MANAGEMENTS I DISCUSSION j\ND ANALYSIS GLOBAL SCENARIO Paper industry occupies a brstigious position, among the various manufacturing enterprises globally, in view of its significant contribution to the society. Role of paper in promotion of literacy, propagation of information and knowledge, packaging of commodities and valuable commercial goods, makes it an indispensible product. Paper industry is also a significant player in the world economy. Global consumption of paper and paper board grew from 169 million tonnes in 1981 to 253 million tonnes in 1993 and to 352 million tonnes in 2005. Current consumption of paper is to the tune of 400 million tonnes per annum, roughly half of this consumption is shared by North America and Europe. However, share of North America and Europe has been declining since 2006; while that is steeply rising in China, India and other developing economies of Asia. With the growth in consumption, recycling of paper is growing gradually throughout the world; at brsent almost 65% of the paper produced each year is recycled. The major driver for demand of paper in the global markets is due to increase in usage of paperboards in packaging as well as printing applications. Increasing awareness amongst consumers towards eco-friendly packaging solutions, that would be more inclusive with the eco-system and animal habitat have been one of the main reasons that is driving the packaging industry to come up with innovative packaging solutions that are convenient for the consumers. Globally, the paperboard packaging market has grown moderately in the last few years despite sluggishness in other paper sector and this growth is expected to continue. INDIAN PAPERINDUSTRY The Indian Paper and Paper Board market is the 15th largest market in the world. With a growth rate of 7% it is also one of the fastest growing markets with further growth potential due to large population base and low per capita paper consumption compared to world average. Substantial thrust on literacy and education, changing lifestyle, growth in organised retail and increase in disposable income will further boost up paper consumption in the country. The consumption of paper is closely linked to the economic development of a country. In India, it is gradually improving with economic growth, industrial production, expenditure incurred on the print media, Government is spending in education, etc. Paper and paper board industry in India is segregated in four major segments - Writing & Printing paper (W&P), Paperboard (Industrial paper), Speciality Paper and Newsprint. In 201415, W&P paper was estimated to form the largest share of the domestic paper market at 41% followed by paperboard at 37%, newsprint at 18% and speciality paper at 4% (Source - CRISIL Research Paper 2016). The revenue of paper industry of India is expected to reach up to USD 11.83 billion by 2017. About 70% of the total installed capacity of paper production in India is accounted by the states of Gujarat, West Bengal, Orissa, Andhra Pradesh, Karnataka and Maharashtra. Uttar Pradesh, Tamil Nadu, Haryana, Kerala, Bihar and Assam together account for about 25% of the total paper production in India. India's paper consumption has grown at a steady rate of 6% - 8% in the last five years. The Indian paper industry has an annual turnover of about Rs. 40,000 crores. India has 17% of the world's population, but it consumes just about 3% of paper globally. Low per capita consumption, which is about 10kg only in contrast to global average of 55 kg indicates the future potential of paper and paperboard industry in India. Having a large population base, any sort of increase in per capita paper consumption will cause a substantial increase in paper demand in the country. With the growth in GDP and increase in literacy, paper consumption in India is forecasted to go up. Consumption of paper and related products in India is set to double by 2020, from the current level of 13.4 million tons. Newsprint Sector In most parts of the world, the age old newspaper industry is fighting a losing battle to the online news sources and in most parts surrendering to it. In India, with a population of 1.25 billion, not only is the brss in robust health, but it is growing at an astonishing rate. India is a country with an expanding middle class and a booming economy, which have fuelled an explosion in consumer spending and advertising. The literacy rate is growing, thanks to RIGHT TO EDUCATION BILL. In most of the urban cities, about 80% of residents aged 7 and older can read and write. This factor results in a rise in readership as well as a rise in the demand of newspapers and magazines published. As a result leading newspaper publishing houses are sbrading their wings to remote and interior places of the country. With more than 84,000 Newspapers in multiple languages and 110 million copies in circulation, the Indian print media is certainly better off in comparison to the global market. The sector in India is witnessing growth of more than 10% and expected to continue growing at similar pace over next 5 to 10 years. Over all print industry to see a CAGR of 10%; whereas, regional print media is expected to grow at a higher rate of 12%. Further, the newspapers in India in recent times have become more like brands rather than news outlets as media houses like Bennett and Coleman that own THE TIMES OF INDIA Group increasingly position their offerings as brands that can be consumed in the same way one would consume other goods. In other words, the shift in emphasis from treating the newspaper as a source of news and views to one that merges the news with the advertorials means that the readers are no longer simple purveyors of information but rather consumers who have brand loyalties and brferences in terms of content. These are some of the reasons why the newspaper industry in India is thriving whereas the newspaper industry around the world is failing. The industry demand is likely to grow to 5.5 million MT by the year 2025. 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. Newsprint having international standard quality, is expected to provide a considerable growth in production, demand and productivity in coming years. (Source - CRISIL Research Paper 2016). Packaging Sector The demand of paperboard in packaging sector is a derived demand as it depends on the growth of end- use-segment like FMCG, Pharma etc. and it is directly connected with the industrial growth and consumer markets. Use of paperboard in packaging industry can be classified into two division (1) Tertiary packaging [using kraft paper] and (2) consumer packaging [which uses Multilayer Coated Board, i.e. Greyback Paper Board, Whiteback Paper Board, Folding Box Board (FBB) and Solid Bleached Board (SBB)]. Over the period 2008-09 to 2015-16, domestic paperboard demand increased by 5% CAGR on the back of weak industrial output in last five years and expected to clock a 6.4% CAGR to reach 8.4 million ton in 2019-20 from brsent level of 6.1 million ton. It is expected that growth in paperboard sector will be steady and upward in view of gradual improvement in industrial activity in India, increase in disposable income of Indian citizens followed by demand growth of FMCG, packaged ready to eat food stuff and other packaged products and shifting of consumers' brference to branded product. Out of the total industrial demand of packaging sector in 2014-15, kraft paper accounted for nearly 57%, recycled boards like greyback / whiteback accounted for 32% and virgin boards like FBB/SBB accounted for 11%. Premium category paperboards like FBB/SBB contribute only 11% to the total paperboard market at brsent but the same are in the fastest growth trajectory (11% - 12% CAGR) among other category of paperboard. The Total market size of the paperboard industry was around Rs. 203 billion in 2014-15. Out of the total paperboard market size, kraft paper accounted for about Rs. 107 billion and duplex paper used for consumer packaging in total was about Rs. 96 billion. Tertiary packaging Tertiary packaging also known as transport packaging, mainly refers to packaging for the containment and safeguard of goods during storage, handling and transportation. Corrugated boxes, which are mainly used for transportation are made from kraft paper. The kraft paper segment is highly unorganized with nearly 90 percent of the production coming from small and unorganized players. Consumer packaging Consumer packaging refers to secondary packaging of goods (packaging seen and felt by the consumer). It is done not only to protect the goods but also for brand building and marketing of goods. Consumer packaging is expected to grow at 7% - 7.5% CAGR led by rise in offtake by the FMCG goods, pharmaceuticals, food products and consumer durable goods industries. The market for consumer packaging paperboards is fairly consolidated with large organised players. A number of varieties of paper are used for consumer packaging with the following four accounted for a majority in two sub-segments (i) Recycle based Greyback and Whiteback and (ii) Value Added paperboard (FBB/SBB). Various mid-size to large-size players are participating in manufacture of recycled based category and this sub-segment is experiencing a growth of about 6.8% CAGR. The Value Added varieties of boards (FBB/SBB) are manufactured only by a few players like ITC, JK Paper, Century and EMAMI as it requires state-of-the-art technologies and high level of expertise to manufacture a brmium category board. This brmium section is experiencing growth at 11.7% CAGR and will drive the future of paperboard industry at large. (Source - CRISIL Research Paper 2016) EMAMI'S INDUSTRY brSENCE 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 environment friendly paper mills in Eastern India, consuming waste paper for the manufacture of internationally-benchmarked newsprint, which is consumed by the most of the leading newspaper publishers in India. The operating margin of EPM is far higher than that of its peers as it produces high quality of newsprint through its use of superior technology and its high operational efficiencies contributes to lower the production cost. Further, your Company has set up a state-of-the-art, Multi-Layer Coated Board Plant at its Balasore (Odisha) unit with an installed capacity of 1,32,000 tonnes per annum along with 10.5 MW Captive Power Plant and other necessary utilities. The commercial production of Multi-Layer Coated Board Plant has successfully started from 25th March, 2016. STRENGTH AND OPPORTUNITIES i. Strategic location - proximity to raw materials, logistics advantage and nearness to the market. ii. Pan India brsence 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. Large and growing domestic paper market and potential for export. v. Newly diversified Multi-Layer Coated Board, a fast growing contemporary printing sector. vi. In-house qualified and technically sound team ensure production of world class newsprint, writing and printing and multi-layer coated paperboard. vii. Government's thrust for improving education and literacy in the country. viii. Steady increase in disposable income, change in customers' brference to branded products, healthy growth in organized retail sector fueling up use of paper and paperboard in packaging industry. ix. Diversification in paperboard segment will give a leverage to outperform in digital era. x. Well established Research & Development (R&D) facilities/ activities encouraging innovation. xi. Strong customer base and dealers / distributors network. xii. Sufficient land and other infrastructure facilities for future expansion and growth. xiii. Lowest cost manufacturer with advanced technology for manufacturing of writing & printing, newsprint and paperboard with self-sufficient captive power plant THREATS -Increasing coal and logistic cost -Small and unorganized industry players -Cheap dumping of newsprint from export countries -Increasing competition from electronic media and digital communication alternatives. -Sourcing of raw materials (prices, quality) - Currently waste paper collection in the country is poor. More than 50% waste paper is imported. Our collection is only 31% against world average collection of 65%, therefore efforts to increase collection through awareness in the country is needed to make industry sustainable. IT SUPPORT 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 activities etc. SAP supports the Company's complex business process and strengthens internal financial control policy and procedures adopted by the company. Firewalls, antivirus and end-point security measures adopted by the company to enforce strict security practices in all nodes to mitigate network security risks and to protect company's data and other IT resources from all external threats and vulnerabilities. The company has developed an internal control and checking system for security of its IT assets, which efficaciously operates to protect IT assets. FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATE Forest certification is necessary to confirm that wood based product is produced in an environmentally and socially sustainable way. Forest Stewardship Council (FSC) issues Single Chain of Custody (SCC) certificate. FSC certificate guarantee the sourcing of wood and wood based products. Emami has received Forest Stewardship Certificate (FSC) Single Chain of Custody Certificate IN-2016-1 for the procurement and manufacturing process. The certificate is valid from 16th February 2016 to 15th February 2021. RISK AND CONCERNS Your Company identified various risks and implemented its Mitigation Plans. Risk Policy and monitored frame works has been approved by the Audit Committee and the Board of Directors of the Company. 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 half-yearly basis. HUMAN RESOURCES AND TRADE RELATIONS Your Company has qualified and talented human resources at all levels of operation. It has put concerted efforts for continuous learning and training to ensure that strong and credible leadership is developed. The focus of your Company is centred to ensure that young talent is nurtured and mentored consistently, that the rewards and recognition are commensurate with the performance of the employees to provide them proper opportunity to develop and grow. 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 employees and seeks to ensure that values and principles of the company are understood by all employees. 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". SAFETY 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 properly address emergencies. Periodic mock drills on hazardous chemical leakages and fire incident are conducted to ensure the effectiveness of emergency brparedness. The entire Mill is covered with fire hydrant points with brssurised 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 Your Company remains committed to ensure an effective internal control environment that inter alia provides assurance on orderly and efficient conduct of operations, security of assets, brvention and detection of frauds/errors, accuracy and completeness of accounting records and the timely brparation of reliable financial information. Your Company's independent and robust Internal Audit processes, at its both the plants at Balasore and Kolkata as well as at Business and Corporate levels at Head Office, provide assurance on the adequacy and effectiveness of internal controls, compliance with operating systems, internal policies and regulatory requirements. The Internal Audit function consisting of professionally qualified accountants, engineers and IT Specialists is adequately skilled and resourced to deliver audit assurances at highest levels. The Audit Committee of your Board met four times during the year. The Terms of Reference of the Audit Committee inter alia includes reviewing the adequacy and effectiveness of the internal control environment, monitoring implementation of the action plans emerging out of Internal Audit findings including those relating to strengthening of your Company's risk management systems and discharge of statutory mandates. The Company has a Combrhensive Budgetary Control System in operation and its' 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 and brventive actions, as needed, are initiated. CAUTIONARY STATEMENT Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations or brdictions may be 'forward-looking statements' within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those exbrssed 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. |