STAR PAPER

A part of the Duncan Goenka Group of companies

Raising the bar

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One of India¶s 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.

An overview

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What we achieved in 2004-5

What we achieved over the years .

The second highest RONW among the leading paper companies in India.2003-4 How Star·s performance compares with its industry peers ‡ ‡ The highest pre-interest margin 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 .

4 June 2005).52 cr.71. Improving results but poor discounting ‡ Market capitalisation of Rs 107 cr (closing price Rs.‡ Cash flow of Rs 28. ‡ Cash flow discounted around a mere 4 times. Mumbai Stock Exchange. . contd. 2004-5.

‡ Net earnings discounted a little over 5 times for 2004-5 results. ‡ Almost half the industry P/E of 11 (source: Capital Market. Improving results but poor discounting ‡ Lower than peer discounting on retrospective results. . 11 April 2005).

53 172.Total income (Rs cr) 200 180 160 140 120 100 80 60 40 20 0 2001-2 25 2002-3 2003-4 2004-5 185.64 10 5 0 2001-2 2002-3 2003-4 2004-5 .02 5 0 2 0 0 1.49 7.2 148.17 11.69 28.2 2002-3 2003-4 2004-5 30 27.75 8.52 25 Cash flow (Rs cr) 20 15 12.1 Star: Indian paper industry·s attractive growth proxy Profit after tax (Rs cr) 20 15 20.56 10 6.95 160.

5 per cent in 2004-5. Enhancing shareholder value ‡ ‡ . Payout ratio of 17. 11 per cent paid out as dividend. a balance between reinvestment and payout. Increasing ROCE for each of three years leading to 2004-5. 44 per cent of cash flow ploughed back into assets. contd.‡ ‡ Positive EVA for two years leading to 2004-5.

75 1.2 0 2 0 0 1.4 20 0.8 1 50 40 0.5 30   Dividend (Rs per share) Book value* (Rs) *Net of revaluation reserve .22 Enhancing shareholder value 20 14.41 Return on average capital employed (%) 5 0 2 0 0 1.19 15 25 10 20. 4 1.06 20 5 13.5 46.5 1.6 47.34 18. 8 1.48 70 60 1.93 10 9.2 2002-3 2003-4 2004-5 0 2 0 0 1.2 2002-3 2003-4 2004-5 1.06 30 25 23. Return on net worth (%) 64.28. 2 1 0.86 15 0 2001-2 2002-3 2003-4 2004-5 8. 0.8 0.2 2002-3 2003-4 2004-5 10   53.

‡ 60 per cent of industrial paper output sold within a radius of 250 kms. One of the few Indian paper companies to have established a web-enabled indenting and webenabled order processing system. Flexibility in production capability between industrial and writingprinting paper varieties in response to demand situation. contd. enabling the company to serve even small customers. ‡ ‡ Backed by a strong market presence ‡ ‡ . 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.

Presence in 13 Indian states through the dealer network. 5 per cent of the company¶s distributors have been the company¶s channel partners for at least 10 years. % increase in dealer throughput in 2004-5.Distribution and reach ‡ Retail customers serviced through 50 nationwide distributors. Star¶s primary customers. Some distributors represent the fourth generation working with the company. ‡ ‡ ‡ .

Some of the key customers/users ‡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 Eclectic customer mix .

‡ Operational excellence ‡ 71106 72000 70000 68000 66000 64000 62000 60000 58000 56000 54000 Increasing output every single year for the last seven years through capacity de-bottlenecking. Investment of Rs 39cr in capex in the last three years. equipment balancing and technology upgradation. Output of 71106 MT in 2004-5. enabling the company to make a variety of grades on more than one machine. 66184 62590 60196 ‡ ‡ Production (MT) ¡ ¡ ¡ 2001 2 2002 3 2003 4 2004 5 ¡ . the highest in the company¶s history. A swing capacity.

7 25 20 15 10 5 0 2 0 0 1. The development of clones in the R&D center with the objective to increase productivity by nearly 100%.7% in 2004-5.‡ Prudent raw material management 30 A decline in raw material cost as a proportion of turnover from 26% in 2001-2 to 16.2 2002-3 2003-4 2004-5 Raw material cost as a percentage of gross sales . enhancing farmer income and sustainable availability of raw material.8 16.1 20. ‡ 26.6 15.6% in 2003-4 to 15.

Wood Generation (MT) Wood Consumption (MT) 600000 500000 Estimated generation of wood vs Star·s own requirement 400000 410400 522000 270000 211573 2000-01 300000 200000 100000 0 2001-02 2002-03 2003-04 2004-05 2005-06 158400 210336 217800 234000 218724 225703 250660 265000 .

Government wood Social forestry wood Raw material scenario: Increasing use of social forestry resources in Star 100 90 70 60 50 40 30 23 77 20 10 0 2000-01 22 78 80 11 89 9 91 2001-02 2002-03 2003-04 2004-05 4 96 .

‡ Decline in energy consumption per ton of production from 1310 kwh in 2001-2 to 1202 kwh in 2004-5. Highest free energy generation from by products in the industry. Prudent energy management 13 2 0 13 0 0 12 8 0 12 6 0 12 4 0 12 2 0 12 0 0 118 0 116 0 114 0 2 0 0 1. Rated as the most energy efficient mill by Centre for Science and Environment.2% in 2004-5. Awarded a µcertificate of merit¶ in January 2005 by the Indian Paper Manufacturers Association for prudent energy management.95% of fuel used in 2003-4 to 10. Use of agro-residues as an alternative to coal in power generation: from 1.2 2002-3 2003-4 2004-5 ‡ ‡ 1310 1233 1202 1202 ‡ Power consumed per ton of paper manufactured (kwh) ‡ .

70 cr in 2005. Better working capital management ‡ ‡ . 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.‡ Replacement of bank borrowings for working capital with internal accruals from Rs 12. Reduction in fixed deposits and other unsecured loans from Rs 12 cr in 1999-2000 to Rs 0.6 cr in 2004-5.6 cr in 2002-3 to Rs 3.

2 2002-3 2003-4 2004-5 Better working capital management Net Current Assets 25 23 18 15 20 15 11 10 5 0 2001-2 2002-3 2003-4 2004-5 Receivables (days) .28 45 40 35 30 25 20 15 10 5 0 2000-1 40.2 26.42.77 43.81 2 0 0 1.4 40.

The workmen are involved in several quality circles and the team has won awards in regional presentations. Team working approach comprising 17 quality circles of seven members each across departments. aggregating all points of view in speedy problem-solving.‡ ‡ Productivity increased by 24% in 2004-5 in comparison to 2002-03. Enhanced people productivity ‡ .

in spite of an increase in raw material inventory. Decrease in working capital. among the highest ROCE in India¶s paper industry (2004-5). Better fiscal management ‡ ‡ ‡ . Decline in debt from Rs 99 cr in 2001-2 to Rs 45 cr in 2004-5.‡ At 28.06%. A plough back of 44 per cent of the cash flow in debt repayment.

52 per cent in 2004-5. ‡ ‡ ‡ . Increase in net margin from 3.81 per cent in 2001-2 to 9.68 per cent in 2001-2 to 21.97 per cent in 2004-5. Increase in EBIDTA margin from 13.‡ Better fiscal management Decline in interest as a proportion of turnover from 6.25 per cent in 2001-2 to 2.19 per cent in 2004-5. Declining cost of debt coupled with an increasing ROCE resulting in a better fiscal position.

73 2002-3 2003-4 2004-5 EBITDA margin* on net sales (%) *Before extraordinary items .2 9.8 0.2 15.83 Net profit margin (%) 22.17 1.89 3.2 1 0 2001-2 2002-3 2003-4 2004-5 0 2 0 0 1.69 0.4 0.13 4.Better fiscal management 1.47 10 Interest cover ¢ 8 7 6 5 4 3 2 5.06 10 1 0.2 2002-3 2003-4 2004-5 Debt equity ratio 8 7 20 6 5 4 3 2 5 1 0 2001-2 2002-3 2003-4 2004-5 0 2001-2 7.91 24.2 19.52 1.8 25 15 2.6 0.81 3.44 0.19 2.

18 0 162 Uninterrupted accident free period (days) 60 16 0 14 0 12 0 49 39 30 10 0 0 900 800 700 905.5 624. health and environment management 16 0 14 0 12 0 10 0 80 60 40 20 0 2002 3 2003 4 2004 5 111 69 £ .5 504 10 0 80 60 40 20 600 500 400 300 200 10 0 0 2002 3 2003 4 2004 5 Decline in water consumption(m³/ton) Person days lost due to accidents £ £ £ £ £ £ 2001 2 2002 3 2003 4 2004 5 0 £ £ £ Responsible safety.

Investment in an increase in installed capacity from 71. de-bottlenecking and co-generation. Investment in a 5 MW multi-fuel boiler to increase flexibility to switch to cheapest fuel. Looking ahead: Rs 85 cr modernization cum expansion ‡ ‡ .350 TPA to 75.‡ Investment of Rs 85-cr in asset modernization.000 TPA.

CREP impact likely to result in capacity decline due to a number of small players unable to meet the new environment regulations. ‡ ‡ Looking ahead: Rs 85 cr modernization cum expansion ‡ ‡ . and the rest in phases by the end of 2006. Increase in brownfield capacity to be offset by the projected decline in capacity as a result of the CREP impact. Phase One of these projects will be fully commissioned by July 2005.‡ Investments dovetailed with a complete cash payback within about four years(approx). Brief interruptions to integrate the projects staggered performance in the last quarter of 2004-5 and first quarter of 2005-6.

21 % in 1991 to 65. Speedy demand growth even in the face of emergence of substitutes from time to time. One of the few truly demand recessionneutral industries. but no significant demand variations.38 % in 2001(taken from Census) ± now expected to accelerate as a result of the levy of 2 % as education cess. Increase in literacy level in India from 52. Low capacity additions. Influenced by price variations. . Consistent year-on-year demand growth.‡ ‡ ‡ ‡ ‡ The Indian paper industry: basis for optimism ‡ ‡ Low capacity investments and the emergence of a demand gap to lead to increased realisations.

‡ Star: points of optimism ‡ ‡ . Largely compliant with CREP requirements (2008). Industrial grades a strong proxy of the growing consumer and industry boom in India.‡ 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. so no large capex foreseen on this account.

‡ 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. Star: points of optimism ‡ ‡ . Erstwhile cash flow allocation towards debt reduction to be increasingly allocated towards capacity building and cost reduction.000 TPA from the second quarter of 2005-6.

(increase announced in April and June 2005) and decline in production costs as a result of the modernisation. . increased realisations.‡ Star: points of optimism ‡ Prospect of attractive growth in 2004-5 on account of three reasons: higher production. Prospect of sustained profit growth over the foreseeable future.

2731731-35 . you may contact Mr. Pankaj Virmani (Company Secretary) Tel : 0132-2727731-35.For any clarification.