| Industry Scenario
INDIAN PAPER INDUSTRY
India ranks fifteenth amongst the paper producing countries in the world. The total installed capacity in the country is approximately 12 million tons. The industry grew with the rising level of literacy, improving well-being of the people and surging aspiration levels. Paper usage has increased over the years, still per capita consumption in the country is estimated to be barely 10 kgs compared with 75 kgs in China, 158 kgs each in European Union, Korea, Taiwan, Hong Kong, Singapore & Malaysia, 218 kgs in Japan, 224 kgs in North America, and the global average itself is a healthy 60 kgs.
The paper industry in India is majority categorised into writing and printing (W&P), paperboard and newsprint segments. Paperboards constitute approximately 46 per cent of the demand volume, while W&P accounts for approximately 31 per cent. Newsprint makes for another 18 per cent. Major varieties of W&P are creamwove, maplitho, copier and coated paper. Paperboard, primarily used for industrial purposes, consists of kraft paper, virgin board and recycled board. Kraft paper is produced in several varieties generally differentiated by properties of strength and grammage. Paperboard varieties include coated/uncoated duplex, chromo and triplex boards. India is near self-sufficiency with the indigenous production of most varieties of paper and paperboards, but still certain varieties of speciality papers are, however, imported in a large quantity. India has 17 per cent of the world’s population yet accounts for only about 3 per cent of the world’s production of paper and paperboard. The estimated turnover of the industry is Rs. 35,800 crore approximately and provides employment to more than 370,000 people directly and 1,300,000 indirectly. Paper consumption is poised for a big leap forward in sync with growing emphasis on education and literacy, along with the expected resurgence in the economy and is estimated to touch 13.95 million tons by 2017-18. According to Poyry, India will witness highest annual growth of about 6.5 per annum while China’s growth is projected to be in the order of 5.25 per cent. Japan in the near term and North America may witness marginal or negative growth.
Asia Pacific and Latin America will dominate growth in newspaper publishers with higher-growth, large scale markets in India (CAGR 7.5 per cent) and China (CAGR 8.3 per cent), which are the most notable countries demand for news content among growing urban population and increasingly prosperous, educated and engaged citizens. Revenue from newspaper circulation is rising globally after years of decline, which will climb again from 47 per cent in 2013 to 49 per cent by 2018 meaning consumers may soon become publishers’ biggest source of revenue. Advertising revenue is also showing upward trend. The total demand of newspaper in India is estimated to be about 2.5 million tons per annum with the domestic capacity limited to only about 40 per cent of the demand. As per estimate by CRISIL, with the expected annual growth of about 9 per cent, the total demand is likely to cross 3.5 million tons per annum by 2017-18. With no major capacity expansion in newsprint industry in sight, dynamics of the imported Newsprint in terms of the quality and the landed cost will continue to govern the industry in future. The quality of newsprint paper, matching with international standard, is expected to provide a considerable growth in production, demand and productivity in coming years. Emami Paper Mills Limited (EPM), one of the largest manufacturers of newsprint in India supply international quality of newsprint to the most of the leading newspaper publishers in India.
PRINTING AND PUBLISHING SECTOR
Books have always been regarded as an important media for the development and promotion of human values. They act as catalysts for the advancement of a nation. They record new ideas, preserve and communicate knowledge, part education and values, and aid the overall development of an individual. The publishing industry in India is counted among the top seven publishing nations in the world. With an estimated market of INR 10,000 crores, India ranks third after the US and UK in English language publishing. With the coming of the digital age the nature of the industry has changed. The advancement in technology and Indian’s skilled manpower resource, makes the country a major outsourcing hub for print and pre-publishing services in the world, be it print, design or editorial. The sector has tremendous potential, both in the domestic as well as the export markets. Currently the sector is witnessing a Compound Annual Growth Rate (CAGR) of 30%. The importance of the Indian market has been recognised the world over. Today, India is fast becoming one of the major print producer & manufacture of printed paper products for the world markets. The quality standards have improved dramatically and immense production capacities have been created. Some printers have won recognition by winning prizes at international competition for excellence in printing. The current annual turnovers of all the components in the Indian printing industry are more than Rs. 50,000 crores. That is in the region of USD 11 Billion. Most of the large printers are found in big cities of Delhi, Kolkata, Mumbai, Hyderabad, Chennai, and Sivakasi, which have emerged as a commercial printing hub and accounts for a major share of exports from the Indian printing industry.
Apart from the huge value addition and employment involved in these activities, packaging has served the Indian economy by helping preservation of the quality and lengthening the shelf life of innumerable products – ranging from milk and biscuits, to drugs and medicines, processed and semi-processed foods, fruits and vegetables, cosmetics and toiletries, hosiery and garments, edible oils, electronic goods etc. According to the Indian Packaging Institute, Indian Packaging industry is USD 14 billion and growing at more than 15 per cent per annum. This growth rate is expected to double in the next two years. These figures indicate towards a change in the industrial and consumer set up. The growth in the packaging industry in India is mainly driven by the food and the pharmaceutical packaging sectors. The large and growing Indian middle class, along with the growth in organised retailing in the country are fuelling growth in the packaging industry. Another factor, which has provided substantial stimulus to the packaging machinery industry is the rapid growth of exports, which requires superior packaging standards for the international market. With this the need for adopting better packaging methods, materials and machinery to ensure quality has become very important for Indian businesses. Packaging board market size is estimated at 2.2 million tonnes. Grey-back Boards constitute 50 per cent and White-back Coated Boards, Folding Box Board, Solid Bleached Sulphate Board and other speciality Boards account for the balance 50 per cent. The Indian packaging industry is expected to become the fourth largest packaging market in the world, with revenues of US$ 43.7 billion in 2016. India’s retail growth and increased consumption of consumer products is driving the demand for packaging in the country. The packaging industry in India is expected to grow further rapidly to become the fourth largest global market, with sales of US$ 43.7 billion in 2016. India’s per capita annual packaging expenditure was US$ 20 in 2011, which is significantly lower than the top 20 market average of US$ 47.6. The low per capita expenditure offers a huge business opportunity for packaging companies.
KEY INDUSTRY DRIVERS
Rise of vernacular newspapers : CRISIL expects demand for newsprint to grow 9.5 – 10.5 per cent CAGR over the next five years – from 2.1 MTPA in 2012-13 to 3.5 million tonnes in 2017-18, driven by higher literacy and increase in the number of pages per newspaper due to rising advertising spends.
Advertising revenues growth in print media: A report by Motilal Oswal indicates that the Indian print media industry, which accounted for 45 per cent of the total advertising spend in the country, is headed for a rebound with advertising growth (revenue)improving 4-5 per cent year-on-year and to 11 per cent over F.Y. 2013-15 on the back of stable GDP growth, anticipated easing in interest rates and a low-base effect.
Local print media proliferation: New newspapers being published in India will continue to grow at around 6 per cent annually. While the era of 24-hour news channels on television has had its impact on the circulation numbers of newspapers, it is evident that India still wakes up to the newspaper. The highest circulated daily in India still remains a regional language newspaper (Source: TMT India 2013).
Growth in education, office space to drive demand for W&P paper: Demand for W&P (writing and printing paper) is projected to grow at 6.5-7 per cent CAGR from 3.8 MTPA in 2012-13 to 5.3 MTPA by 2017-18. Strong growth is expected in the copier, coated and maplitho segments. Within W&P, demand growth for copier paper is like to be the strongest at around 14 per cent CAGR from 2012-13 to 2017-18. Rise in office space absorption is likely to translate into stronger demand for high-quality copier paper from the office printing segment and hence the share of copier paper in the total demand pie for W&P will increase from 17 per cent in 2012-13 to around 20 per cent in 2017-18.
Rising demand for paperboard: Demand for paperboard is projected to grow at 7-7.5 per cent CAGR from 5.6 MTPA in 2012-13 to 7.9 MTPA in 2017-18, driven by growth in industrial production and sustained demand for consumer goods due to increase in penetration of organised retail. CRISIL Research expects paperboard to account for 56 per cent of packaging board demand in volume terms in 2012-13. Trends like change in lifestyle and socio-economic factors have led to a sharp rise in demand for packaging paper as reflected in the improved packaging of FMCG products, rising spends on healthcare and over-the-counter medicines and increasing preference for ready-to-eat food products.
EMAMI’S INDUSTRY PRESENCE
Emami Paper Mills Limited, part of the Emami Group of Industries has paper mills located at Balasore (Odisha) and Dakshineswar (W.B.,Kolkata) manufacturing quality newsprint and writing & printing (W&P) paper, Unit-1 at Balasore is one of the most environmentally friendly paper mills in Eastern India, consuming waste paper for the manufacture of internationally-benchmarked newsprint. Further, your Company has implemented an Expansion Project at its Balasore (Orissa) unit by setting up a state-of-art Multi Layer Double Coated Board Plant with an installed capacity of 1,32,000 tonnes per annum with 10.5 MW Captive Power Plant and other necessary utilities. Trial commissioning and testing of the plant has already started in March, 2015.
STRENGTH AND OPPORTUNITIES
i. Strategic location – proximity to raw materials, logistics advantage and nearness to the market.
ii. Pan India presence.
iii.Close proximity to Mahanadi Coal (MCL) fields for Balasore plant and Raniganj- Asansol (ECL) belt for Kolkata unit for procurement of coal and also proximity to Haldia port for import of waste paper, chemicals, spares & machineries etc.
iv. In-house qualified and technical team to ensure better quality products.
v. Strong customer base and dealers / distributors network.
vi. Sufficient land and other infrastructure available with the Company for future expansion and growth.
vii.Strong Research & Development team for continuous product development and cost reduction.
viii.Lowest cost manufacturer with advanced technology for manufacturing of paperboard and captive power.
Increasing coal and logistic cost.
Small and unorganized industry players.
Cheap dumping from export countries.
Negative budgetary policies for paper industry.
Enterprise wide IT and ERP infrastructure is monitored and supported by a dedicated in-house IT team in areas such as SAP support, Data Centre Management, Networking, Software development and systems administration, Hardware Capacity Planning. The Company has implemented a SAP ECC 5.0 – ERP in July 2010. The implementation was done at the centralised data centre covering the Kolkata Corporate Office, Balasore and Kolkata Plant. SAP supports the Company’s complex business process with ease. SAP helps streamline business processes and improves connectivity and information flow across the Company. It also facilitates accelerated and informed decision-making by providing flawless information and wide scope of data analysis within a minimal time span. It also reduces paper work by the online use of information system and achieves reduced cycle time of order processing and is now a single platform for all users to share and view data. SAP Project System functionality has been implemented to manage the expansion project effectively. Firewalls and end-point security measures have been taken to enforce strict security practices in all nodes to mitigate risks and protect IT assets from all threats and vulnerabilities.
RISK AND CONCERNS
Your Company has adopted Risk Management Policy, as recommended by its Risk Management Committee and approved by the Board of Directors of the Company. Risk identification and prioritisation have already been made in consultation with Ernst & Young (EY), Kolkata, followed by Risk Mitigation Plan approved by the Management, Risk reporting and monitoring is being conducted regularly by Governance Risk and Compliance Committee (GRCC) at all the operation levels and reporting directly to the Audit Committee and the Board.
HUMAN RESOURCES AND TRADE RELATIONS
Your Company considers people as its biggest assets and ‘Believing in People’ is at the heart of its human resource strategy. It has put concerted efforts in talent management and succession planning practices, strong performance management and learning and training initiatives to ensure that your Company consistently develops inspiring, strong and credible leadership. During the year, the focus of your Company was to ensure that young talent is nurtured and mentored consistently, that rewards and recognition are commensurate with performance and that employees have the opportunity to develop and grow. Your Company has established an organisation structure that is agile and focused on delivering business results. With regular communication and sustained efforts it is ensuring that employees are aligned on common objectives and have the right information on business evolution. Your Company strongly believes in fostering a culture of trust and mutual respect amongst all its employee seeks to ensure that Emami Paper Mills Limited (EPM) values and principles are understood by all and are the reference point in all people matters. The Company has a Policy on Prohibition, Prevention and Redressal of Sexual Harassment of Women at Workplace and matters connected therewith or incidental thereto covering all the aspects as contained under the ‘The Sexual Harassment of Women at Workplace (Prohibition and Redressal) Act, 2013”.
Your Company has adopted a clearly defined Occupational Health and Safety Policy. Suitable Personal Protective Equipment (PPE) is provided to all employees. Periodical Training Programms are conducted on handling of hazardous chemicals, Material handling, Usage of PPEs, fire fighting etc. to improve safety awareness among the employees and contract workmen. Mill wide Safety Audit, HAZOP study and Risk Analysis are carried out periodically through experts in industrial safety and their recommendations are implemented rigorously. Material Safety Data Sheets (MSDS) are displayed at all the hazardous chemical storage areas. Testing of Pressure Vessels, Lifting tackles, Safety belts, Conveyor Systems, Building Stability, Chemical stored FRP tanks etc., are carried out through competent persons. An updated Onsite Emergency Plan (OEP) and Off-site Emergency Plan are available to mitigate emergencies. Periodic mock drills on hazardous chemical leakages and fire incident are conducted to ensure the effectiveness of emergency preparedness. The entire Mill is covered with fire hydrant points with pressurised water mains for fire fighting. Also fire extinguishers are provided to strategic points. In addition, one mobile fire tender is available to tackle any emergency. Since inception, EPM has maintained excellent safety record.
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. Internal Audit Process adopted by the Company reviews its Internal Audit Plan and the same is approved by the Audit Committee at the beginning of each financial year and the same is reviewed on regular basis to improve its effectiveness. Our Internal Audit Control System ensures that the regular internal audits are conducted at both the factories and other functional areas. The findings are then taken up by audit committee along with management response for suitable action. The Audit Committee also reviews effectiveness of Company’s internal controls and regularly monitors implementation of audit recommendations. The Company has a comprehensive budgetary control system in operation and Key Performance Indicators (KPI) are set for all important operational parameters. These are monitored and reviewed regularly by the management in Management Committee Meetings, which is chaired by the Executive Director of the Company and corrective & preventive actions, as needed, are initiated.
Statements in the Management Discussion and Analysis describing the Company’s objectives, projections, estimates, expectations or predictions may be ‘forward-looking statements’ within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. The important factors that could make a difference to the Company’s operations include global and Indian demand and supply conditions, finished goods prices, raw material availability and prices, cyclical demand, changes in government regulations, environmental laws, tax regimes, economic developments within India and the world, as well as other factors such as litigation and industrial relations.