West Coast Paper Mills Ltd: Annual Report 2023-24 Analysis

Executive Summary #

Comprehensive Performance Overview #

1) 3-Year Trend Analysis of Key Financial Metrics #

Key Observations:

• Turnover decreased in 2023-24 after growth in the previous year.
• EBITDA and Net Profit show a decline in 2023-24, reversing the growth trend from 2021-22 to 2022-23.
• Net Worth consistently increased over the three years.
• Borrowings have been significantly reduced over the three year.
• EPS and Dividend percentage have declined in 2024,
• The Debt Equity Ratio remains low, reflecting a strong balance sheet.

2) Business Segment Performance #

Key Observations:

• Paper and Paperboard: Production and sales volumes decreased. Turnover also declined, indicating lower price realizations.
• Cable Division: There is a increase in production with marginal increase in Turn over.

3) Major Strategic Initiatives and Their Progress #

• Dandeli Plant Investments: Phased investments in the Dandeli Paper Division are ongoing, focusing on improving paper quality, producing specialty products, and reducing consumption of steam, power, chemicals, and water. No specific completion dates or quantitative progress measures are provided.
• Cable Division Capacity Expansion: The new manufacturing unit in Hyderabad, Telangana, has commenced operations. An Optical Fiber Draw Towers factory is under construction on the same premises, and is expected to be operational within the current financial year (2024-25).
• Farm Forestry Program: 100 Lakhs of Seedlings and saplings were planted covering 3785 hectors, a target of 1.5 Crore tree during FY 2024-25 is established and it will cover around 4600 hectors for plantation.

4) Risk Landscape Changes #

The disclosed risk landscape includes the following material issues:

• Raw Material (Wood) Availability: Scarcity of locally available wood and increased competition are mentioned. The company is mitigating through farm forestry initiatives and sourcing from neighboring states.
• Energy Management: Increasing energy costs and carbon footprint concerns are identified. The company has improved production processes and adopted energy-efficient equipment.
• Environmental Management: Water consumption and discharge are critical issues. The company focuses on water reduction and recycling.
• Coal Availability: Limited Local availability, high cost of imported coal. Company is continuously getting energy audit done and replacing equipment with energy efficient and better technologies.
• Human Rights: Absence of comprehensive Human Rights goveranance structure including such as working conditions, child, gender diversity and other issues.
• Product Quality: Customers’expectations, maintaining consistent quality and meeting customers’ expectations.

Changes No change.

5) ESG Initiatives and Metrics #

• Company has put in place Prevention of Sexual Harassment Policy

• Environmental:

  • Water consumption reduced by 2% in 2023-24 compared to 2022-23.
  • Energy savings of 313166 GJ in 2023-24.
  • Chemical recovery of approximately 97% in the pulping process.
  • The company has put in place a waste management system.

• 100 Lakh of seedling and saplings are planted in 2023-24 covering an area of 3785 hectors.

  • ETP sludge used for making hard board/egg tray and fly ash is sent for brick manufacturing.
  • FSC Controlled Wood certification.

• Social:

  • Farm forestry program supporting rural farmers.
  • CSR initiatives focusing on community needs.
  • Adherence to Jal Nirman Yojna.
  • Safety training for employees and contractors.
  • Health checkup camps and medical assistance.

• Governance:

  • Code of Conduct for Directors and Senior Management
  • Vigil Mechanism/Whistle Blower Policy
  • Risk management Committee

• Metrics: Specific ESG metrics are limited. Available data includes:

  • Energy consumption
  • Water withdrawal and discharge
  • Air emissions (NOx, SOx, PM10, PM2.5)
  • Waste generation and management
  • CSR spending (‘703.23 Lakhs in 2023-24)

• No disclosures under BRSR such as GHG emissions (Scope 3 emissions)

6) Management Outlook #

• The management expresses a continued focus on improving operating efficiencies, optimizing the product mix, and minimizing manufacturing costs to improve financial performance.
• The cable division is expected to benefit from the new Hyderabad facility and the upcoming optical fiber plant.
• India is expected to remain the world’s fastest-growing major economy.
• The outlook for the paper industry mentions selective growth of 5-7% in FY24 and an overall positive outlook for the Indian paper market.
• Indian Optical fiber cable industry is expected to grow due to ongoing data cost reductions, growing demand for high-speed networking and services.

Detailed Analysis #

Balance Sheet Analysis #

1. 3-Year Comparative Analysis (Standalone) #

( ’ in Lakhs)

(Consolidated)

( ’ in Lakhs)

2. Significant Changes in Major Line Items (>10% YoY) (Standalone) #

(Consolidated)

Operating Performance #

Income Statement Deep Dive #

Income Statement Analysis: West Coast Paper Mills Ltd.

1. Revenue Breakdown and Growth Rates

(All values in ’ in Lakhs, unless otherwise specified)

The provided documents do not contain geographical segmentation data for sales.

• Standalone Segment Revenue (FY 2023-24):

  Segment	Revenue	% of Total
  Paper and Paperboard	242,662.70	92.74%
  Optical Fibre Cable	18,770.42	7.18%
  Wind Power	21.83	0.08%
  Total Revenue From Operations	261,454.95

• Other Operating Revenues | 814.72 | | Total | 262,269.67| 100% |

• Consolidated Segment Revenue (FY 2023-24):

  Segment	Revenue	% of Total
  Paper and Paperboard	423,422.67	95.20%
  Optical Fibre Cable	21,265.69	4.78%
  Wind Power	21.83	0.01%
  Total	444,709.67	100.00%

• Standalone Segment Revenue Growth (YoY):

  Segment	FY24 Revenue	FY23 Revenue	YoY Growth
  Paper and Paperboard	242,662.70	260,466.22	-6.84%
  Optical Fibre Cable	18,770.42	18,601.90	0.90%
  Wind Power	21.83	18.17	20.14%
  Total	261,454.95	279,086.29	-6.32%

• Consolidated Segment Revenue Growth (YoY):

  Segment	FY24 Revenue	FY23 Revenue	YoY Growth
  Paper and Paperboard	423,422.67	4,71,242.05	-10.15%
  Optical Fibre Cable	21,265.69	20,816.05	2.16%
  Wind Power	21.83	18.17	20.14%
  Total	444,709.67	4,92,076.27	-9.63%

2. Cost Structure Analysis (Consolidated)

(As % of Total Revenue from Operations)

3. Margin Analysis (Consolidated)

Operating Profit=EBITDA-Depreciation. Calculations performed, based on figures provided in the consolidated income statement,

4. Operating Leverage

Not directly calculable from income statement data alone. Requires segmented fixed vs. variable cost data, which is not provided.

5. Non-Recurring Items

Consolidated:

For the year ended March 31, 2023, there were exceptional items amounting to a loss of 1,538.37 Lakhs.

6. GAAP vs. Non-GAAP Reconciliation

Not applicable. The provided documents do not present non-GAAP measures.

7. EPS Analysis (Consolidated)

8. Quarterly Trends

Quarterly data is not complete in the provided document.

Key Visualization Data:

Consolidated Revenue

Consolidated cost structure

Consolidated Margins

Cash Management #

Cash Flow and Liquidity Analysis #

Cash Flow Analysis: West Coast Paper Mills Ltd.

1. Detailed Cash Flow Components (Consolidated, ` in Lakhs)

2. Working Capital Management Efficiency

3. Capital Expenditure Analysis by Segment (` in Lakhs)

4. Dividend and Share Buyback Trends (` in Lakhs)

5. Debt Service Coverage

6. Liquidity Position and Cash Conversion Cycle

7. Free Cash Flow Yield Trends

Cannot calculate without market capitalization data over time.

Peer Comparison Information for peer comparison is not available and cannot be calculated without data.

Forward Projections Based on Historical Trends Is not appliable without time series data.

Insights Due to the limitations in access and format of the financial data, the conclusions remain subject to potential revision upon comprehensive assessment of all relevant historical financial records.

Operational Metrics #

Key Performance Indicators #

1. Profitability Ratios

(All ratios expressed as percentages, unless otherwise stated)

Note: *ROIC is calculated using same formula as ROCE, However taking into consideration “Profit / (Loss)” for the year instead of EBIT. **Gross margin is calculated using formula (Revenue from operations-Cost of goods sold) / Revenue.

2. Liquidity Ratios

3. Efficiency Ratios

4. Leverage Ratios

5. Segment-wise ROIC (2023-24)

6. Working Capital Ratios (2023-24) (All amounts are expressed in days)

• Cash conversion cycle= Inventory days + Receivable Days - Payable days.

Industry Averages and Deviation Analysis:

A meaningful comparison with industry averages requires accessing specific industry data, which is not present in the text. As a result, I cannot make comparison or highlight deviations from industry averages.

Market Performance #

Market and Valuation Metrics #

Here’s an analysis of West Coast Paper Mills Ltd.’s (WCPML) market performance, based on the provided document, focusing on the requested metrics. Note that some information is incomplete and can only be evaluated based on the annual report.

Market Performance Analysis #

1. Market Capitalization Trends #

• BSE Market Capitalization (31st March, 2024): ’ 3,91,504 Lakhs
• NSE Market Capitalization (31st March, 2024): ’ 3,88,136 Lakhs

No historical trend is available, only a single snapshot value.

2. Trading Multiples #

• Earnings Per Share (EPS) (FY2024): ’ 72.10
• Book Value Per Share (FY 2024): 376

Other data, such as P/E ratio and EV/EBITDA, need to be computed from external market data, and from the report data.

3. Dividend Metrics #

• Dividend Declared (FY2024): ’ 8/- per share (400%)
• Dividend Amount 5284 Lakhs

4. Shareholder Return Analysis. #

Data on total shareholder return must be calculated using stock prices & dividens that are available throug a dedicated financial terminal.

5. Beta and Volatility Metrics #

Beta and Volatility data are not included in the report and can only be sourced from dedicated financial data providers.

6. Analyst Coverage and Recommendations #

The provided document does not contain information about analyst coverage or recommendations. This type of information can only be sourced from broker reports and financial news services.

7. Institutional Ownership Changes #

The document does not provide details of changes in institutional ownership.

Valuation Comparison #

A proper comparison will require a dedicated financial data terminal.

Peer Group and Sector Averages #

Without external data on peers and sector, comparing the valuation is not possible.

Business Segments #

Segment Performance Analysis #

Paper and Paperboard Division Analysis #

1. Revenue and Profitability Metrics with Growth Rates:

2. Market Share and Competitive Position:

• Prominent position in India’s writing and printing paper segment.
• Faces competition from both domestic and international players.
• APL plant added 2.5 lakh MTPA capacity.

3. Key Products/Services Performance:

• WESCO brand premium printing papers for high-end printing applications.
• Customized water-marked security paper for bank cheque leaves. -Writing & Printing Paper, Cup Stock Paper Board, Pulp as main revenue drivers.

4. Geographic Distribution and Market Penetration:

• Presence across India through a network of dealers and zonal offices.
• Exports to 15 countries.

5. Segment-wise CAPEX and ROIC: -Continuous investment in phases at Paper Division, Dandeli -Speicific data is not provided in notice

6. Operational Efficiency Metrics:

• Capacity Utilization: 95% (FY 2023-24), 98% (FY 2022-23).
• Focus on improving operating efficiencies and minimizing manufacturing costs.

7. Growth Initiatives and Challenges:

• Growth Initiatives:

  • Phase-wise investments to improve paper quality and produce specialty products.
  • Focus on reducing consumption of steam, power, chemicals, and water.
  • Minimize machine breakdowns.

• Challenges:

  • Significant increase in wood cost.
  • Drop in paper prices due to market conditions.
  • Major breakdown in one TG at Dandeli in Q3 FY24.

Competitor Comparison and Market Size/Growth Data (India):

• Indian paper industry market value expected to reach US$19.1 billion by 2033.
• Projected CAGR of 7.5% between 2024 and 2033.
• Indian paper and paper products market expected to reach US$13.4 billion by 2024.
• Paper consumption in India expected to reach 30 million tonnes by March 2027. -Selective growth of 5-7% predicted in FY24.

Cable Division (West Coast Optilinks) Analysis #

1. Revenue and Profitability Metrics with Growth Rates:

2. Market Share and Competitive Position:

• Leading Indian manufacturer and exporter of optical fiber cables.
• Supplies to major telecom companies and network integrators.
• Faces competition from alternative technologies like wireless communication.

3. Key Products/Services Performance:

• Optical Fiber Cables for various applications.
• Developing products for 5G networks.

4. Geographic Distribution and Market Penetration:

• Plant 1 located in Mysore, Karnataka.
• Plant 2 located in Hyderabad, Telangana.
• Exports to Europe and the MEA region. -Supplies to customers across India.

5. Segment-wise CAPEX and ROIC: -Specific data is not provided in notice. -Company is in process of building a new facility.

6. Operational Efficiency Metrics: -Focus on improving operational efficiencies through phase-wise investment.

7. Growth Initiatives and Challenges:

• Growth Initiatives:

  • Doubled manufacturing capacity with a new plant in Hyderabad.
  • Setting up Optical Fiber Draw Towers factory to ensure the availability of raw materials.
  • Backward integration into optical fiber manufacturing.

• Challenges:

  • Competition from alternative technologies.
  • Fluctuations in raw material prices.

Competitor Comparison and Market Size/Growth Data (Global & India):

• Global optic fibre cable market size expected to grow from US$78.56 billion in 2023 to US$84.85 billion in 2024 (CAGR of 8.0%).
• Projected to reach US$111.97 billion in 2028 (CAGR of 7.2%).
• Indian government investments in fiber optic cable network infrastructure (Bharatnet Project) driving market expansion.

Risk Framework #

Comprehensive Risk Assessment #

Risk Assessment Matrix - West Coast Paper Mills Ltd. (FY 2023-24)

1) Strategic Risks

2) Operational Risks

3) Financial Risks

4) Compliance/Regulatory Risks

5) Emerging Risks

Quantitative Risk Metrics and Year-Over-Year Changes Severity, Likelihood ratings are based on internal policies.

Please see MDA and individual sections in the Annual report.

• Severity: Categorized as Low, Medium, High, or Very High based on potential financial and operational impact.
• Likelihood: Categorized as Low, Medium, High, or Very High based on the probability of occurrence.
• Trend: Assessed as Increasing, Decreasing, Stable, or Fluctuating based on historical data and anticipated future developments.
• Control Effectiveness: Categorized as Low, Moderate, or High, based on the perceived efficacy of existing mitigation strategies.
• Potential Financial Impact: Estimated range of financial loss in Indian Rupees (Lakhs). The range reflects the uncertainty and potential variability of the impact.
• Year-Over-Year (YoY) Change: Qualitative assessment of whether the risk profile has Increased, Decreased, Remained Stable, or is Fluctuating, compared to the previous year.

The company is currently reviewing its policies and procedures.

Strategic Direction #

Strategic and Management Analysis #

1) Long-Term Strategic Goals and Progress

• Goal: Improve operating efficiencies, optimize product mix, and minimize manufacturing costs.
  • Progress: Production of Paper and Paperboard at 303,766 MT (95% capacity utilization) vs. 314,919 MT (98% capacity utilization) in the previous year. Sales decreased, alongside turnover.
  • KPI: Paper and Paperboard production, sales volume, turnover.
• Goal: Expand into specialty products and reduce reliance on traditional paper products.
  • Progress: Phase-wise investment at Paper Division, Dandeli, for improving paper quality and producing new specialty products.
• KPI: Production volume of specialty products as % of the total production.
• Goal: Reduce usage of steam, power, chemicals, and water, and minimize machine breakdowns.
  • Progress: Continuous efforts reported. Investment in new technologies. Water consumption reduced by 2% compared to the previous year. Energy savings of 313,166 GJ compared to last year.
  • KPI: Reduction in water consumption , steam usage, energy savings.
• Goal: Increase manufacturing capacity in the Cable Division.
  • Progress: Manufacturing capacity doubled with a new unit in Hyderabad. Optical Fiber Draw Towers factory under construction, expected to be operational in the current financial year.
  • KPI: Total installed capacity of optical fiber cable manufacturing.

2) Competitive Advantages and Market Positioning

• Paper Segment:
  • Advantage: Strong market position in India’s writing and printing paper segment. Integrated manufacturing facility with pulp, paper, and captive power plants ensuring cost competitiveness. Wide distribution network and established “WESCO” brand.
  • Positioning: Focus on high-quality products and customer service, targeting B2B and B2C markets, including banks using customized security paper.
• Cable Segment:
  • Advantage: Backward integration with planned optical fiber production. R&D focus on developing products for 5G networks.
  • Positioning: Supplies major telecom companies and network integrators. Exports to 25 countries.

3) Innovation Initiatives and R&D Effectiveness

• R&D Focus: Process improvement, energy efficiency, new product development, sustainable sourcing, and waste management.
• Initiatives:
  • Paper Division: New sludge handling system, cooling tower for recovery effluent, fine bar screen, underflow sludge recovery system, asphalt road.
  • Cable Division: Development of multiple products for telecom networks and utilities.
• Effectiveness:
  • Energy savings of 313,166 GJ.
  • Water consumption reduced by 2%.
  • New products developed: Wesco Aqua Green, Wesco Dura Colour, Wesco Nova Print White, Wesco Classic (OWS), Wesco Plato.
• R&D Investment: 100% of R&D and 20% of Capex investments in technologies to improve environmental and social impact.
• KPI: R&D and capital expenditure investments.

4) M&A Strategy and Execution

• Acquisition: Uniply Décor Ltd. acquired under the Insolvency and Bankruptcy Code, 2016, becoming a wholly-owned subsidiary.
• Strategic Rationale: The rationale is not explicitly stated but can be inferred as potential diversification or vertical integration within the wood/paper product value chain.
• Execution: The acquisition was completed with a total consideration of ’ 2814.26 lakhs.

5) Management’s Track Record in Execution

• Key appointments.
  • Prakash Kacholia was appointed as an additional Independant Director.
  • Shri Shiv Ratan Goenka was reappointed as an Independant Director.
  • Shri Sudarshan Somani retired as an Independant Director.
• Operational Performance: Met or exceeded targets in some areas (e.g., energy savings), while facing challenges in others (e.g., lower paper production and sales).
• Strategic Initiatives: Demonstrated progress on stated goals of capacity expansion (Cable Division), product development, and sustainability.
• Financial Performance EBITDA was marginally impacted compared to the previous year, with a decrease by 178 Crore.

6) Capital Allocation Strategy

• Dividend: Dividend of ’ 8 per equity share (400%) recommended for FY 2023-24, subject to shareholder approval.
• Capital Expenditure: Significant investments in new manufacturing units (Cable Division), and upgrades to existing facilities (Paper Division) for process improvement and energy efficiency.
• Investments: Investments made in subsidiaries and other listed/unlisted entities.
• Debt Management: Debt-Equity ratio maintained at a conservative level (0.06:0.94), with ongoing efforts to reduce borrowings.
• Working Capital management: Decrease in Debtor’s turnover, increase in current assets.

7) Organizational Changes and Their Impact

No major organizational changes are described.

Industry Trend Analysis

• Global Pulp and Paper Market:
  • Projected growth at a CAGR of 2.35% between 2024 and 2031.
  • Increasing consumer awareness of health and wellness.
  • Technological advancements driving efficiency and sustainability.
  • Containerboard market growth driven by e-commerce.
• Indian Pulp and Paper Market:
  • Expected growth of 5-7% in FY24.
  • Market value projected to reach US$19.1 billion in 2033.
  • Increasing demand driven by rising literacy, education sector, and demand for corrugated and household paper products.
• Optic Fibre Cable Industry:
  • Global market size projected to grow to US$111.97 billion in 2028 at a CAGR of 7.2%.
  • Growth drivers: 5G network expansion, increased broadband penetration, rising internet TV streaming services, and infrastructure development.
  • Indian government support to optic fiber investments.

ESG Framework #

ESG and Sustainability Analysis #

Environmental Metrics and Targets #

Energy Consumption (Dandeli Unit):

Water Withdrawal, Consumption, and Discharge (Dandeli Unit):

Air Emissions (Dandeli Unit):

Waste Management (Dandeli and Mysore Units):

Waste Recovery: Recycled: 1153 MT, Re-used: 93385 MT, Other recovery operations: 4182 MT

Targets:

• Plantation: 1.5 Crore trees during FY 2024-25, covering 4,600 hectares.
• Achieved in 2023-24: 100.02 lakhs seedlings/saplings planted, covering 3,785 hectares.
• PAT Cycle Compliance: Achieved PAT Cycle 1 and 2; currently within targeted value for PAT Cycle 3.

Social Responsibility Programs #

CSR Activities:

• Focus areas: Child health checkups, infrastructure development (toilet blocks, prayer halls), distribution of essential items (umbrellas, cotton bags), tailoring training programs.
• CSR Committee Members: Shri Virendraa Bangur (Chairman), Smt. Sudha Bhushan, Shri Rajendra Jain.
• CSR Policy and Projects: Disclosed on the Company’s website.

CSR Spending:

Employee Wellbeing:

• Health Insurance Coverage (FY 2023-24):
  • Permanent Employees: 33%
  • Other than Permanent Employees: 19%
  • Permanent Workers: 1%
• Accident Insurance Coverage (FY 2023-24):
  • Permanent Employees: 83%
  • Permanent Workers: 99%
• Maternity Benefits Coverage (FY 2023-24):
  • Permanent Employees: 100%
  • Permanent Workers: 100%
• Training Programms
  • 476 Training programmes for employees covering topics of ESG, CSR, SEBI & MCA ammendments, Company’s Internal control, audit process
• Well-defined Farm Forestry Program.

Labor Relations:

• Joint Negotiation Committee: Addresses employee grievances related to working conditions and safety.
• Tripartite long-term wage revision settlements are in process of renewal.

Governance Structure and Effectiveness #

Board Composition (as of March 31, 2024):

• Total Directors: 10
• Promoter Directors: 4 (Including Chairman & Managing Director, Vice Chairman, and Joint Managing Director)
• Independent Non-Executive Directors: 5
• Non-Promoter, Executive Director: 1
• Women Directors: 2 (20%)

Board Committees:

• Audit Committee: 3 Independent Non-Executive Directors, 1 Executive Director.
• Nomination and Remuneration Committee: 3 Independent Non-Executive Directors, 1 Non-Executive Director.
• Stakeholders Relationship Committee: 1 Non-Executive Director (Chairperson), 2 Non-Executive Directors, 1 Executive Director.
• Corporate Social Responsibility Committee: 1 Whole-Time Director(Chairman), 2 Non-Executive Independent Directors, 1 Executive Director.
• Finance and Corporate Affairs Committee: 1 Non-Executive Director (Chairman), Chairman & Managing Director, 1 Independent Non-Executive Director, 1 Executive Director.
• Risk Management Committee: Joint Managing Director(Chairman), 1 Non-Executive Independent Director, 1 Executive Director.

Board Meetings:

• Four meetings held during FY 2023-24.
• Attendance records demonstrate high participation.

Policies:

• Policy on appointment and remuneration of Directors, KMP, and Senior Executives.
• Familiarization Policy for Independent Directors.
• Vigil Mechanism/Whistle Blower Policy.
• Code of Conduct.
• Prevention of Sexual Harassment Policy.

Compliance:

• Declaration of Independence received from all Independent Directors.
• Compliance with applicable Secretarial Standards.

Sustainability Investments and ROI #

Investments in specific technologies to improve environmental and social impacts include:

• New sludge handling system in ETP.
• Matangi cooling tower for recovery effluent.
• Mechanical rake fine bar screen for PM6 effluent stream in ETP.
• ETP underflow sludge recovery system.
• Pressure sand filter for drinking water treatment plant.
• Asphalt road at Sudarshan Nagar area.

Total Project Cost (FY 2023-24): ’ 888 Lakhs. Specific ROI data is not delineated.

ESG Ratings and Peer Comparison #

ESG ratings and peer comparison data not provided.

Regulatory Compliance and Future Preparations #

Compliance:

• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• Companies Act, 2013.
• Applicable Secretarial Standards.
• Environmental laws and regulations (Water Act, Air Act, Environment Protection Act).
• Extended Producer Responsibility (EPR) obligations.

Future Preparations:

• Continuous monitoring of regulatory changes.
• Investment in technologies and the process to reduce water consumption.
• Focus is on recyling & recovering of waste, chemicals.
• The Company has guidelines for waste management under Environmental Management System.

Forward Outlook #

Future Projections and Guidance #

Management Guidance and Assumptions #

• Guidance: The company expects to improve operating efficiencies, focusing on better product mix and minimizing manufacturing costs.
• Assumptions:
  • Continued demand for paper and paperboard products.
  • Ability to manage raw material cost fluctuations, particularly wood.
  • Successful implementation of planned investments for operational improvements.
  • Operational efficiency gains from new manufacturing units.
  • Operational in current Financial year for the Optical Fiber Plant

Market Growth Forecasts #

• Global Pulp and Paper Market: Projected to grow at a CAGR of 2.35% between 2024 and 2031, reaching US$434.36 billion by 2031.
• Global Containerboard Market: Estimated at US$146.96 billion in 2024, expected to reach US$162.63 billion by 2029 (CAGR of 2.05%).
• Global Carton Board Market: Estimated at US$71.93 billion in 2024, expected to reach US$98.41 billion by 2029 (CAGR of 6.47%).
• Indian Paper Industry: Market value expected to reach US$19.1 billion in 2033, with a CAGR of around 7.5% from 2024 to 2033. Paper consumption in India is expected to reach 30 million tonnes by March 2027.
• Indian Optic Fibre Cable Industry: Driven by government investments (Bharatnet Project), data cost reductions, and increasing demand for high-speed networking.
• Global Optic Fibre Cable Market: Projected to reach US$111.97 billion in 2028, growing at a CAGR of 7.2%.

Planned Strategic Initiatives #

• Paper Division (Dandeli): Phased investments for improving paper quality, producing specialty products, and reducing consumption of steam, power, chemicals, and water.
• Cable Division:
  • New manufacturing unit at Rangareddy, Hyderabad, Telangana, doubling the Optical Fiber Cable manufacturing capacity.
  • Setting up Optical Fiber Draw Towers factory at the same premise, to be operational in the current financial year. This vertical integration aims to ensure the seamless availability of optical fibers.

Capital Expenditure Plans #

• Paper Division: Continuous, phased investments for operational improvements.
• Cable Division: Investments in the new Hyderabad unit and the Optical Fiber Draw Towers factory.
• Total capex investments in specific technologies to improve the environment and social impacts of products and processes to total capex investments made by entity is 20% for FY 2023-24.

Efficiency Improvement Targets #

• Energy Consumption: Reduction through process improvements, targeting savings of 313,166 GJ compared to the previous year.
• Water Consumption: Reduction through process improvements and increased use of recycled water; a 2% reduction was achieved in 2023-24 compared to 2022-23.
• Steam Consumption: Reduction target per ton of product from 9.52 MT in 2015-16 to 9.14 MT in 2023-24 (around 4% reduction).
• Waste management: Recycling/ recovering of waste input material, with 97% of chemicals used in pulping process are recovered.

Potential Challenges and Opportunities #

• Challenges:
  • Significant increase in wood costs.
  • Drop in paper prices due to market conditions.
  • Major breakdowns in equipment.
  • Availability of local coal and the high cost of imported coal.
  • Competition from digital alternatives.
  • Environmental concerns and regulations (deforestation, water usage).
• Opportunities:
  • Increasing use of paper products in the food industry.
  • Growing demand for corrugated and household paper products.
  • Growth in e-commerce logistics, driving demand for packaging.
  • Expansion of 5G networks and increased broadband penetration.
  • Government initiatives supporting infrastructure development (Bharatnet Project).

Scenario Analysis and Sensitivity #

• Scenario 1: Increased Raw Material Costs

  • Assumption: Wood costs continue to rise significantly.
  • Impact: Reduced profit margins, potential need for price increases, and impact on competitiveness.
  • Sensitivity: A 10% increase in wood costs could decrease EBITDA margin by X%.(Need additional data).

• Scenario 2: Decreased Paper Prices

  • Assumption: Paper prices decline further due to market conditions.
  • Impact: Reduced revenue and profitability, potential need for cost-cutting measures.
  • Sensitivity: A 5% decrease in paper prices could reduce revenue by Y%. (Need additional data).

• Scenario 3: Successful Implementation of Strategic Initiatives

  • Assumption: Successful implementation of capacity expansion and efficiency improvements.
  • Impact: Increased production capacity, improved product quality, reduced operating costs, and enhanced market share.
  • Sensitivity: If production costs are lowered by the targeted amounts, there will be an estimated increase EBITDA margin by Z% (Need additional data).

• Scenario 4: Increased Demand for Optic Fibre Cable

  • Assumption: Continued growth in demand due to 5G rollouts and government initiatives.
  • Impact: Increased revenue and profitability for the Cable Division, potentially offsetting challenges in the Paper Division.
  • Sensitivity: A 10% increase in demand for optic fibre cable could increase the Cable Division’s revenue by A%. (Need additional data).

• Scenario 5: Energy Saving Initiatives.

• 313166 GJ was saved as a result of the energy saving initatives during FY 2023-24.

Audit & Compliance #

Audit and Regulatory Analysis #

1) Auditor’s Opinion and Qualifications

• Standalone Financial Statements: Singhi & Co., Chartered Accountants, issued an unmodified (clean) opinion. They state the financial statements give a true and fair view in conformity with Ind AS and generally accepted accounting principles in India.
• Consolidated Financial Statements: Singhi & Co. also issued an unmodified opinion. The audit relied, in part, on the reports of other auditors for four subsidiaries.
• Qualifications: There are no qualifications in the audit report, implying that the statements conform to the applicable accounting standards.

2) Key Accounting Policies and Changes

• Revenue Recognition: Revenue is recognized upon the transfer of control of goods to the customer, measured at the consideration the Company expects to receive, net of discounts, taxes, and exchange differences. Complies with Ind AS 115.
• Property, Plant, and Equipment (PPE): Stated at cost less accumulated depreciation and impairment. Depreciation is calculated using the Written Down Value (WDV) method, with useful lives as per Schedule II of the Companies Act, 2013, except for certain assets where the Company’s internally assessed useful lives differ.
• Intangible Assets: Stated at cost less accumulated amortization and impairment.
• Impairment of Assets: Carrying amounts are reviewed at each balance sheet date. Impairment loss is recognized when the carrying amount exceeds the recoverable amount (higher of net selling price and value in use).
• Inventories: Valued at the lower of cost (weighted average) or net realizable value.
• Employee Benefits: Defined contribution plans are expensed as accrued. Defined benefit plans (gratuity) and leave encashment are based on actuarial valuation using the Projected Unit Credit Method.
• Foreign Currency Transactions: Transactions are recorded at the exchange rates prevailing on the transaction date. Monetary assets and liabilities are translated at the balance sheet date, with gains/losses recognized in the Profit & Loss statement, except for those related to fixed asset acquisition, which are adjusted to the asset’s carrying cost.
• Borrowing Costs: Costs attributable to the acquisition or construction of qualifying assets are capitalized until the assets are ready for intended use. Other borrowing costs are expensed.
• Leases: Ind AS 116, Leases, was adopted. Leases are recognized as a right-of-use asset and corresponding liability, except for short-term and low-value leases.
• Changes in Accounting Policies:No new accounting standards or changes in existing ones were notified during the period, indicating consistency in policy application.

3) Internal Control Effectiveness

• Auditor’s Report (Annexure B): Singhi & Co. provided an unmodified opinion on the internal financial controls over financial reporting, stating that the Company maintained, in all material respects, an adequate internal financial controls system, and that such controls were operating effectively as of March 31, 2024.

• **Audit Trail:**The Company's accounting software includes an audit trail feature. However, there's a note stating that the feature "has not operated throughout the year for all relevant transactions recorded in the software" and that it was "not enabled at database level". Corrective actions are reportedly being taken.
  

4) Regulatory Compliance Status

• Companies Act, 2013: The auditor’s report confirms compliance with the Act’s requirements for books of account, financial statement presentation, and director disqualification.
• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: The Corporate Governance Report affirms compliance with these regulations, including those related to board composition, committee meetings, and disclosures.
• Secretarial Standards: Compliance with applicable Secretarial Standards issued by the ICSI is confirmed.
• Other Laws: The Company asserts compliance with other applicable laws, including labor laws, environmental regulations, and tax laws.

5) Legal Proceedings and Potential Impact

• Contingent Liabilities (Note 39): Several pending litigations are disclosed, mainly related to income tax, excise duty, customs duty, and other matters. Amounts are quantified, and appeals are in progress.
• Directors Responsibility Statement: The directors confirm the laying down and adequacy of internal financial controls.

6) Related Party Transactions

• Disclosure: Related party transactions are disclosed in Note 42, including the nature of relationships and transaction details.
• Arm’s Length Basis: The Director’s Report states that all related party transactions were at arm’s length and in the ordinary course of business.
• Transactions with Related Parties Include: Rent, reimbursements, and compensation. There were loan transactions with the subsidiary Uniply Decor.

7) Subsequent Events

• Proposed Dividend: A final dividend of ’ 8 per equity share was recommended by the Board, subject to shareholder approval.

Accounting Quality Analysis

• Transparency and Disclosure: The disclosures are comprehensive, covering a wide range of required information.
• Consistency: Accounting policies appear consistent.
• Material Accounting Policies The material accounting policies are laid out in a straight forward, organized manner.
• Key Accounting Considerations The accounting policies use of estimates is disclosed.

Regulatory Risk Assessment

• Litigation Risk: Pending tax and other legal disputes represent a regulatory risk, although the Company believes it has strong grounds for its positions.
• Compliance Risk: The auditor’s report generally indicates strong compliance, but the audit trail issue in the accounting software raises a minor concern that requires monitoring.
• Overall: Moderate level of regulatory risk and robust accounting practices.