home div    indentors div sitemap div contact
SPB
About Us|Esvin|Products|Manufacturing| Investor|Financials|Certification| Care for|Awards|Careers
            Group                                                             Info                                                             Society                  SPBL
" SPB constantly strives to improve the physical and financial performance with higher production, better sales realisation with judicious product mix, higher use of in-house pulp and reduction in energy cost."
about
Investor Info
Home > Investor Info > Chairman's Speech

Chairman's Speech

Dear Shareholders,

I have great pleasure in welcoming you all to the Forty Seventh Annual General Meeting of the Company.

The Annual Report and the Audited Accounts for the year ended March 31, 2007 are with you for sometime and with your permission, I shall take them as read.

ECONOMY

The year 2007-08 will be the first year of Eleventh Plan Period. The declared objective of the Eleventh Plan is to put the economy on a sustainable growth trejectory with a growth rate of approximately 10% by the end of the plan period. Other stated objectives of the plan included a growth rate of 4% in the agricultural sector, faster employment creation, reducting disparities across regions, and ensuring access to basic physical infrastructure as well as health an eductional servies to all.

The Indian Economy continued its strong performance in the year of 2006-07. For the second consecutive year, the GDP growth was abouve 9% and is estimated at 9.2% for the year of 2006-07. The servies and industry sector are the major contributors to the growth for the year 2006-07.

While the country as a whole witnessed near normal monsoon rainfall in 2006, the agricultural sector performance lacked growth momentum and registered a paltry growth of 2.7% in 2006-07, as against 6% in 2005-06. This important sector is plagued by inadequate investment, incentive system that attracts criticism, unwise fertilizer use, low seeds replacement rate, low value addition for the harvested produce and above all uneconomic land holding size making it impossible to implement modern methods in agriculture.

Growth in ‘Industry’ was propelled by the manufacturing sector. As per Index of Industrial Production, overall growth of this sector was 10.6%, as against 8.2% in 2005-06. Sharp increase in investment rate in this sector reinforces the outlook for growth.

The services sector retained its place as a major contributor to the GDP growth. The sector witnessed a growth of 11.2% in 2006-07, as against 9.8% in 2005-06. The sector growth continued to be broad based.

The rate of inflation had crossed 6% earlier this year, due to a shortcoming in supply side which was accompanied by buoyant growth in money and credit. Inflation control has assumed top priority with policy makers.

Reserve Bank of India, in its efforts to contain spiraling inflation, used monetary measures, predominantly rate of interest, as a tool to curtail money supply and sterilize liquidity from the market. This has led to steep increase in rate of interest, both on deposits as well as advances of banking system. While increasing interest rate is a tool to curb inflation and runaway growth in credit and money supply, it has also encouraged capital flows. Dollar buying by Reserve Bank of India, to arrest appreciation of the Indian Rupee against Dollar, is one of the key factors that had resulted in the expansion of money supply. Possibly, Reserve Bank of India is now reconciled to an appreciating Rupee, giving them freedom to target money supply, credit growth and inflation.

While the inflation appears to be under control, the rising Indian Rupee has placed the exporters in tight corner with the Indian goods losing competitiveness in the international market.

The current economic scenario in the country indicates evidence of overheating, a sign that in the near term the growth momentum may decelerate. For achieving a sustainable growth rate, the country has to address the following key challenges, viz..:

. Vitalising the Farm Sector
. Infrastructure Development
. Human Resources Development and
. Moving towards ‘inclusive’ growth.

INDUSTRY SCENARIO

The Indian Paper Industry has made steady progress in the past and in the coming years also the growth prospects are bright, in view of increased demand of paper due to strong growth in Indian Economy.

Domestic paper industry, which has been growing at a CAGR of 6% in the past few years, is expected to grow at a CAGR of 6.6% in the next five years. Over the next five years, incremental capacity additions is projected at around 2.6 million tonnes which is nearly 35% of current capacity of the industry.

The improvement in demand over supply in the domestic market, coupled with firm trends in the international paper prices, due to increase in costs, is likely to trigger increase in domestic paper prices. However, huge capacity additions, expected over the next few years, will exert pressure on domestic paper prices in the medium term. Substantial input cost escalation, together with pressure on prices of end products, will impact the operating margins of the Industry.

The domestic paper industry, as ever before, is plagued by the shortage of fibrous raw- materials and their escalating costs. The Government has not heeded to the pleas of the Industry for a well structured industrial plantation programme. The lack of such a programme is a major bottleneck to the domestic industry to expand and ensure global competitiveness.

As informed in earlier meetings, the Industry, as a survival strategy, has initiated steps to popularise the concept of contract tree farming in association with accredited agricultural institutions. The Industry enters into agreements with farmers for buy back of the trees that they grow. This effort of the industry is likely to improve the availability of raw materials, besides having the effect of stabilising the prices.

To augment the raw material supply, our Company has embarked on this contract farming programme in the year 2005 and so far has brought over 9000 acres under the scheme. The area coverage will increase year after year with active participation of farmers and funding support from the banking system.

International Competitiveness is the key issue that is confronting the paper industry today, especially in the context of Government’s resolve to bring down import tariff every year and RTAs / FTAs proposed to be entered into with ASEAN / SAARC countries, including China. Government of India, in recognition of the importance of manufacturing sector in its policy initiatives and to enhance the productivity, competitiveness and employment generation, has set up a inter-disciplinary, high level body, called the National Manufacturing Competitiveness Council (NMCC), to evolve sector specific strategies for enhancing competitiveness. Paper Industry is one of the identified sectors. The Industry and Industry Associations had discussions with the NMCC to identify strategies that will enable the Indian paper industry to survive global threats and achieve global competitiveness. The Industry Association has put forward a string of policy initiatives required to bolster the sagging strength of the industry and make it globally competitive and an important player in the pulp and paper industry in
Asia-Pacific Region.

The major players, alive to the fast emerging international threats, have been aggressively pursuing quality improvement programmes, coupled with cost management and capacity additions. Increasingly, more up-to-date technologies are sought to be implemented, with added focus on environmental regulations.

The need of the hour is for the government to formulate an industry friendly industrial plantation policy (which will permit the Indian industry to invest in industrial plantations in degraded forest lands), besides setting up a Technology Up-gradation Fund for exclusive utilisation by Indian Pulp and Paper Industry. This alone will enable the industry to reduce cost and be in a position to invest in technology up-gradations and capacity additions.

PERFORMANCE REVIEW

During the year under review, the Company achieved a record production of 1 23 468 tonnes. Entire production was sold and ‘zero stock’ of finished goods was achieved at the end of the financial year, a record repeated for the tenth time in the last thirteen years. The gross turnover went up by 7.4%, to record the highest turnover of Rs 504 crores, during the year. The Company exported 15861 tonnes. In value terms, the exports were Rs 60 crores. The Company scaled down its export target, due to appreciation of the Indian Rupee against US Dollar, softening of prices in international markets and better realisation in domestic markets.

The year’s performance was marked by improved physical and financial performance. Increased contribution, due to higher production, increased sales realisation, decrease in raw materials cost, due to use of higher in-house pulp and reduced use of imported pulp, reduction in energy cost, on account of increased power generation in the captive Power Plant, reduction in interest and financing charges, led to improved profitability.

However, the benefits were partially neutralised by steep increase in prices of raw materials, both for forest raw materials and imported pulp, increase in repairs and maintenance expenses, due to ageing of machines and the need to keep them in good repair and increased use of chemicals to maintain quality parameters.

In the result, the Company achieved a record profit after tax of Rs 4140 lakhs for the year, as compared to Rs 1791 lakhs, in the previous year.

OUTLOOK

The Company is already operating in excess of its installed capacity. Consequently, scope for any substantial increase in volume of production is limited; while there can be a marginal increase during the current year.

Steep increase in prices of wood and imported pulp is a matter of serious concern for the Company. Last year, the wood prices went up by 26% and imported pulp prices by 20%. In the current year, the imported pulp prices have already gone up by nearly 10% over last year prices. The profitability of our operations is expected to be impacted significantly by these unprecedented increases, while some relief will come by way of marginal increase in prices of end product paper.

Paper market is expected to be stable during the current year which will enable the industry to effect price revisions to neutralize, partially, cost escalations, especially on raw material front.

MILL DEVELOPMENT PLAN

Members are aware that the Company commenced implementation of a major Mill Development Plan in January 2006, at an estimated cost of Rs.350 crores, with a view to improve and sustain the environmental compliance performance of the Company in line with the Charter on Corporate Responsibility for Environmental Protection (CREP), as applicable to Pulp and Paper Industry, that has stipulated time bound action plans for progressive up-gradation of technologies (specifically for pulping and solid waste recovery system). In addition, the Project will make the Company self sufficient in wood pulp requirements.

As informed earlier, the Project envisages total replacement of the existing Wood Pulping Equipment of the Mill which is more than 30 years old with a 350 tonnes per day used Pulp Mill from USA, equipped with advanced technological feature, like RDH Pulping. Besides this, a new modern Chemical Recovery Boiler (in the place of existing two Chemical Recovery Boilers installed in 1962 and 1977), a Black Liquor Evaporation Plant, a Lime Re-Burning Kiln and a Turbo Alternator Set are also being installed.

The Pulp Mill equipment from USA has already reached the Mill Site and erection is underway. Erection of the Chemical Recovery Boiler with Electrostatic Precipitator and Auxiliaries, Turbo Alternator is in progress. Erection of the Black Liquor Evaporation Plant was completed and commissioned in March 2007. The erection of the Lime Mud Re-burning Kiln has since been completed and trials are underway. The erection and commissioning of the rest of the equipment will be completed in stages and the entire Project is slated to be completed by the target date of December 2007.

The major concerns of the Company in the implementation of the Mill Development Plan are the abnormal increase in cost of building materials like, steel, cement, etc., and the non-availability of both skilled and unskilled manpower for the Project in adequate numbers. This has resulted in both time overrun and cost overrun of the Project. The Company is taking all out efforts to contain the Cost of the Project within the budgeted levels.

The Project is being funded by Term Loans of Rs 270 crores from commercial Banks and the balance out of internal accruals. The Company has so far spent Rs 216 crores on the Project.

DIRECTORATE

Sri N Ravindranathan, Director retires by rotation at the conclusion of this meeting. He does not desire to seek re-election.

Sri N Ravindranathan is a well known figure for most of you. He joined the Company as Works Manager and later elevated as General Manager and Technical Director. He served as a Technical Advisor to the Southern Paper Mills Limited, Mufindi, Tanzania, as head of a large Indian contingent of senior and middle level technical personnel deputed by our Company as part of the technical services provided by our Company, as Consultants. He has been a member of our Board since December 1986. He is an eminent technocrat in Pulp and Paper industry. His expertise and counsel greatly benefited the Company in its developmental activities.

He is the Chairman of the Share Transfer and Shareholders / Investors Grievance Committee and also a member of the Audit Committee and Project Committee of our Board.

His contribution as a Director on our Board is commendable. His rich experience in pulp and paper industry vastly guided the deliberations of our Board.

I take this opportunity to express my sincere thanks to Sri N Ravindranathan, both in my personal capacity and on behalf of the Board of Directors, for his rich contribution to the growth of the Company.

ACKNOWLEDGEMENT

I wish to place on record my great appreciation of the fine performance of all our Executives and Employees, which enabled the Company to record improved results, both physical and financial, during the year.

I take this opportunity to thank my colleagues on the Board who have always evinced keen interest in the operations of the Company and for their invaluable counsel and guidance.

My thanks are equally due to the various Departments of Central and State Governments, Banks, Indentors, Stockists, Customers, Overseas Agents, Suppliers
and Shareholders, for their sustained co-operation. I now move for adoption of the Directors’ Report and Annual Accounts.

Before doing so, I will be glad to furnish any clarification that the Members may require relating to Annual Report and Accounts.

Thank you Ladies and Gentlemen for your forbearance.

(This does not purport to be a record of the proceedings of the Forty Seventh Annual General Meeting)

Top