Andhra Paper Annual Report 2003-04

7/31/2019 Andhra Paper Annual Report 2003-04

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Managements discussionand analysis


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The Andhra Pradesh Paper Mills Limited Annual Report 2003-0430

Indian demandIndias paper consumption at 5.05 mn tpa

accounts for 4.7 per cent of the Asian and

1.5 per cent of the global paper

consumption. Indias per capita consumption

was approximately 4.5 kg compared to the

world average of 53 kg.

Indias paper and paperboard demand,

growing at 6 per cent annually, is expected

to accelerate on account of improved socio-

economic factors, favourable demographics

and increasing user sophistication. As a

result, domestic paper and paperboard

demand is expected to reach 8.3 mn tonnes

by 2010 at a CAGR of 7 per cent, while

newsprint is expected to grow at 6 per cent

CAGR.

Indian supply

Indias effective installed capacity for paper

and paperboard and newsprint (excluding

closed mills) was 6.15 mn tonnes and 1.05mn tonnes respectively.

Most mills are based in West India, though

they are small and medium-sized. The

majority of large-sized mills are located in

South India, primarily due to a high demand

derived out of a high literacy rate, closer

access to raw material resources and

proximity to consuming markets.

Nearly 40 per cent of Indias pulp mills use

wood as their principal raw material, while32 per cent use agro-waste and the rest,

waste paper (Source: ICRA).

Indian outlook

The Indian paper industry has demonstrated

secular annual volume growth of 6 per cent,

broadly mirroring its GDP growth. Despite

a consistent rise in demand, the per capita

consumption of paper in India is still a low

4.5 kg while South Asian and World averages

are 11 kg and 53 kg respectively.

Jaakko Poyry, a leading paper industry

consultant, estimates Indias demand, at

7 per cent CAGR growing to 6.0 mn tpa by

2005 and 8.3 mn tpa by 2010. Interestingly,

it has projected a supply shortage of about

0.7 mn tpa in 2010.

According to a study undertaken by ICRA

Advisory Services, the consumption of paper

will rise to around 7.3 mn tonnes in

2004-05, while production is placed ataround 6.5 mn tonnes. This growing demand

is not being met by a corresponding rise in

capacities due to high capital costs and

environmental constraints.

According to a recent report by CRIS-INFAC,

the global demand for paper and paperboard

is expected to rise at a CAGR of 5.8 per

cent, even as capacity is expected to

South West North & East &Central North East

13

8

23

29

39

45

27

18

No. of mills Capacity (%)

Regionwise capacity break-up


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The Andhra Pradesh Paper Mills Limited Annual Report 2003-04 31

increase by 2.1 per cent only, translatinginto enhanced realizations.

Within the overall projected growth rate of

7 per cent CAGR, segmental growth rates

vary, largely determined by the end use of

the product variety.

Opportunities

Writing and Printing: A growing literacy is

expected to accelerate off-take. The

government expects every Indian citizen to

possess at least eight years of educationby 2010 (Source: Department of Education).

Besides, participation in higher education

is expected to rise from 6 per cent to 10

per cent by the end of the 10th Plan period.

With government departments and

directorates being increasingly

computerised, the demand for desktop and

laser printing is rising, increasing the demand

for a specific variety of paper.

While offset printing paper is expected toremain the most in demand, cut-size paper

is gaining importance in the context of

increasing computerization and net

connectivity.

The inflow of foreign investment in print and

media is expected to increase the demand

for quality paper produced by domestic

paper houses.

The up-gradation of technology in the printing

industry will impact the demand for paper.Plateless and digital printing will grow the

demand for cut-size paper as print and

distribute evolves to distribute and print

and print on demand.

Packaging: Indias per capita consumption

of corrugated boxes is just 1.5 kg while the

global average is close to 15 kg and the

US average 80 kg. According to a study,

about 95 per cent of all products are packed

in corrugated boxes in the US, an indicationof the vast potential in the business.

Indias Agricultural and Processed Food

Export Development Authority (APEDA) has

worked out a product-specific strategy for

increasing agricultural exports to over

Rs. 10,000 cr per year for six agro

commodities fruits, meat and cereals to

name a few. The consumption of corrugated

boxes in the food sector in India is less than

20 per cent as against over 35 per cent

worldwide an emerging opportunity.

Newsprint: India is ranked fourth in

newspaper circulation in the world. It is

expected that newspapers will remain

relevant even in 2020 since electronic

magazines or digital newspapers on the

Internet are expected to be confined to less

than 5 per cent of the countrys population.

Given that in a decade the literacy level has

jumped by 13.17 per cent to 65.38 per

Growth rate

Segment 2000-04 2005-10 Growth drivers

W & P

Creamwove 6.1% 5.1% Textbooks, notebooks

Maplitho- SS 6.2% 10.5% Publishing, office applications

Coated 8.2% 11.1% High quality printing

Speciality 6.6% 7.9% Tissue, labels, fax, etc.Industrial 5.6% 6.2% Packaging / FMCG

Newsprint 6.0% 6.0% Newspaper

Source : SPB-PC, Cris Infac

Indias increasing consumption


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cent (Census 2001), newspaper circulationshows attractive growth prospects.

Shop floor upgradation

APPM continues to demonstrate a

commitment to stronger manufacturing

standards, helping it compete better. During

the year under review, the Company

embarked on the following initiatives:

Unit: APPM

Modification of the bleaching unit to

introduce chlorine dioxide stage in placeof hypo stage in one of the bleaching

streets, thereby reducing pollution load

and also improving paper strength and

brightness

Change in the head box of PM5 -

improving quality, capacity and

grammage control

Improving chemical recovery from 91.7

per cent to 92.7 per cent in 2003-04

Installation of DCS Control in Digestersto improve the cooking process

Installation of modern centricleaners in

PM3, leading to improved cleanliness

in paper

Unit: CP

Retrofit of the straw pulp washing system

to reduce pollution loads at source

Modification of PM1 for improved paper

quality and higher production

Re-build of PM2 wet-end to producemulti-layered paper with improved quality

and functional properties

Energy management

The Companys annual power requirement

for both the units is around 25 MW, of which

20 MW is generated captively. To reinforce

its access to cheap and continuous power

supply, APPM made a strategic investment

in Andhra Pradesh Gas Power Corporation

Limited, which entitles it to source 5 MW of

power at a competitive price.

Rice husk, being abundantly available in the

area, is being used to substitute a part of

the high cost use of coal.

Quality

At APPM, quality obsession extends across

functions, processes and management tiers.

Much of this initiative is driven by a state-

of-the-art laboratory, which helps analyze

and address customer complaints,

contributing to product improvement. Thisinitiative covers end products as well as a

multi-stage scrutiny of the various processes.

Research & Development

During the year under review, the Company

extended its Research & Development to

the following process improvements:

Dedicated machine for alkaline sizing:

Improved brightness, strength and

permanence

THE COMPANYS ANNUAL POWER

REQUIREMENT FOR BOTH THE UNITS IS

AROUND 25 MW, OF WHICH 20 MW IS

GENERATED CAPTIVELY.


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Introduction of enzymes at the bleachingstage: Reduced AOX content in effluents

Introduction of enzymes in stock

preparation: Enhanced paper strength

and reduced energy consumption

Chemical addition to lime sludge:

Reduction in oil consumption

Besides this, the R&D initiative was extended

to product development, such as:

Hi-tech inkjet paper: Uncoated paper with

low ink retention and low surface absorption,

ideal for ink-jet printing applications.

Cup-stock: Customized development for the

beverage industry.

Surplus management

Being a highly capital-intensive industry, it

is necessary to sweat every rupee in the

business to the maximum either through

business operations or investment in

revenue-bearing securities. In view of this,the APPM ensures that funds are never

idled.

As a result, share holders funds are invested

to generated a reasonable rate of return

through internal utilization and/or external

investment in risk-free securities.

Revenue

The total income of the Company for the

year 2003-04 was Rs. 462 cr compared

to Rs. 425 cr in 2002-03, a growth of9 per cent. The other income represents

profit from treasury operations and

miscellaneous income.

Margins

In a difficult industry environment, APPM

strengthened its PBDT margins from 10.2

per cent in 2002-03 to 10.4 per cent in

2003-04 and net profit margin from

4.7 per cent in 2002-03 to 5.2 per cent

in 2003-04.

This improvement transpired as a result of

a number of initiatives:

Rationalisation of input costs through

newer avenues of raw material sourcing

Rationalisation of personnel cost and

increased productivity

Increase in production volumes, enabling

a better distribution of fixed expenses

The higher profits were ploughed into

efficient fund management, which reduced

interest cost by 4.4 per cent over the

previous year.

Net worth

The Indian paper industry is a capital-

intensive one. Success is determined by

the return of capital employed, which should

be higher than the fixed income-bearing

investment opportunities available to

IN A DIFFICULT INDUSTRY ENVIRONMENT,

APPM STRENGTHENED ITS OPERATING

MARGIN REDUCING INTEREST COST BY

4.4 PER CENT OVER THE PREVIOUS YEAR.


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APPM EARNED A HIGHER RETURN ON ITS

NET WORTH AT 7.9 PER CENT (AGAINST

7.2 PER CENT IN 2002-03), ENABLING IT

TO REPORT A HIGHER EVA AT RS.19.98 CR.

EVA

2001-02 02-03 03-04

12.28

17.33

19.98(in Rs. cr)

investors. The Company earned a higher

return on its net worth at 12.10 per cent

(against 10.93 per cent in 2002-03) on a

higher net worth base (by close to three

per cent over the previous fiscal). This was

the result of two initiatives, namely:

Improvement in sales realization through

a change in the product mix,

Reduction in finance costs

This enabled the Company to report a higherEVA than the previous year.

Capital

APPMs capital comprised 118,28,890

equity shares of Rs. 10/- each. The

Companys equity doubled over a period of

five years. The increase in equity was on

two accounts.

Rights issue in April, 1999, in the ratio

1:1 at a premium of Rs. 150 per share

(when the face value of share was

Rs. 100 per share) Shares issued (ratio 1:3) for the

amalgamation of Coastal Paper Mills in

January 2001.

In January 2002, the Company made a

private placement of 14.5 per cent

preference shares to ICICI Bank Limited

in lieu of their holding in Coastal Paper.

The Company redeemed these shares in

2003-04.

Loans and Interest

The quantum and cost of funds is critical

to the survival of a capital-intensive business

- the difference between success and failure.

APPM has succeeded over the years due

to its ability to mobilise requisite funds at

the right time and at the right (read low)

coupon rate.

In 2003-04, a decline in the cost of funds

to the tune of 4.4 per cent was made

possible through the following initiatives:

L.N. Bangur&Associates

Public

Bank, F.I. & Gov. Bodies

Pvt. Corp. Bodies

(68%)(3%)

(9%)

(20%)


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APPM MADE AN INVESTMENT IN ANDHRA

PRADESH GAS POWER CORPORATION

LIMITED, ALLOWING IT TO ACCESS POWER

AT A COMPETITIVE PRICE.

Swap of high cost loans with low cost

foreign currency loans

Prepayment of high cost loans

Reduction of interest on public and trade

deposits

Availment of FCNR (B) and PCFC for

working capital requirements.

This helped the Company maintain a healthy

Debt-Service Coverage Ratio (2.02 in 2003-

04) and reduce its average interest cost

from 12.6 per cent in 2002-03 to 8.2 per

cent in 2003-04 and strengthen interest

cover from 3.1 to 5.8 times.

Gross block

The size and quality of the gross block

represents a paper manufacturers

competitive edge. The better the asset

quality, the better the Company can sweat

the asset and shrink its payback tenure.

At APPM, Gross Block/Turnover Ratioimproved to 1.01 in 2003-04 from 0.96 in

2002-03. Every tonne of installed capacity

represented Rs. 28,952 of the gross block,

considerably lower than the prevailing

replacement cost. Over the decade, the

Company invested more than Rs. 170 cr in

technology upgradation, efficiency

improvement and pollution abatement.

During the year under review, it invested

Rs. 22 cr in altering the product mix at

Unit: CP and into effluent equipment as well

as quality and improvement in productivity

at Unit: APPM.

The Company is now taking its investment

program ahead with a Rs. 554 cr

modernization-cum-expansion initiative, which

will increase capacity and incorporate the

best technologies in operations and effluent

management by 2007.

InvestmentsThe Company had an investment portfolio

of Rs. 28 cr as on 31 March 2004. The

bulk of this investment was in the form of

13,40,000 equity shares of Rs. 10 each of

Andhra Pradesh Gas Power Corporation

Limited. This investment entitles the

Company to access 5 MW of power at a

competitive unit price. The other investments

are short-term in nature and comprise units

in mutual funds.Interest

cover (times)

2001-02 02-03 03-04

2.6

3.1

5.8


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OVER THE YEARS, THE COMPANY

INCENTIVISED EARLY REMITTANCE FROM

DEALERS WITH A CASH DISCOUNT

InventoryAt APPM, as in the paper industry, inventory

management is a critical driver of working

capital outlay for a number of reasons:

A very wide product range

The primary raw material has to be

obtained from diverse sources and

stored for a long period

The supply of coal, the other critical

input, is regulated, prompting companies

to maintain an adequate buffer

Over the years, the Company leveraged the

power of IT to monitor active, high value

and critical items of raw materials on a daily

basis to eliminate the incidence of a

production delay due to raw material paucity.

For slower moving items, APPM updates

the lead-time and the re-ordering levels

based on supplier status and the number

of sourcing points. Besides, the Company

maintains a sufficient stock of imported anddomestic waste paper, wood, coal and

chemicals. On the finished goods side,

APPM manufactures products only against

a specific demand, minimizing end-product

obsolescence.

Debtors

Generally, receivables management

represents the last leg of the Companys

transaction. A quicker recovery enables the

Company to transact a larger volume of

business with the same fund base,

strengthening fiscal efficiency. A delay, on

the other hand, could inflate working capitalrequirements, raising interest liability.

Over the years, the Company incentivised

early remittance from dealers with a cash

discount on the one hand and stipulated a

penal clause with a high interest rate for

dealers who failed to remit on schedule on

the other. The effectiveness of the system

is reflected in the numbers: close to 90 per

cent of the sales from Unit: APPM enjoyed

a receivables position of less than 10 days.

Creditors

At APPM, creditors management is critical

as two of the Companys most critical inputs

wood and coal must not only be

purchased in a large quantity but their

corresponding credit period has considerably

shortened. For instance, the payment cycle

for wood declined from an average 21 days

to 10 days while coal payments must be

made in advance.Debtors (days)

2001-02 02-03 03-04

29

25 23


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For the other chemicals and consumables,the Company instituted a system where

suppliers are paid on time. Payments

requested before the scheduled time-period

are subject to a high coupon rate, an

innovative measure that ensures that the

Company enjoys the full credit period

available to it.

Thanks to these initiatives, the Companys

creditors position was at a comfortable 33

days of turnover in 2003-04.

Working capitalWorking Capital is the term used for funds

required in day-to-day operations. It is used

to fund the purchase of raw material,

maintain stock, buy stores and consumables,

fund overheads, administrative expenses

and put the product in dealer warehouses.

Working capital management assumes

significance when primary raw material

suppliers must be paid immediately (inspite

of raw material having to be stocked months

in advance) and customers must be sold

material on credit.

During 2003-04, the total working capitallimits stood at Rs. 23 cr out of which Rs.

17 cr was converted into FCNR(B) and PCFC

limits, bringing down the cost of working

capital from 12 per cent to 5.9 per cent.

The Company has also effectively utilised

the interest free sales tax deferment loan

for working capital requirements.

In addition, APPM also availed of the LIBOR-

linked finance under the buyers credit line.

This was used to pay the creditors (through

foreign LC payments) for imported raw

material used at Unit: CP. This prudent fiscal

initiative helped improve the working capital

cycle. Besides, the finance cost for imported

LC payments reduced by close to 300

400 basis points.

Exports

The Companys products cover a wide range

of colours, makes and textures to suit every

consumer need. Consistency in quality,

DURING 2003-04, VARIOUS INITIATIVES

HELPED BRING DOWN THE COST OF

WORKING CAPITAL FROM 12 PER CENT

TO 5.9 PER CENT.

41

3433

Creditors (days)

2001-02 02-03 03-04

Interest cost (%)

2001-02 02-03 03-04

12.912.6

8.2


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THE COMPANY EXPORTS PRODUCTS TO

COUNTRIES LIKE AUSTRALIA, NEW

ZEALAND, SINGAPORE, HONG KONG,

MALAYSIA AND OTHERS.

backed by excellence in service has helped

carve a niche for its products in countries

like Australia, New Zealand, Egypt, Iran,

UAE, Singapore, Hong Kong, Malaysia,

Mauritius, Myanmar, Nigeria, Tanzania, Kenya

and Sri Lanka, among others. These

international forays have helped earn various

prestigious Export Awards from the State

and Central Governments and organizations

like CAPEXIL.

Year Quantity Value

(Tonnes) (Rs./Lakhs)

1999-00 6828.04 1735.61

2000-01 5313.40 1792.66

2001-02 7349.00 1710.40

2002-03 10680.00 2516.08

2003-04 7394.15 2185.77

Tax

The Income Tax provision has been made

at Rs. 1.97 crs. In addition to it, provision

for deffered tax liability has been provided

at Rs. 1.30 crs., which will not involve a

cash out go.This lower liability is partially

due to the tax benefits derived from

exports under Section 80HHC of the

Income Tax Act.

The other benefits availed by the Company

include:

Deemed export credit under the (DEPB

scheme): Under this scheme, 4 per centof the FOB value of exports (8 per cent upto

Jan 2004) can be set off against the

customs duty payable on import of capital

goods. The credit available to APPM during

the year under review was Rs. 3 cr.

Reduced import duty on capital good

(under the EPCG scheme): This scheme

offers a concessional rate of customs duty

(5 per cent) on the import of capital goods.

This is available to only those export

organizations making a commitment for

exports in future (calculated as per a

prescribed norm). The Company availed of

this benefit of Rs. 202 lacs in 2003-04 for

the import of the head box and the sheet

cutter.

Interest free sales tax deferment loan:

This benefit is available to companies which

undertake a substantial expansion /

modernisation at its operational facilities,

enhancing its capacity by more than 25 per

cent. The acquisition of Coastal Paper made

the Company eligible for this interest-free

facility. Under this scheme, the sales tax

collected in any particular month is to be

paid to the government after a span of 14

years (without any interest liability). In 2003-

04 the Company retained Rs. 18.19 cr

(Rs. 15.28 crs in 2002-03).


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THE COMPANY CONVERTED RUPEE-

BASED TERM LOANS INTO A RS. 7 MN

FOREIGN CURRENCY LOAN, RESULTING

IN A GAIN OF RS. 1.75 CR

Forex management

During the year, the foreign exchange inflow

was Rs. 22 cr on account of the export of

paper. The outflow of Rs. 42 cr mainly

represented the import of raw materials

and capital goods.

The Company also effectively capitalised

on the opportunity of a lower interest rate

regime and a stronger Rupee by converting

Rupee-based term loans into a Rs. 7 mn

foreign currency loan, resulting in a gain of

Rs. 1.75 cr through effective foreigncurrency management.

Internal control

The Company has an internal control system,

which is efficient and commensurate with

the size of its operations and organizational

expanse. It ensures that all the assets and

properties are adequately safeguarded and

protected against unauthorized use or

disposition and all the transactions were

properly recorded and reported, for which

adequate records and documents were

maintained as required by the laws of the

lands in which the Company is based. Internal

audits and checks were regularly conducted

and the internal auditors recommendations

were seriously considered. The Companys

audit committee reviewed the internal control

system and looked into the observations of

the statutory and internal auditors. All efforts

are being made to make the internal controls

more effective.

ThreatsThe inadequate availability of raw material

and the consequent economies of scale

pose a serious threat to the growth of the

paper industry in India. As per estimates

made by IPMA, the requirement of the

precious wood based resource will catapult

from the present 5.2 mn tonnes to 13 mn

tonnes by 2020, requiring a large allocation

of land for fresh plantation. Besides, the

stringent environmental standards

prescribed by the government for the paper

industry will necessitate substantial

investments in state-of-the-art technologies

prevalent in the global industry, without any

significant return. This warrants the

Governments intervention in providing

concessional finance for funding these

projects and safeguarding the viability of

the paper industry.

Forward-looking initiatives

Over the years, the Company will strengthen

its customer relationship management bycontinuously training marketing personnel

and distributors to proactively explore value-

addition opportunities with customers and

drive direct customer sale to nearly 70 per

cent of its total sales. The Company expects

to introduce a regional pricing approach to

maximize its realizations.

APPM expects to enhance its distribution

effectiveness through a web-enabled window

that integrates dealers with its database.


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Risk management


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23

1Economy riskSince the performance of the Indian paper industry is largelydependent on the countrys economic growth, a slowdown

in the latter can stagger profits for manufacturers.

Risk mitigation

The Indian economy has reported a GDP growth of around

five per cent for the last five years. More importantly, the

GDP growth for the third quarter of 2003-04 was in excess

of 10 per cent, making India one of the fastest growing

economies in the world.

Year 2001-02 2002-03 2003-04

GDP growth (%) 5.6 4.3 8.1

Paper industry growth (%) 5.82 5.16 5.81

The Company expects to leverage this growth with the widest

range of writing, printing and industrial paper, which not only

constitutes the major consuming-end of the paper market

but also accounts for the fastest growth during an economic

upturn. The Company services small and large requirements

across general and niche segments, insulating it from a

downward cycle.

Industry risk

The demand for paper is perennial and major fluctuations

occur largely due to changes in the overall economic growth.

However, on the supply side the business is cyclical,

considering the huge capital investments involved in capacity

expansion. This makes it necessary for the Company to incur

large capital expenditure at the right time. An error in estimation

can, therefore, affect its survival.

Risk mitigation

APPM has leveraged the knowledge of industry and market

situations to generate higher returns on capital and lower its

capital cost. APPM has consistently invested funds in

manufacturing plants to bring them in line with the latest

technology. This prudence was reflected in the enhanced

market presence and leadership across specific categories

due to improved product quality and lowered costs.

(Rs./crore)

Year 1990-95 1996-2000 2001-04

Capital Investment 62.20 93.15 227.85*

The paper industry is on the threshold of a great emerging

demand. APPM expects a supply shortage in a number of

paper varieties in the near future considering the slow increase

in the total installed capacity of paper companies in India.

Anticipating this scenario, the Company consolidated its

market share by acquiring Coastal Papers. To strengthen its

competitive position further, the Company is implementing

a Rs. 554 cr capital expenditure plan, which will enhance

capacity, quality and cost competitiveness.

Product substitution risk

Information technology has revolutionised data management

systems worldwide. A number of electronic storage

devices capable of holding large amounts of data

Risks are inherent in all businesses. The challenge for the Company is to effectively and responsibly manage and control the

risks on a sustained basis to enhance returns.

APPMs risk-management revolves around:

Risk identification and risk measurement: Facilitated through corporate policies that provide risk standards and guidelines

(credit, market, liquidity, funding and operational).

Risk management: Facilitated through the involvement of senior management for approval, reviews and other policy measures.

The end-point responsibility in risk-management is vested with the senior management, which approves the initiatives and

makes a continuous review of risk assessment

Risk control: Facilitated through an ongoing check of whether the risk taken is in line with the Companys risk appetite



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DESPITE LESS THAN FIVE PER CENT OF WOOD

RESOURCES BEING USED BY THE PAPER

INDUSTRY, IT IS LARGELY BLAMED FOR

DISTURBING THE ECOLOGICAL BALANCE

54

have made paper redundant in select

applications. With a number of companies

evolving towards paperless offices,

information technology forms one of the

major threats for the paper industry.

Risk mitigation

Though on the one hand, information

technology has made paper redundant in

select applications, in certain areas it has

had a reverse effect in increasing demand.

This can be attributed to the following two

reasons:

Information technology data processing

and storage devices, however efficient,

are subject to corruption and downtime,

making data loss an irreversible reality.Under the circumstances, the print media

is still a durable storage option

Sophisticated IT equipment requires

superior paper quality. So while desktop

printing has moved from dot-matrix to

ink-jet to laser equivalents, the quality of

paper needed has trended towards the

value-added

The Company specialises in this value-added

segment. For instance, its Copier Paper isand Inkjet Paper uncoted rated as amongst

the best in the industry.

Globalisation risk

In the era of trade liberalisation, globalisation

poses a major threat to Indian paper

manufacturers. Large multinationals might

set up manufacturing facilities or dump their

products in India to milk the huge potential

of the countrys under-penetrated markets

and capture market share.

Risk mitigation

Because of a substantial demand-supply

gap in certain categories of paper

(newsprint), imports occupy a sizeable share

in the market. However, imports do not

constitute a major threat in the other

categories, since the requirement of paper

is far lower than the minimum viable import

quantity. Also, the transportation cost adds

to the landed price, making imports unviable

across a number of varieties.

Despite the expected thrust in demand for

paper, the industry may not seem attractive

enough for foreign players to establish

manufacturing units in the country for threereasons: international giants tend to set up

mammoth capacities compared to their

Indian counterparts (while Indian companies

have machine capacities ranging between

150-250 tpd, their international counterparts

install machinery capable of producing

between 1000-1500 tpd). Besides, the

domestic demand is not commensurate

with supply, thus depressing realizations

and stretching the period of investment

payback. Additionally, the scarcity of woodwill prevent these huge capacities from

producing at optimum levels.

Raw materials risk

The industry is heavily dependent on nature,

wood being the principal raw material for

paper manufacture. Further, the countrys

prevailing forest conservation laws and the

competing demand for hardwoods from the

construction and firewood sectors could

act as additional deterrents.

Risk mitigation

On one hand, the paper industry is plagued

due to a paucity of raw materials. On the

other hand, despite less than five per cent

of wood resources being used by the paper

industry, it has been largely blamed for

disturbing the ecological balance -

APPM is better off compared to its

competitors due to the advantageous

position enjoyed by the State of Andhra

Pradesh where its plants are located. The

state of Andhra Pradesh enjoys a surplus

of hardwood. As per data compiled by IPMA,

the existing generation of hardwood in

Andhra Pradesh is around 13.5 lakh tonnes

(4 lakh tonnes from paper mills farm forestry

schemes and the rest from private farm

forestry). The requirement of AP-based paper

mills is 11.5 lakh tonnes (as per IPMA),

leaving a surplus of two lakh tonnes. This

surplus is expected to touch six lakh tonnes

FUEL(90.00%)

Construction Industry(6.50%)

Paper Industry (3.50%)

Use of Wood


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11

13

12

10


THE LONG-STANDING RELATIONSHIP

OF DISTRIBUTORS WITH THE COMPANY

(25-30 YEARS ON AN AVERAGE) IS A

CRITICAL BUSINESS DRIVER.

demands of small and large customers,

the Company operated its plant at

almost 100 per cent capacity

A reduction and reallocation of the

workforce from 2981 on 31 March 2003

to 2802 on 31 March 2004

strengthened per person productivity

by eight per cent

A peaceful industrial relations record

ensured that not a single days work

was lost due to labour problems

As a result in 2003-04, man and machine

productivity was better. The fixed asset

turnover ratio improved from 1.59 in 2002-

03 to 1.74 in 2003-04 while revenues per

person grew by 17 per cent over the

previous year.

Quality risk

In a business where a range of paper

varieties must be made, including a variety

of shades and grammages within each

category, any quality variation can be

business-threatening.

Risk mitigation

At the Company, quality was consistently

achieved across all batches, varieties and

shades through a quality culture endorsed

by a quality certification and subsequent

revalidation.

Over the years, the Company has

consistently taken initiatives towards quality

improvement. The recent initiatives include:

Alteration of the bleaching stream from

hypo chloride bleaching to chlorine

dioxide bleaching

Replacement of the head box of PM5

of Unit: APPM

Rebuilding of PM-2 of Unit: CP

Creation of a quality control lab withstate-of-the-art equipment/instruments

Brand risk

APPM is migrating from generic to branded

products. A brand creates product

differentiation in a commoditised industry.

It not only puts additional responsibility on

brand building but requires ongoing

investments to create a distinctive image

in the minds of customers.

Risk mitigationPaper is largely sold as a commodity in the

domestic market. Of late, companies have

initiated a stronger branding of value-added

varieties. As a forward-looking initiative, the

Company markets its value-added copier

paper under the Millennium brand name.

The Companys brand recall is expected to

strengthen following the Companys

proposed investment in enhancing its quality.

Distribution risk

The paper industry thrives on a high turnover

and low margins. For achieving high volumes,

the Companys products must reach the

market place with the least lag time and

minimum transport cost.

Risk mitigation

The Companys products are sold across

Indias geographical length and breadth

through a distribution chain that comprises

four regional offices and dealers. Unlike

competition, the distribution network of this

Company is its critical strength. Distributors

have a long-standing relationship with the

Company (25-30 years on an average) and

their deep-rooted knowledge of the market

demand has transformed them into critical

drivers of the Companys business.

APPM maintains a regular contact with its

distribution agents to understand the nature

of local demand. This knowledge drives the

production schedule and helps the Company

place the right product at the right place

and the right time, helping it manage its

working capital effectively. It also enables

the Company to maintain a near-zero levelof inventory at the production site, thereby

improving funds management.

Customer concentration risk

A dependence on large institutional buyers

and dealers could adversely affect

Companys operations in case these buyers

lower their volumes or discontinue business

with the Company.

Risk mitigation

The Company maintains a cautious mix of

sales: 40 per cent from the retail trade and

60 per cent from industrial consumers. It

derives nearly 60-65 per cent of its revenues

from the Southern and Western regions of

India. The following table provides the

dispersion of the Companys revenue from

the different regions.


18/53

15

14


AT APPM, A CASH FLOW OF RS. 47.64 CR.

IN 2003-04 WILL ENABLE THE REPAYMENT

OBLIGATION OF RS. 29.39 CR IN 2004-05

WITH EASE.

16

Regional revenue split (%)

Zone North South East West

Unit: APPM 24 45 17 14

Unit: CP 16 57 10 17

The Company is adequately insulated from

the risk of customer attrition. It exports

close to 10 per cent of its entire production

to more than 15 countries. Exports grew

from Rs. 17.35 cr in 1999-2000 to Rs.

21.86 cr in 2003-04.

Finance risk

In a business that is capital-intensive, even

a marginally higher cost of capital can

translate into a long-term burden, which can

affect the Companys ability to compete in

the marketplace.

Risk mitigation

The importance of a large quantum of low

cost finance is a necessity for the paper

industry, both in daily operations and for

capital investment into the business. In the

paper industry, the working capital cycle on

an average ranges between two to three

months and the project cost of a greenfield

paper unit of 100,000 tpa capacity is

estimated at around Rs. 750 cr. Both clearly

underscore the role of competent treasury

operations.

As an adequate de-risking measure, the

Company has kick-started a virtuous cycle:

a reduction in operational costs, the

repayment of loans, a re-negotiation of

interest rates on existing loans, the swapping

of loans to reduce interest outflow and

improving profitability.

The efficacy of the strategy is reflected in

the numbers: conversion costs as a per

cent of total income reduced from 66 per

cent to 60 per cent in 2003-04, debt-equity

ratio declined from 0.87 in 2002-03 to 0.70

and interest cost as a proportion of total

income declined from 4.69 per cent in

2002-03 to 2.15 per cent in 2003-04.

As a result of prudent fiscal management,

average interest cost declined to 8.2 per

cent. Besides, a cash flow of Rs. 47.64 cr.

in 2003-04 will enable the Company to cover

its repayment obligation of Rs. 29.39 cr in

2004-05 with ease.

Margins risk

The paper industry thrives on high volumes

and low margins. Any decline in the margins

can severely affect Companys capital

building and strengthening process.

Risk mitigation

The following factors helped the Company

counter the cyclicality in its business:

A flexibility to provide paper in any

quantity and quality leading to a 5-10

per cent premium over the prevailingrealisations, strengthening the

bottomline.

A focus on value-added products,

translating into improved margins.

A closer and stronger raw material

linkage, reducing the Companys raw

material and logistics costs.

The identification of new chemical

sourcing avenues, reducing the cost of

consumables.

Captive energy and energy-saving

investments, significantly reducing the

energy bill.

Efficient treasury operations helpingreduce the interest liability.

An excellent man-management,

improving labour productivity.

All these factors helped the Company

improve its net profit margin to 5.20 per

cent (4.72 per cent in 2002-03). The

appointment of a professional external

agency to tighten operations is expected

to enhance the profitability of the Company

in 2004-05.

Environment risk

The manufacture of paper must comply with

the environmental parameters as specified

by the government. Any failure in fulfilling

the statutory obligations can lead to a plant

shutdown.

Risk mitigation

The Company fully comprehends the

possible environmental hazards involved

with the production of paper. It has

continuously invested in machinery and

processes that not only meet the norms

set by the governmental agencies but also

exceed them. For a detailed report on

environmental management we would

request you to go through the environment

management section in this report.


19/53


Five years at a glance

OPERATING RESULTS:

2003-04 2002-03 2001-02 2000-01 1999-00

Production Tonnes. 151692 149874 154322 88745 94334

Sales Tonnes. 149743 146125 156967 86801 95281

Turnover Rs. lacs 44943.88 40860.40 42375.50 28555.07 27020.73

Profit before depreciation and tax Rs. lacs 4664.31 4157.21 3532.30 4035.32 2639.55

Depreciation Rs. lacs 2001.55 1921.66 1873.84 991.81 894.19

Provision for tax Rs. lacs 197.00 169.00 120.00 240.00 310.00

Provision for Deferred Tax Rs. lacs 130.00 140.00 155.00

Profit after tax Rs. lacs 2335.76 1926.55 1383.46 2803.51 1435.36

Dividend on Equity Shares Rs. lacs 414.01 295.72 295.72 337.47 253.04

Dividend on Preference Shares Rs. lacs 18.70 42.50 214.46 --- ----

Tax on Dividend Rs. lacs 55.45 37.89 15.13 34.42 38.97

Retained Profit Rs. lacs 1847.60 1550.44 858.15 2431.62 1143.35

SOURCES OF FUNDS:

Share Capital -- Equity Rs. lacs 1182.89 1182.89 1182.89 1124.89 1124.89

Share Capital -- Preference Rs. lacs 163.33 326.67

Reserves & Surplus Rs. lacs 19107.09 17585.39 16333.63 15154.18 12722.56

Shareholders Funds Rs. lacs 20289.98 18931.61 17843.19 16279.07 13847.45

Borrowings Rs. lacs 13539.21 14946.30 15505.98 10714.71 6295.80

Deferred Credits Rs. lacs 2804.66 2373.56 2052.66

Total Rs. lacs 36633.85 36251.47 35401.83 26993.78 20143.25

APPLICATION OF FUNDS

Net Fixed Assets Rs. lacs 26203.42 25955.45 26356.35 15814.79 12355.65

Investments Rs. lacs 2829.68 3681.57 2952.35 6510.68 4918.30

Net Current Assets Rs. lacs 7091.22 5851.64 5167.74 4058.18 2617.16

Miscellaneous Expenses Rs. lacs 509.53 762.81 925.39 610.13 252.14

(To the extent not written off)

Total Rs. lacs 36633.85 36251.47 35401.83 26993.78 20143.25

Book Value per Equity Share Rs. 168 154 141 145 123

Earnings per Share Rs. 20 16 10 25 13

Dividend (Equity) % 35 25 25 30 25

In view of the amalgamation of erstwhile Coastal Papers Ltd., with the Company during the year 2001-02, the figures of the earlier

years are not comparable.


20/53


Directors profileShri L. N. Bangur, a reputed industrialist, has been the Chairman of the Company

since 1992 and a Director since 1985. He is the Chairman of the Committee of

Directors (Commercial), the Committee of Directors (Finance) and the Investors'

Grievance Committee of the Board. Shri Bangur is the Chairman of DigvijayInvestments Limited, Maharaja Shree Umaid Mills Ltd. and The Peria Karamalai

Tea & Produce Co. Ltd., and a Director of several finance and investment

companies. Presently, he is a managing committee member of the Associated

Chambers of Commerce & Industry, the Federation of Indian Chambers

of Commerce and Industry and a committee member of Bharat Chamber

of Commerce.

Dr. N. Tata Rao, a Masters in electrical engineering from Illinois Technology, USA,

has been a Director of the Company since 1989. He is a distinguished personality

in the field of power generation and transmission and was Chairman of the Madhya

Pradesh State Electricity Board and A.P. State Electricity Board for more than

two decades. He is a Director of Amarraja Power Systems Ltd., VBC Ferro Alloys

Ltd., Lakshmi Finance & Industrial Corporation Ltd. and Industrial Meters Ltd.

Smt. Alka Bangur, an industrialist and a post-graduate in English and Hindi, is an

MBA and has been a Director of the company since 1996. She is the Managing

Director of The Peria Karamalai Tea & Produce Co. Ltd. and a Director of Maharaja

Shree Umaid Mills Ltd., The Marwar Textiles (Agency) Pvt. Ltd., Apurva Export

Private Ltd. and Mugneeram Ramcoowar Bangur Charitable & Religious Company.

Shri N. Srinivasan, a leading Chartered Accountant with more than four decades

of experience, has been a Director of the Company since 1998. He is Vice

Chairman of the Audit Committee and a member of the Committee of Directors

(Commercial), the Committee of Directors (Finance), the Investors' Grievance

Committee and Remuneration Committee of the Board. He is also a Director of

United Breweries Ltd., Herbertsons Ltd., Tractors and Farm Equipment Ltd., The

Peria Karamalai Tea & Produce Company Ltd., India Cements Capital & Finance

Ltd., Ador Multiproducts Ltd., Amco Batteries Ltd., the United Nilgiri Tea Estates

Company Ltd. and GATI Ltd., among others. He is a managing committee member

of the Associated Chambers of Commerce and Industry of India, Madras Chamberof Commerce & Industry, Indo Australian Chamber of Commerce and the Employers'

Federation of Southern India.

Shri R. K Joshi, a graduate in Mechanical Engineering and an associate of the

Insurance Institute of India, has been a Director of the Company since 2001. He

has more than three decades of experience in General Insurance Corporation of

India (GIC) and its subsidiaries. He is also the Chairman of the Audit Committee

of the Board. Presently, he is working as General Manager in GIC.

Ms. Sheetal Bangur, a post-graduate in Commerce and Business Administration,

has been a Director of the Company since 2002. She is a member of the

Committee of Directors (Commercial) and the Committee of Directors (Finance)

of the Board. She is also a Director of Samay Books Ltd., The Swadeshi Commercial

Co. Ltd. and Mugneeram Ramacoowar Bangur Charitable & Religious Company.

Shri Surendra Singh, an MSc and an IAS (Retd.), has been a nominee director of

the Company since 2003. He is also a member of the Audit Committee and

Remuneration Committee of the Board. He was Executive Director of the World

Bank, Cabinet Secretary to the Government of India, Secretary to the Government

of India, Ministry of Industry and Special Secretary to the Prime Minister of India.

He was also Chairman of Maruti Udyog Ltd. Presently, he is a Director of CMC

Limited, the West Bengal Power Development Corporation Ltd., Jubilant Organosys

Limited, BAG Films Limited, UTI Bank Limited and NIIT Ltd.

Shri R.C. Mall, a graduate in Chemical Engineering, has been the Executive Director

of the Company since 1997. He is also a member of the Committee of Directors

(Commercial), the Committee of Directors (Finance) and Investors Grievance

Committee of the Board. He has more than three decades of experience at various

levels and in different facets of project management and administration of large

pulp and paper mills like J.K. Paper Mills, Orient Paper Mills and Star Paper Mills.

Shri L. N. Bangur

Dr. N. Tata Rao

Smt. Alka Bangur

Shri N. Srinivasan

Shri R. K. Joshi

Ms. Sheetal Bangur

Shri Surendra Singh

Shri R. C. Mall


21/53

Directors report

To

The Members

Your Directors have pleasure in presenting 40th Annual Report and the Audited Accounts for the year ended 31st March, 2004.

Financial Results Rs./Crores

2003-04 2002-03

Sales and other income

(after accounting for accretion/decretion in stocks) 461.69 424.75

Gross Profit 46.64 41.58

Less: Depreciation 20.01 19.22

Less: Provision for Current Tax 1.97 1.69

Deferred Tax 1.30 1.40

Net Profit 23.36 19.27

Less: Income tax paid for earlier years 0.28 0.23

Add: Profit brought forward from previous Year 26.37 15.65

Profit available for appropriation 49.44 34.69

Appropriations

Transfer to General Reserve 20.00 1.93Transfer to Capital Redemption Reserve 1.63 1.63

Transfer to Debenture Redemption Reserve 1.00

Transfer from Debenture Redemption Reserve (2.25)

Interim dividend on Preference Shares 0.19 0.43

Tax on Interim preference dividend paid 0.02

Proposed dividend on equity shares 4.14 2.96

Tax on Equity Dividend 0.53 0.37

Balance carried to Balance Sheet 25.18 26.37

49.44 34.69



22/53

Performance:

The year under review concluded with your

Company registering production of 1,51,692

MTs. and sales of Rs.449.44 crores. The

Profit Before Tax (PBT) was Rs.26.62 crores.

The Profit after deferred tax stood at

Rs.23.36 crores as compared to Rs.19.27

crores in the previous year registering a

growth of 21 per cent due to improved

sales realizations and restructuring of debts.

Dividend:

An interim dividend at 14.5 per cent

amounting to Rs.18,70,085/- on 1,63,334

Redeemable Cumulative Preference Shares

of Rs.100/-each for the period from 1stApril, 2003 to 14th January, 2004 was

declared by the Board and paid on 14th

January, 2004. The said Preference Shares

were also redeemed on 14th January, 2004.

Your Directors are pleased to recommend

a dividend of Rs.3.50 per share on

1,18,28,890 equity shares of Rs.10/- each

aggregating to Rs. 4,14,01,115/- for the

year ended 31st March, 2004.

Change in the status of the Company:

Government of Andhra Pradesh disinvested

its entire shareholding in the Company i.e.

30,00,000 equity shares of Rs.10/- each

to Digvijay Investments Ltd. in terms of the

Agreement dated 12th December, 2003

entered into by Digvijay Investments Ltd.

with Government of Andhra Pradesh. With

the acquisition of Governments

shareholding, Digvijay Investments Ltds

shareholding in the Company had gone up

from 30.16 per cent to 55.52 per cent and

consequently, the Company became a

subsidiary of Digvijay Investments Ltd. with

effect from 18th December, 2003.

Marketing & Exports:

The process of revival of the domestic paper

industry evidenced during the previous

financial year, witnessed setbacks in the

current year, especially with respect to

writing & printing and industrial grades like

kraft paper. MG grades and newsprint did

witness some buoyancy during the last two

quarters and this helped improve

realizations.

In Unit: APPM, domestic sale was 86,126

MTs. Exports were restricted to 7,029 tons

as compared to 10,680 MTs in the previous

year. This conscious restriction in volume

was due to the slump in international prices,

followed by a drop in realizations on account

of the appreciation of the Rupee vis--vis

the US Dollar.

In Unit: CP, domestic sale was 56,222 MTs.

The year also witnessed the first directexport of 366 MTs from this unit to Congo,

Ethiopia, Malaysia, Nigeria, Senegal, Sri

Lanka and Yemen.

a) Raw Materials Unit: APPM

Raw Material procurement:

During the year, procurement of bamboo

industrial cuts from Government of Andhra

Pradesh was under way. A major portion

however, had to be procured from other

sources in order to meet the demand.

The pulpwood segment witnessed an

increase in prices due to stiff competition.

Concerted efforts and prudent assessment

of market situation could result in sustaining

the raw material requirement.

Raw Material development:

The farm forestry scheme could achieve a

target of 36.3 million seedlings distribution

to cover an area of approx. 4,800 hectares

of land under plantation against 32.5 million

seedlings and 4,000 hectares of land in the

previous year.

Efforts were made to identify wastelands

in the catchment areas for development of

green cover and afforestation to meet the

future demand of raw material.

Research and Development in the field of

low cost planting techniques and macro

propagation of Casuarina species has been

a continuous process showing desirable

results.

b) Raw Materials Unit: CP

i) Rice straw:

Due to good Monsoon during the year 2003-

04, the availability of rice straw has gone

up compared to previous year and the prices

have come down reasonably. Further, some

quantity of material has been moved by

State Government through railway rakes to

other drought hit areas like Ananthapur

district etc. The required quantity is available

in nearby areas i.e., from East and West

Godavari Districts.

ii) Waste Paper:

The required quantity of different grades of

waste paper both imported and indigenous

was procured during the year as per

production schedule. Some of the imported

waste paper grades required to manufacture

newsprint have been substituted by

indigenous material. However, the prices

of imported waste paper have gone up

substantially during the year under reviewdue to demand from China and other new

plants in Europe and the USA. The prices

of major varieties went up by 20 per cent

including the impact of raising sea-freight.

High lights of Socio-economic activities

a) Rural Areas

The Company continued to organise farmers

meet to foster interactions and a fruitful

exchange of ideas directly with agrarian

community for adoption of new technologiesfor better realisation for farm forestry

plantations. The benefits of low cost planting

have percolated to the grass-roots as

farmers and their families begin to enjoy

an upgraded socio-economic status leading

to the strengthening of existing bonds of

trust with the Company.

As a part of farm forestry programme, four

million seedlings were developed and



23/53

distributed exclusively in the rural areas of

East Godavari District in collaboration with

the local administration.

b) Tribal area development

The Company also tied-up with Integrated

Tribal Development Agency (under Velugu

Scheme of Government of Andhra Pradesh)

in its drive towards poverty elimination.The

Companys programme comprises of raising

of eucalyptus clonal plantations across 1000

acres of land per annum continuously for

four years, which is expected to yield

sustained supply of 40,000 MT of pulpwood

per year from fourth year to the 14th year

(10 year-period).

c) Local area

Godavari Pushkarams,a-once-in-12-year

event, was celebrated from 30th July, 2003

to 10th August, 2003. The Company not

only helped the District Administration in

the successful conduct of the Pushkarams

but also directly involved in:

a) Distribution of around 1.2 lakh free

food packets to Pushkaram pilgrims;

b) Providing 1,569 tankers for drinkingwater;

c) Organized medical camps for treating

around 3,000 patients;

d) Seting-up Information Center and

organized other public relation activities

aggregating to around Rs.6 lakhs.

The District Administration and the local

press appreciated the contributions made

by the Company.

d) Other welfare measuresDuring the year under review, the Company

also constructed a culvert near Chagalnadu

Lift Irrigation Project in Katheru Village to

help farmers conveniently cross the canal

and also to facilitate effluent channels.

The Company also provided sewing

machines to 10 under-privileged women

and made arrangements for their training.

Environment:

Over the years, the Company has been

making consistent efforts to ensure a cleaner

environment through a number of initiatives.

Mill development plan:

The Company proposes to undertake a Mill

Development Plan costing around Rs.554

crores to be implemented in 2 phases for

improvement in technology, energy

efficiency, marketability, long-term

environmental compliance and for

synergising the operations of both the Units:

APPM & CP.

The implementaiton of the MDP while

increasing the production capacity from1,53,500 MTPA to 1,97,700 MTPA will also

lead to substantial reduction in variable

costs and improvement in sales realizations

with better value addition by going in for

high-end products.

Particulars of Employees:

There were no employees whose particulars

are required to be disclosed under Section

217 (2A) of the Companies Act, 1956 read

with Companies (Particulars of Employees)Rules, 1975.

Public Deposits:

57 deposits totaling Rs.22.33 lacs due for

repayment on or before 31st March, 2004

were not claimed by the depositors on that

date. Deposits aggregating to Rs.15.45

lacs were refunded upto 31st May, 2004.

During the year under review, the Company

has transferred a sum of Rs.13,000/- being

the amount of deposits matured and

remaining unclaimed for a period of seven

years to the Investor Education & Protection

Fund.

Auditors:

M/s.Brahmayya & Co., Chartered

Accountants, Visakhapatnam, Auditors of

the Company will retire at the conclusion of

the ensuing Annual General Meeting and

being eligible offer themselves for re-

appointment.

Directors:

During the year under review, ICICI Bank

Limited withdrew the nomination of Shri

P.J.V.Sarma with effect from 23rd

September, 2003 and IFCI Ltd. withdrew

the nomination of Shri S.D.Mathur with effect

from 27th November, 2003. IDBI had

nominated Shri Surendra Singh as its

nominee Director in the place of Shri

S.Ramachandran with effect from 6th

October, 2003. Consequent upon

disinvestment, the Government of Andhra

Pradesh had withdrawn its nominee directors

viz. Shri S.K.Arora, Shri K.V.Rao and Shri

S.N.Daga from the Board of Directors of

the Company with effect from 19th January,

2004.

The Board of Directors places on record its

warm appreciation of the excellent

contribution made by Shri P.J.V.Sarma, Shri

S.D.Mathur, Shri S.Ramachandran, Shri

S.K.Arora, Shri K.V.Rao and Shri S.N.Daga

during their tenure as Directors of the

Company.

Industrial Relations:

During the year under review, the Industrial

Relations were generally cordial.

Constitution of Audit Committee:

As required under Sec. 292 of the

Companies Act, 1956 read with Clause 49

of the Listing Agreement, an Audit

Committee was constituted by the Board

and the present members of the Audit

Committee are:

1) Shri R.K.Joshi, Chairman

2) Shri N.Srinivasan, Vice Chairman

3) Shri Surendra Singh

During the year under review,

Shri S.D.Mathur, Shri S.Ramachandran and

Shri P.J.V.Sarma ceased to be Members of

the Audit Committee consequent upon

withdrawal of their nominations as Directors

by the respective Institutions.



24/53


25/53

ANNEXURE I

Information under Section 217 (1) (e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of the

Board of Directors) Rules, 1988 and forming part of Directors Report:

A.CONSERVATION OF ENERGY:

I. Measures taken for conservation of energy:

1) Installation of VFD for air circulation fan in Paper Machine No.3 for hood and PV system.

2) Installation of VFD for ID fan of Recovery Boiler No.2.

3) Installation of Electronic Governor for 12 MW TG set.

4) Unitization of compressors in paper machines.

5) Installation of VFD for ID fan of Coal Fired Boiler (IJT).

6) Installation of Automatic Power Factor Correction panel for 12 MW TG set.

7) Installation of energy efficient stock pumps in Bleach Plant No.2 (Pulp Mill).

8) Installation of flash heat recovery system in Paper Machine No.3.

II. Proposals being implemented for reduction of energy consumption are:

1) Replacement of pump (One) with energy efficient pumps in clear water pump house.

2) Installation of energy efficient pumps in Recovery Boiler No.2.

3) Installation of Automatic Power Factor Correction panel for Stal TG set.

4) Installation of VFD for air circulation fan in Paper Machine No.3.

III. Impact of the above measures on the consumption of energy:

The above measures have resulted in reduction in consumption of energy, improvement in steam generation, reduction in machine down-

time, reduction in cost of production etc.



26/53

FORM 'A'

2003-2004

FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY.

PARTICULARS UNIT CURRENT PREVIOUSYEAR YEAR

A) POWER & FUEL CONSUMPTION:

1) ELECTRICITY:

a) Purchased Units lacs/KWH 427.59 475.36

Total amount Rs./lacs 1212.55 1217.31

Rate/Unit Rs. 2.84 2.56

b) Own Generation:

I) Through Diesel Generator:

Units lacs/KWH 4.43 13.59

Units/Ltr of Diesel Oil KWH 2.72 3.18Cost/Unit Rs 9.57 7.46

i I) Through Steam Turbine (Back Pressure)


Cost/Unit Rs. 0.69 0.72

i i I) Through Steam Turbine (Condensing)



i v I) Through Steam Turbine (Double extraction-cum-Condensing)



v) Through Steam Turbine (Single extraction-cum-Condensing)Units lacs/kwh 444.76 400.09


2) COAL (STEAM/SLACK)

Quantity Tonnes 279198 251732

Total Cost Rs/lacs 3667.12 3353.66

Average Rate Rs./ton 1313 1332

3) FURNACE OIL & LSHS

Quantity Kl 1153 949

Total Amount Rs./lacs 122.31 101.66

Average Rate Rs/Kl 10608 10718

4) SAW DUSTQuantity Tonnes 6981 7320

5) Husk & others

Quantity Tonnes 11804 17848

Total amount Rs/lacs 93.36 165.45

Average Rate Rs./ton 791 927

B) CONSUMPTION PER TON OF PRODUCTION:

Electricity KWH 1313 1324

Furnace Oil/LSHS Kl 0.008 0.006

Coal Tonnes 1.841 1.680

Husk & others Tonnes 0.078 0.119



27/53

B.TECHNOLOGY ABSORPTION:

FORM B

FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO ABSORPTION

Research & Development (R & D)

1. Specific areas in which R & D New product development & product quality improvement.

carried out by the Company.

Studies for the modification of the process/Pollution abatement.

Identification of functional additives/chemicals and their plant

trials for cost reduction/quality improvement.

2. Benefits derived as a result of the above R & D. Development/Improvement of quality of papers for Export and

Domestic markets.

Identification of pulping additives and conducting plant trials.

Bleached pulp quality improvement through process modification.

Identification of Enzymes and additives for pulp refining energy

reduction and bleach chemical consumption reduction and

conducting plant trials.

Identification of alternate fibrous raw materials.

3. Future plan of action Continuation of New Product Development studies.

Evaluation of alternate fibrous raw materials.

Plant trials with enzymes for reduction of refining energy and

pollution load.

Identification of functional additives/chemicals for Product

development and process quality improvement.

Expenditure on Research & Development:

a) Capital : Rs. ----b) Recurring : Rs. 59.65 lakhs

c) Total : Rs. 59.65 lakhs

d) Total R & D expenditure as a : 0.13%

percentage of Total Turnover

B. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

As the Company has not imported any technology, the requisite information is not given.

C. Foreign Exchange Earnings and Outgo:

Foreign Exchange earned : Rs.21.86 crores

Foreign Exchange utilized : Rs.41.92 crores

For and on behalf of the Board,

Place: Secunderabad L.N. BANGUR

Date : 25th June,2004 Chairman



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63The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

The financial section


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AUDITORS' REPORT

To

The Members of

The Andhra Pradesh Paper Mills Limited,

Rajahmundry.

1 We have audited the attached Balance Sheet of The Andhra Pradesh Paper Mills Limited as at 31st March, 2004, the Profit andLoss Account and also the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements

are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements

based on our audit.

2 We have conducted our audit in accordance with auditing standards generally accepted in India. These Standards require that

we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting principles used and significant estimates made by management,

as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our

opinion.

3 As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of sub-section

(4A) of Section 227 of The Companies Act, 1956 of India (the `Act) and on the basis of such checks as we considered appropriate

and according to the information and explanations given to us, we set out in the Annexure a statement on the matters specifiedin paragraphs 4 and 5 of the said Order.

4 Further to our comments in the Annexure referred to above, we report that:

a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the

purposes of our audit.

b) In our opinion, proper books of account, as required by law have been kept by the company so far as appears from our

examination of such books.

c) The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account.

d) In our opinion the Balance Sheet and Profit and Loss Account dealt with by this report comply with the accounting standards

referred to in Sub Section (3c) of Section 211 of the Companies Act, 1956 with the exception of Accounting Standard 22,

on Accounting for Taxes on Income, referred to in Note no.5 of Schedule 19 (ii).

e) In our opinion and to the best of our information and according to the explanations given to us, subject to not fully providing

for deferred tax liability in accordance with Accounting Standard 22 issued by the Institute of Chartered Accountants of India,

referred to in Note no.5 of Schedule 19 (ii), the said accounts give the information required by the Companies Act, 1956, in

the manner so required and give a true and fair view, in conformity with the accounting principles generally accepted in India:

i) in the case of the Balance Sheet of the state of affairs of the company as at 31st March 2004.

ii) in the case of the Profit and Loss account, of the Profit for the year ended on that date.

iii) in case of the cash flow statement, of the cash flows for the year ended on that date

f) On the basis of written representations received from the Directors as on March, 31, 2004 and taken on record by the Board

of Directors, we report that none of the directors is disqualified as on March 31, 2004 from being appointed as a director in

terms of clause (g) of sub-section (1) of section 274 of the Act.

For Brahmayya & Co.

Chartered Accountants

Camp: Secunderabad V. Seetaramaiah

Date : 29.05.2004 Partner

Membership No.003848

64


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ANNEXURE TO THE AUDITORS REPORT REFERRED TO INPARAGRAPH 3 OF OUR REPORT OF EVEN DATE:

i) a) The Company has maintained proper records showing full particulars,

including quantitative details and situation of fixed assets.

b) The fixed assets have been physically verified by the management

during the year in accordance with a phased programme of

verification which, in our opinion, is reasonable having regard to

the size of the Company and the nature of its assets. According

to the information furnished to us, no material discrepancies have

been noticed on such verification.

c) The Fixed Assets disposed off by the company during the year do

not form a substantial part thereof.

ii) a) Physical verification of inventory has been conducted during the

year by the management at reasonable intervals.

b) The procedures of physical verification of inventory followed by

the management are reasonable and adequate in relation to the

size of the company and the nature of its business.

c) On the basis of our examination of the records of inventory, we

are of the opinion that the company is maintaining proper records

of inventory. The discrepancies noticed on such verification between

the physical stocks and the book records were not material.

iii) The Company has neither granted nor taken any loans, secured orunsecured to/from Companies, firms or other parties to whom the

provision of section 301 of the Companies Act, 1956 apply.

iv) In our opinion and according to the information and explanations given

to us, there are adequate internal control procedures commensuratewith

the size of the company and the nature of its business with regard

to purchase of inventory, fixed assets and sale of goods. During the

course of our audit, no major weakness has been noticed in the

internal controls.

v) a) According to the information and explanations given to us, we are

of the opinion that the transactions that need to be entered into

the register maintained under section 301 of the Companies Act,

1956 have been so entered.

b) In our opinion and according to the information and explanationsgiven

to us, the transactions made in pursuance of contracts orarrangements entered in the register maintained under section

301 of the Companies Act, 1956 and exceeding the value ofrupees

five lakhs in respect of any party during the year have been made

at prices which are reasonable having regard to prevailing market

prices at the relevant time.

vi) In our opinion and according to the information and explanations given

to us, the company has complied with the provisions of sections 58A

and 58AA of the Companies Act, 1956 and the Companies (Acceptance

of Deposits) Rules, 1975 with regard to the deposits accepted from

public. No order has been passed by the Company Law Board.

vii. In our opinion, the Company has an internal audit system commensurate

with its size and nature of its business.

viii. We have broadly reviewed the books of account relating to materials,

labour and other items of cost maintained by the company pursuant

to the Rules made by the Central Government for the maintenance

of cost records under section 209(1)(d) of the Companies Act, 1956

and we are of the opinion that prima facie the prescribed accounts

and records have been made and maintained.

ix. a) According to the records of the company, the company is regular

in depositing with appropriate authorities undisputed statutory

dues including provident fund, investor education and protection

fund, employees state insurance, income- tax, sales-tax, wealth-

tax, custom duty, excise duty, cess, and other material statutory

dues applicable to it.

b) According to the information and explanations given to us,

no undisputed amounts payable in respect of income tax, wealth

tax, sales tax, customs duty, excise duty and cess were in arrears

as at 31st March 2004 for a period of more than six months from

the date they became payable.

c) As at 31st March 2004, there have been no disputed dues,which

have not been deposited with the respective authorities in respect

of Income-tax, Wealth-tax, Excise Duty and Cess, except disputed

excise duty under Central Excise Act of Rs.2.11crores pending

before the Appellate Commissioner, Customs and Central Excise

and Rs.4.25 crores pending before the Customs, Central Excise

and Service Tax Appellate Tribunal, disputed Sales-tax under

Andhra Pradesh General Sales-tax Act and Central Sales-tax Actof Rs.0.25 crores pending before the Appellate Deputy

Commissioner and 0.85 crores pending before the Andhra Pradesh

High Court and disputed income-tax under Indian Income-tax Act

of Rs.0.06 crores pending before the Commissioner of Income-

tax (Appeals) have not been deposited in view of the matters

pending before the respective appellate authorit ies.

x. The Company has no accumulated losses and has not incurred cash

losses during the financial year covered by our audit and the immediately

preceeding financial year.

xi. In our opinion and according to the information and explanations given

to us, the Company has not defaulted in repayment of dues to financial

institutions, banks or debenture holders.

xii. The Company has not granted any loans or advances on the basisof security by way of pledge of shares, debentures and other securities.

xiii. In our opinion, the Company is not a chit fund or a nidhi/mutual benefit

fund/society. Accordingly, the provisions of this clause are not

applicable to the Company.

xiv. In our opinion, the Company is not dealing in or trading in shares,

securities, debentures and other instruments. Accordingly, the

provisions of this chapter are not applicable to the Company.

xv. The company has not given any guarantees for loans taken by others

from banks or financial institutions.

xvi. In our opinion, the Term Loans have been applied for the purposes

for which they were raised.

xvii. According to the information and explanations given to us and on

overall examination of the Balance Sheet of the company, we reportthat no funds raised on short term basis have been used for long

term investment and vice versa.

xviii. During the year, the Company has not made any allotment of shares

and accordingly the provisions of this chapter are not applicable to

the Company.

xix. The Company has created securities in respect of debentures issued

in earlier years.

xx. During the year, the Company has not raised money by Public issue.

xxi. According to the information and explanations given to us, no fraud

on or by the Company has been noticed or reported during the course

of our audit.

For BRAHMAYYA & CO.,

Chartered Accountants

Place : Secunderabad (V. SEETARAMAIAH)

Date : 29.05.2004 Partner

Membership No.003848


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BALANCE SHEETAs AT 31St March, 2004

Schedule As at As at

No. 31.03.2004 31.3.2003

SOURCES OF FUNDS

Shareholders' Funds

a) Capital 1 1182.89 1346.22

b) Reserves & Surplus 2 19107.09 17585.39

20289.98 18931.61

Loan Funds

a) Secured Loans 3 10214.61 12272.60

b) Unsecured Loans 4 3324.60 2673.70

13539.21 14946.30

Deferred Credits 5 2804.66 2373.56

Total 36633.85 36251.47

APPLICATION OF FUNDS

Fixed Assets 6

a) Gross Block 44441.79 42718.47b) Depreciation 18669.06 17037.12

c) Net Block 25772.73 25681.35

d) Capital works-in-progress 430.69 274.10

26203.42 25955.45

Investments 7 2798.78 3650.67

Current Assets, Loans and Advances

a) Inventories 8 8703.94 7977.23

b) Sundry Debtors 9 2791.08 2783.85

c) Cash and Bank Balances 10 794.91 563.71

d) Other Current Assets -Interest accrued on Deposits & Investments 129.25 250.80

e) Loans and Advances 11 2814.79 2290.19

15233.97 13865.78

Less:Current Liabilities & Provisions 12 8111.85 7983.24

Net Current Assets 7122.12 5882.54

Misc. Expenditure to the extent not written-off or adjusted 509.53 762.81

Total 36633.85 36251.47

Significant Accounting Policies and Notes on Accounts 20

As per our report of even date For and on behalf of the Board,

For Brahmayya & Co.,

Chartered Accountants Sudhir Bhansali L.N. Bangur

Executive Vice President (Finance) Chairman

& Chief Finance Officer

V. Seetaramaiah C. Prabhakar R.C. Mall

Partner Company Secretary Executive Director

Place:Secunderabad

Date :29th May 2004

Rs. Lacs

66

The Andhra Pradesh Paper Mills Limited


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PROFIT AND LOSS ACCOUNT For the year ended 31st March, 2004Rs. Lacs

Schedule Year ended Year ended

No. 31.03.2004 31.03.2003

INCOME

Sales 44943.88 40860.40

Accretion /(Decretion) in Stocks 13 563.36 949.44

Other Income 14 662.23 664.68Total 46169.47 42474.52

EXPENDITURE

Materials Consumed 15 13410.27 11452.96

Excise Duty 5086.53 4242.08

Staff Costs 16 4279.14 3831.76

Manufacturing Expenses 17 14380.22 13690.90

Other Expenses 18 3071.89 2811.42

Interest and Finance Charges (Net of receipts) 19 981.21 1990.76

Deferred Revenue Expenses Written off 295.90 297.43

Depreciation 2001.55 1921.66

Total 43506.71 40238.97

Profit before tax 2662.76 2235.55

Provision for taxation 197.00 169.00

Profit after Current Tax 2465.76 2066.55

Provision for deferred Tax 130.00 140.00

Profit for the year 2335.76 1926.55

Profit brought forward from Previous Year 2636.86 1565.02

Exceptional Items:

Income Tax paid for earlier years 28.41 22.61

Balance available for appropriation 4944.21 3468.96

APPROPRIATIONS

Transfer to General Reserve 2000.00 192.66

Transfer to Capital Redemption Reserve 163.33 163.33Transfer to Debenture Redemption Reserve ___ 100.00

Transfer from Debenture Redemption Reserve (225.00) ___

Interim Dividend on Preference Shares 18.70 42.50

Corporate Tax on Interim Preference Dividend Paid 2.40 ___

Proposed Equity Dividend 414.01 295.72

Corporate Tax on Dividend 53.05 37.89

Balance carried to Balance Sheet 2517.72 2636.86

4944.21 3468.96

Significant Accounting Policies and Notes on Accounts 20

Earnings per Equity Share (Basic & Diluted) (Rs.) 19.57 15.93

As per our report of even date For and on behalf of the Board,

For Brahmayya & Co.,

Chartered Accountants Sudhir Bhansali L.N. Bangur

Executive Vice President (Finance) Chairman

& Chief Finance Officer

V. Seetaramaiah C. Prabhakar R.C. Mall

Partner Company Secretary Executive Director

Place:Secunderabad

Date :29th May 2004



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Schedule 1 SHARE CAPITAL 31.03.2004 31.03.2003

Authorised

1,87,50,000 Equity Shares of Rs.10/- each 1875.00 1875.00

5,00,000 Redeemable Cumulative Preference Shares of Rs.100/- each. 500.00 500.00

Total 2375.00 2375.00Issued and Subscribed

1,18,30,000 Equity Shares of Rs.10/-each fully paid up 1183.00 1183.00

4,90,000 14.5% Redeemable cumulative Preference Shares of Rs.100/- each. 490.00 490.00

Total 1673.00 1673.00

Paid up

1,18,28,890 Equity Shares of Rs.10/- each fully paid up. 1182.89 1182.89

14.5% Redeemable cumulative Preference Shares of Rs.100/- each. (Previous Year 163334) 163.33

(All the 1,63,334 Shares redeemed during the year.)

Total 1182.89 1346.22

Of the above Equity Shares:

Schedule 2 RESERVES & SURPLUS 31.03.2004 31.3.2003

Capital Redemption Reserve

As per last Balance Sheet 434.67 271.33

Add: Transfer from Profit & Loss Account 163.33 598.00 163.33 434.66

Share Premium


Less: Premium on prematured redemption of Optionally

Fully Convertible Debentures transferred to

Profit & Loss Account 219.41 624.17 843.58

Asset Revaluation Reserve


Less: Transfer to Profit & Loss Account* 78.08 470.24 276.07 548.32General Reserve


Add: Transfer from Profit & Loss Account 2000.00 14621.96 192.66 12621.97

Debenture Redemption Reserve:


Add: Transfer from Profit & Loss Account 100.00

Less: Transfer to Profit & Loss Account 225.00 275.00 500.00

Surplus in Profit & Loss Account 2517.72 2636.86

Total 19107.09 17585.39

* Adjusted against depreciation Rs.73.04 lacs and Loss on Discarded Assets Rs.5.04 Lacs

- Previous Year depreciation Rs.73.76 lacs and Profit on sale of Fixed Assets Rs.202.31 Lacs.

SCHEDULES FORMING PART OF BALANCE SHEETRs. Lacs

Rs. Lacs

65,68,106 Equity Shares of Rs.10/- each are held by M/s.Digvijay Investments Ltd.-The holding Co.

9,98,500 Equity Shares of Rs.10/- each were allotted as fully paid up pursuant to a contractwithout payment being received in cash.

11,25,000 Equity Shares of Rs.10/- each fully paid up were alloted for consideration other

than cash as Bonus Shares by Capitalisation of Reserves.

5,80,000 Equity Shares of Rs.10/- each were alloted to the shareholders of CPL pursuant

to the Scheme of Amalgamation without payment being received in cash.

68



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Schedule 3 SECURED LOANS

Andhra Paper Annual Report 2003-04

Documents

Transcript of Andhra Paper Annual Report 2003-04