Regulations for the respective periods of applicability as specified under paragraph 1 above, during the year ended March 31, 2021.

5. We state that such compliance is neither an assurance as to the future viability of the Company nor of the efficiency or effectiveness with which the management has conducted the affairs of the Company.

For Amit Gupta & Associates
Company Secretaries
Amit Gupta
Proprietor
Membership No. : F5478
Date: June 30, 2021 C.P. No. 4682
Place: Lucknow, U.P. India UDIN - F005478C000561495