STAR

PAPER

A part of the Duncan Goenka Group of

companies

Raising the bar

An overview

One of Indias large paper

companies.

Integrated pulp and paper

manufacturer .

Manufacturer of industrial/
writing/ printing paper.

Production of 71106 tonnes in

2004-5.

Located in Saharanpur, UP.

What we achieved in
2004-5

What we achieved over

the years

2003-4

How Stars
performance
compares
with its

industry

peers

The highest pre-interest margin among

the leading paper companies in India.
The second highest RONW among the
leading paper companies in India.
Source: Capital Market magazine (11 April 2005)

Intra-industry comparison,
2003-4

Intra-industry comparison,
2004-5

Share price
performance:
Market
outperformer

 Cash flow of Rs 28.52 cr, 2004-5.

Improving
results
but poor
discounti
ng

Market capitalisation of Rs 107 cr

(closing price Rs.71, Mumbai
Stock Exchange, 4 June 2005).
Cash flow discounted around a
mere 4 times.

contd.

Improving
results
but poor
discounti
ng

Net earnings discounted a little

over 5 times for 2004-5 results.

Lower than peer discounting on

retrospective results.

Almost half the industry P/E of

11 (source: Capital Market, 11
April 2005).

Total income (Rs cr)

200
180
160

172.1

160.2

148.53

185.95

140
120
100
80
60
40

Star:
Indian
paper
industrys
attractive
growth
proxy

20
0

25
20

Profit after tax (Rs cr)

15
10

2001- 2

2002- 3

2003- 4

2004- 5

20.17

11.56
6.49

7.02

2001- 2

2002- 3

5
0

2003- 4

2004- 5

27.69

30
25

28.52

Cash flow (Rs cr)

20
15

12.75
8.64

10
5
0

2001- 2

2002- 3

2003- 4

2004- 5

Enhancing
shareholde
r value

Positive EVA for two years

leading to 2004-5.

Increasing ROCE for each

of three years leading to
2004-5.

44 per cent of cash flow

ploughed back into assets,
11 per cent paid out as
dividend.

Payout ratio of 17.5 per

cent in 2004-5, a balance
between reinvestment and
payout.
contd.

28.06

30

23.34

25

Enhanci
ng
sharehol
der value

20

25

20.06
20

13.86

15
10

1.5

1.6

8.93

9.41

2001- 2

2002- 3

2001- 2

2002- 3

2003- 4

2004- 5

Return on average
capital employed (%)

2003- 4

2004- 5

Return on net worth (%)

1.4

50

64.48

70
60

1.2

46.6

47.8

2001- 2

2002- 3

53.5

40

0.5

30

0.4

20

0.2
0

10

1.75

1.8

0.6

14.19

15

0.8

18.22

10
2001- 2

2002- 3

2003- 4

2004- 5

Dividend (Rs per share)

2003- 4

2004- 5

Book value* (Rs)

*Net of revaluation reserve

Backed by a
strong
market
presence

60 per cent of industrial paper

output sold within a radius of 250
kms.

Flexibility in production capability

between industrial and writingprinting paper varieties in response
to demand situation.

Dominant presence all over India for

virgin kraft and industrial posters.

Large number of stocking points

even in B and C grade cities in
North India, enabling the company
to serve even small customers.

One of the few Indian paper

companies to have established a
web-enabled indenting and webenabled order processing system.
contd.

Distribution
and reach

Retail customers serviced

through 50 nationwide
distributors, Stars primary
customers; 8% increase in
dealer throughput in 2004-5.

Presence in 13 Indian states

through the dealer network.

85 per cent of the companys

distributors have been the
companys channel partners
for at least 10 years.

Some distributors represent

the fourth generation working
with the company.

Some of the key customers/users

Eclectic
customer
mix

HLL
Eveready
ITC Limited
Thomson Press
Gopson Papers
.
Pearson
Education
Replica Press
Master cote
Manu Cote
Surya Cote

Meghdoot Laminates
Novino Batteries
Waterproof corporation
Sri Kaleswari Fireworks
Standard Fireworks
Speciality Coatings
Sri Krishna Paper
Century Lamination
Marino Panels
Greenply Industries
Bloom Decor

Operatio
nal
excellenc
e

70000

66184

68000
66000

62000

Output of 71106 MT in 2004-5, the

highest in the companys history.

A swing capacity, enabling the company

to make a variety of grades on more
than one machine.

Investment of Rs 39cr in capex in the

last three years;

62590
60196

60000
58000
56000
54000

Increasing output every single year for

the last seven years through capacity
de-bottlenecking, equipment balancing
and technology upgradation.

71106

72000

64000

2001- 2

2002- 3

2003- 4

2004- 5

Production (MT)

Prudent
raw
material
managem
ent
30

26.1

20.8

25

16.6

20

15.7

15
10
5
0

2001- 2

2002- 3

2003- 4

2004- 5

Raw material cost as a

percentage of gross sales

A decline in raw material cost as a

proportion of turnover from 26% in
2001-2 to 16.6% in 2003-4 to 15.7%
in 2004-5.

The development of clones in the

R&D center with the objective to
increase productivity by nearly
100%, enhancing farmer income and
sustainable availability of raw
material.

522000

Wood Generation (MT)

Wood Consumption (MT)

500000

265000

225703

270000

234000
218724

250660

200000

211573

300000

217800

400000

158400
210336

Estimated
generatio
n of wood
vs Stars
own
requirem
ent

410400

600000

2004-05

2005-06

100000

2000-01

2001-02

2002-03

2003-04

Government wood
Social forestry wood

91

96

80

78

89

90
77

70
60
50
40

2001-02

2002-03

2003-04

10

2000-01

20

11

30
22

Increasing use of
social forestry
resources in Star

100

23

Raw
material
scenario:

2004-05

Prudent
energy
managemen
t
1320

1310

Decline in energy consumption per

ton of production from 1310 kwh in
2001-2 to 1202 kwh in 2004-5.

Use of agro-residues as an alternative

to coal in power generation: from
1.95% of fuel used in 2003-4 to 10.2%
in 2004-5.

Awarded a certificate of merit in

January 2005 by the Indian Paper
Manufacturers Association for prudent
energy management.

Rated as the most energy efficient mill

by Centre for Science and
Environment.

Highest free energy generation from

by products in the industry.

1300
1280
1260

1233

1240

1202

1220

1202

1200
1180
1160
1140

2001- 2

2002- 3

2003- 4

2004- 5

Power consumed per ton

of paper manufactured (kwh)

Better
working
capital
managemen
t

Replacement of bank borrowings

for working capital with internal
accruals from Rs 12.6 cr in 2002-3
to Rs 3.6 cr in 2004-5.

Reduction in fixed deposits and

other unsecured loans from Rs 12
cr in 1999-2000 to Rs 0.70 cr in
2005.

Reduction in net current assets

from Rs 39 cr in 1999-2000 to Rs
27 cr in 2004-5 in the face of a
rising turnover.

42.28

45

40.77

43.4

40.2

40
35

26.81

30
25
20
15
10

Better
working
capital
managemen
t

5
0

2000- 1

2001- 2

2002- 3

2003- 4

2004- 5

Net Current Assets

25

23
18

20

15

15

11

10

5
0

2001- 2

2002- 3

2003- 4

2004- 5

Receivables (days)

Productivity increased by 24% in 2004-5

in comparison to 2002-03.

Team working approach comprising 17

quality circles of seven members each
across departments, aggregating all
points of view in speedy problem-solving.

Enhanced
people

productivity

The workmen are involved in several

quality circles and the team has won
awards in regional presentations.

Better fiscal
managemen
t

At 28.06%, among the highest ROCE in

Indias paper industry (2004-5).

A plough back of 44 per cent of the

cash flow in debt repayment.

Decline in debt from Rs 99 cr in 2001-2

to Rs 45 cr in 2004-5.

Decrease in working capital, in spite of

an increase in raw material inventory.

Better fiscal
managemen
t

Decline in interest as a proportion of

turnover from 6.25 per cent in 2001-2 to
2.97 per cent in 2004-5.
Increase in EBIDTA margin from 13.68
per cent in 2001-2 to 21.19 per cent in
2004-5.

Increase in net margin from 3.81 per cent

in 2001-2 to 9.52 per cent in 2004-5.

Declining cost of debt coupled with an

increasing ROCE resulting in a better
fiscal position.

Better fiscal
management
1.2

1.17

1.06

9.52

10
9

0.69

0.8

0.6

0.44

0.4

3.81

3.83

2001- 2

2002- 3

4
3
2

0.2
0

5.89

1
0
2001- 2

2002- 3

2003- 4

2004- 5

7.13

22.2

25

24.73

19.2

20

4.8

6
5

15.91

15

4
3

2004- 5

Net profit margin (%)

Debt equity ratio

8

2003- 4

2.19

2.47

10

1
0

2001- 2

2002- 3

2003- 4

2004- 5

Interest cover

2001- 2

2002- 3

2003- 4

2004- 5

EBITDA margin* on net sales (%)

*Before extraordinary items

Responsible
safety,
health and
environment
management
160

160

149

140

139

160
140

100
80

69

60
40
20
0

2002- 3

2004- 5

905.5

900

624.5

700

100

2003- 4

Uninterrupted accident-free period (days)

800

120

504

600

80

500

60

400
300

40

200

20
0

111

120

1000

130

162

180

100
2001- 2

2002- 3

2003- 4

2004- 5

Decline in water consumption(m/ton)

2002- 3

2003- 4

2004- 5

Person days lost due to accidents

Looking
ahead: Rs
85 cr
modernizati
on cum
expansion

Investment of Rs 85-cr in asset

modernization, de-bottlenecking and
co-generation.

Investment in an increase in installed

capacity from 71,350 TPA to 75,000
TPA.

Investment in a 5 MW multi-fuel boiler

to increase flexibility to switch to
cheapest fuel.

Looking
ahead: Rs
85 cr
modernizati
on cum
expansion

Investments dovetailed with a complete

cash payback within about four
years(approx).

Phase One of these projects will be fully

commissioned by July 2005, and the rest
in phases by the end of 2006.

Brief interruptions to integrate the

projects staggered performance in the
last quarter of 2004-5 and first quarter of
2005-6.
CREP impact likely to result in capacity
decline due to a number of small players
unable to meet the new environment
regulations.
Increase in brownfield capacity to be
offset by the projected decline in
capacity as a result of the CREP impact.

The Indian
paper
industry:
basis for
optimism

Low capacity investments and the

emergence of a demand gap to lead to
increased realisations.
One of the few truly demand recessionneutral industries.
Consistent year-on-year demand growth.
Influenced by price variations, but no
significant demand variations.
Speedy demand growth even in the face of
emergence of substitutes from time to
time.
Increase in literacy level in India from 52.21
% in 1991 to 65.38 % in 2001(taken from
Census) now expected to accelerate as a
result of the levy of 2 % as education cess.
Low capacity additions.

Star: points
of optimism

Effective backward linkages with

farmers to secure increasing raw
material availability.

Prudent positioning in the industrial

grades due to relatively low regional
competition only major paper mill in
India in these grades.

Industrial grades a strong proxy of the

growing consumer and industry boom
in India.

Largely compliant with CREP

requirements (2008), so no large capex
foreseen on this account.

Star: points
of optimism

Demonstrated a resistance to industry

cyclicality through a profit increase in
every single year across the last four
years.

Modernisation cum expansion

programme to reduce costs in a
significant way and enhance production
to 75,000 TPA from the second quarter of
2005-6.

Erstwhile cash flow allocation towards

debt reduction to be increasingly
allocated towards capacity building and
cost reduction.

Star: points
of optimism

Prospect of attractive growth in 2004-5

on account of three reasons: higher
production, increased realisations.
(increase announced in April and June
2005) and decline in production costs as
a result of the modernisation.

Prospect of sustained profit growth over

the foreseeable future.

For any clarification, you may

contact
Mr. Pankaj Virmani (Company
Secretary)
Tel : 0132-2727731-35,
2731731-35