MANAGEMENT DISCUSSION AND ANALYSIS (F.Y.2014-15)

OVERVIEW

The Financial Statements of the Company have been brpared in compliance with requirements of the Companies Act, 2013 and guidelines issued by Securities and Exchange Board of India (SEBI). Our Management accepts responsibility for integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably brsent our state of affairs, profits and cash flows for the year.

INDUSTRY STRUCTURE AND DEVELOPMENT

The Indian economy grew at 7.3 per cent in 2014-15 due to improvement in the performance of both services as well as manufacturing sectors. The growth in 2014-15 was lower than the advance estimates of 7.4 per cent released in February. The fourth quarter (January-March) of last fiscal saw the economy grow at 7.5 per cent, better than 6.6 per cent recorded for the brvious three months, October-December. The manufacturing sector recorded a growth rate of 8.4 per cent during the last quarter of last fiscal, up from 4.4 per cent a year ago. The services sector too witnessed marked improved during the quarter.

The paper industry in India could be classified into three categories according to the raw material consumed. 1. Wood based 2. Waste paper based 3. Agro based. The Indian paper industry produces 10.11 million tons paper per annum, just 1.6% of the total world production of 394 million tons, paperboard and newsprint. Needless to say, at brsent, India lags far behind compared to international standards. The Scandinavian countries, USA, Russia, China, Indonesia and Japan are the major players in the field of pulp and paper. These countries have some of the best available raw material for paper production and state-of-the-art technology.

In accordance with the economic growth and it is estimated to touch 13.95 million tons by 2015-16. It is estimated that there would be an increase in demand of 1 million tons. The Indian Paper Industry accounts for about 1.6% of the world's production of paper and Paperboard. Paper in India is expected to see an average growth of 7 per cent during the next year according to brdiction by the Indian Pulp and Paper Technical Association. The sector is expected to grow 7 per cent per annum.

Currently, the Indian industry is accounts to about 2.5 per cent of the global production of paper. The mills use a variety of raw material viz. wood, bamboo, recycled fibre, bagasse, wheat straw, etc.; approximately 35% are based on chemical pulp, 44% on recycled fibre and 21% on agro-residues. The per capita consumption of India stands at only 9.3 kg compared to China's 42 kg, Indonesia's 22 kg, Malaysia's 25 kg and the US' 312 kg. Studies have shown that the growth of paper consumption changes from linear to exponential trends once the GDP growth rate crosses the double digit mark. Analysts often draw comparisons between the growth seen in bottled drinking water and tissue paper industries. Even if one assumes an average 9% GDP growth rate in the medium term, linear extrapolation suggests that by 2025, the country will consume over 24 million tons of paper. The industry employs 0.37 million people directly and 1.37 million indirectly.

There are about 750-800 paper mills (Organized & Unorganized sector) in the country out of which 12 large units accounts for production share of about 30% and balance units mostly comprising of medium and small paper mills with production share of 70%. Wood based industry accounts for 31% of production while waste paper and agri residue accounts for 47% and 22% respectively. Capacity wise industrial paper accounts for about 40%, Writing & Printing paper 35%, specialty paper 6% and Newsprint 19% of total production.

The major players of the industry are located in Andhra Pradesh, Tamil Nadu, Maharashtra, Punjab, Madhya Pradesh and Gujarat. In terms of numbers, Gujarat tops the tally with 130 units, followed by U.P (115), Maharashtra (112) and Tamil Nadu (88). Paper consumption is poised for a big leap forward in sync with the economic growth and is estimated to touch 13.95 million tons by 2015-16.

The key challenges to be met is market conditions which are poor and technology obsolete, lacking ability in achieving economy scale and lack of skilled labor.

The Core business of Ruchira Papers Limited is paper manufacturing with agriculture residue and waste paper. The Company started operations in 1983 with manufacturing of Kraft Paper that is used for packaging, corrugation, core pipes, cones etc. With setting up of 100 TPD Writing and Printing Paper plant in the year 2008, the Company has widened its product base in multi-purpose Writing & Printing segment of Paper.

At brsent, the installed capacity of the Kraft Paper unit is 52800 MT per annum and for Writing & Printing Paper unit it is 33000 MT per annum. Presently the Company is operating more than of its installed capacity. The increase in education expenditure will definitely require more Writing & Printing Paper and we anticipate the faster growth rate of Writing and Printing Paper. Indian Paper Manufacturers Association (IPMA) projects that India's demand for paper is expected to double to 20 million tonnes by 2020.

Due to the ecological problems caused by usage of plastic materials, paper is becoming the most favored option for packaging. The growth of the manufacturing sector will also enhance the demand for Kraft paper.

OPPORTUNITIES AND THREATS

The global paper industry is witnessing a fundamental change with the demand shifting to emerging economies particularly Asia. The paper industry in China and India has emerged to be among the top global players and are expected to improve their ranking significantly in the coming years. India in particular has good growth potential. The low current per capita consumption of paper in India, around 9.3 Kilograms as against the world average of 57 Kilograms, reflects the significant potential that the industry offers in the future. Increasing usage of high speed printing/copying machines with colour reproduction is propelling demand for high quality Writing and Printing papers. This trend will be beneficial for the Company.

Opportunities: The Company being located in Himachal Pradesh is brsently entitled to 100 % excise duty exemption for 10 years with effect from 30.03.2008 for the Writing & Printing Paper unit and concessional rates of Central Sales tax at 1.5 % against 2 % in other states. The Company having a Captive Power Cogeneration Plant, which helps to get the cheap and uninterrupted power supply. We are consistently complying with Environmental norms regarding Chemical recovery and have our own chemical recovery system in place. Further, the location of the factory at the outskirts of Himachal Pradesh helps to get raw material agro residues from the neighboring agricultural rich states of Haryana and Punjab.

Threats: As the Indian Paper market grows it is attracting major international players who have access to better technology to setup business in India. The Company recognizes this challenge and has made conscious efforts to build a strong competitive advantage through increased brand equity, wider network and use of contemporary technology. Further Import duty on paper & paper board for ASEAN countires has been reduced from 2.50% to 0% with effect from 01.01.2014 vide notification no. 57/2013 dated 31.12.2013 ehich had implications in terms of cheaper imports being 2.25 million tones in 2013-14 as against 2.03 million tones in 2012-13. The Company has been also increasing its reach in the rural markets by increased distribution and customized packs. Further steep increase in Raw Material prices and shortage of raw material is creating threats for the paper industries.

PRODUCT ANALYSIS

The Company is engaged in manufacturing of Writing & Printing Paper and Kraft paper. Writing & Printing paper is manufactured from virgin pulp (agro based), which finds its usage in manufacturing note book and for printing and publishing, a special grade of paper is also manufactured for wedding & greeting cards, art sheets & coloured scrap books, drawing sheets & paper for multipurpose office use. The market for Writing and Printing paper is expected to grow by about 9% annually over the next 5-7 years. The industry will see acceleration in the trend that favours branded and value added products.

Apart from Writing and Printing Paper, product range of Company also includes Kraft Paper with an installed capacity of 52800 TPA. This product finds its application in the manufacturing of corrugated boxes, Corrugated rolls for industrial packaging. The Company also manufactures a special grade of Kraft Paper known as DTY/POY grade which is used in the manufacturing of textile tubes and in wrapping of different types of Yarn.

OUTLOOK

India is rated as one of the fastest growing markets for paper globally. The demand of paper has been growing at around 8% for some time and so far, the growth of paper industry has mirrored the growth in GDP and is expected to grow at 7% during the next year. However paper consumption is poised for a big leap forward in sync with the economic growth and would overtake GDP growth rate as happened in other economies at a similar point in their growth trajectory. From current levels of around 12.5 Million tons, it is estimated to touch almost 14 Million tons by 2015-16 and 20 Million tons by 2020-21 and 25 Million tons  by 2021-25.

RISK AND CONCERNS:

Risks are integral to business. At paper industries, risk management encompasses an organized and coherent process of identifying, assessing and managing the existing and potential risks in a planned manner. The management strives hard to balance business risks and opportunities and analyse potentially negative or positive outcomes. . The paper industry is labour intensive, Power intensive as well as capital intensive and exposed to several risks i.e. Business Environment Risks, Business Development Risks, Raw Material Risks, Human Resource Risks, Climate Change Risks, Market Risks, Financial Risks, Information Technology Risks etc.

The Company uses agro waste material as basic raw material to manufacture paper. The availability of raw material is dependent upon reasonably good monsoon. Non availability of key raw material resources may inflate procurement costs, impact production and affect profitability. The Company enjoys flexibility which enables us to switch raw material mix in favour of those which are available cost-effectively.

The paper industry is one of the 18 highly polluting categories of industries and the executives of the industry, Central and State Government Agencies, Pollution Control Boards and others have brpared a Charter on Corporate Responsibility for Environmental Protection (CREP), which was launched in a National Seminar on 13-14 March 2003. The Charter enlists time bound action points to be implemented by the paper industry for progressive up-gradation of technologies and in-plant practices for reduction in effluents and emissions as well as improvement in waste management systems.

The Company has Chemical Recovery Plant and Effluent Treatment Plant along with online monitoring system. Is is also meeting all the norms as brscribed under Environment Protection Act, 1986 and other environmental laws as well as CREP requirement consistently.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an internal control system commensurate with its size and nature of the business and meeting with the following objectives:

a. Safeguarding the assets and protecting against loss from unauthorized use or disposition.

b. Transactions being properly authorized, accurately recorded and promptly reported, and

c. Proper maintenance of the accounting records.

The Internal control system and the guidelines for compliance with stated policies of the Company for conducting business and communication with the stake holders, customers and other third parties are well documented.

The procedures, practices and limits with respect to this function were subjected to periodic review by senior management during the year under review.

FINANCIAL & OVERALL PERFORMANCE

The Company has undertaken in-house improvements and innovation to increase efficiency and to achieve economies of scale. The promoters of the Company are into this field for the past 35 years. Besides this they have vast experience in the field of up gradation and expansion of the plant as it can be envisaged from growth of the plant from 7 TPD to brsent capacity. The Company has been able to achieve full capacity utilization during the brvious year. Overall the Company has registered an upward trend in its performance over the brvious year, which marks a good sign and mainly attributable on account of:

a. Increase in production and attaining economies of scale even though there was increase in cost of raw materials and inputs.

b. Decrease in interest burden on account of repayment of Loans and lower rate of interest due to up gradation of Credit Rating.

c. Improvement and innovation with usage of latest technology for achieving optimum end product and reduction in cost of production in comparison to increase in cost of inputs.

Financial Performance

1. Income: During the year, net Sales of the Company were Rs. 34656.06 Lacs and registered a growth of 8.26% over the sales during brvious financial year of Rs. 32012.85. The Profit before Tax (PBT) of the Company has fallen from Rs. 2541.50 Lacs in brvious period to Rs. 2044.36 Lacs in the year under review.

2. Expenditure:

A) During the year, the Cost of Material Consumed, Employee Benefit Expenses and Manufacturing Cost were 87.78 % of the sales, compared to 82.30% during the brvious year. The increase in Employees Benefit Expenses is primarily due to compensation increases given to employees during the last 12 months.

B) Finance Cost: During the year, we incurred Finance Cost at 3.02% of our sales registered, compared to 4.26% in the brvious years. The decrease in finance cost is primarily due to reduction of term loans.

C) Debrciation: During the year, we provided Rs. 957.91 lacs towards debrciation rebrsenting 2.76 % of the sales, compared to Rs. 1168.10 Lacs rebrsenting 3.65% of the sales in the brvious year.

D) Provision for tax: During the year, the Company has made Rs. 620 Lacs as Provision for tax. The net Deferred Tax Liability was 79.12 Lacs.

HUMAN RESOURCES

Human Capital has always been the most important and valuable assets to the Company as the Company believes in retaining its employees. The Company takes pride in commitment, competence and dedication shown by its employees at all areas of business. Various HR initiatives are taken to align HR policies to the growing requirements of the business.

The Company has a structured indication process and management development programs to upgrade skills of managers.

The Company has strengthened the deployment of high quality employees in key functions, through recruitments and selections. The Company firmly believes that in house human capital will see organization through success in today's highly competitive global environment. Industrial relations were cordial throughout the year and would likely to continue in future also.

FORWARD LOOKING STATEMENTS

The Management discussion and analysis report contains forward looking statements based upon the data available with the Company, assumptions with regard to global economic conditions, the government policies etc. The Company cannot guarantee the accuracy of assumptions and future performance of the Company in future. Therefore, the actual results, performance or achievements could thus differ materially from those projected in any such forward looking statement. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events.