THE INDIAN PAPER INDUSTRY

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STAR PAPER
A part of the Duncan Goenka Group of companies
Raising the bar
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• 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.

An overview
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What we achieved in 2004-5
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What we achieved over the years
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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)
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Intra-industry comparison, 2003-4
Intra-industry comparison, 2004-5
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Share price performance Market outperformer
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• Cash flow of Rs 28.52 cr, 2004-5.
• Market capitalisation of Rs 107 cr (closing price
  Rs.71, Mumbai Stock Exchange, 4 June 2005).
• Cash flow discounted around a mere 4 times.

Improving results but poor discounting
contd.
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• 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).

Improving results but poor discounting
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Total income (Rs cr)
Star Indian paper industrys attractive growth
proxy
Profit after tax (Rs cr)
Cash flow (Rs cr)
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• 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.

Enhancing shareholder value
contd.
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Enhancing shareholder value
Return on average capital employed ()
Return on net worth ()
Dividend (Rs per share)
Book value (Rs)
Net of revaluation reserve
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• 60 per cent of industrial paper output sold
  within a radius of 250 kms.
• Flexibility in production capability between
  industrial and writing-printing 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
  web-enabled order processing system.

Backed by a strong market presence
contd.
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• 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.

Distribution and reach
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Some of the key customers/users 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
.
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• Increasing output every single year for the last
  seven years through capacity de-bottlenecking,
  equipment balancing and technology upgradation.
• 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

Operational excellence
Production (MT)
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• 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 RD center with
  the objective to increase productivity by nearly
  100, enhancing farmer income and sustainable
  availability of raw material.      

Prudent raw material management
Raw material cost as a percentage of gross sales
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Wood Generation (MT)
Wood Consumption (MT)
Estimated generation of wood vs Stars own
requirement
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Government wood
Social forestry wood

Raw material scenario Increasing use of social
forestry resources in Star
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• 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.

Prudent energy management
Power consumed per ton of paper manufactured (kwh)
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• 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.
•  

Better working capital management
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Better working capital management
Net Current Assets
Receivables (days)
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• 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.
• The workmen are involved in several quality
  circles and the team has won awards in regional
  presentations.

Enhanced people productivity
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Better fiscal management

• 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.

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Better fiscal management

• 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.

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Better fiscal management
Net profit margin ()
Debt equity ratio
EBITDA margin on net sales ()
Interest cover
Before extraordinary items
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Responsible safety, health and environment
management
Uninterrupted accident-free period (days)
Decline in water consumption(m³/ton)
Person days lost due to accidents
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• 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 modernization cum
expansion
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• 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.

Looking ahead Rs 85 cr modernization cum
expansion
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• Low capacity investments and the emergence of a
  demand gap to lead to increased realisations.
• One of the few truly demand recession-neutral
  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.

The Indian paper industry basis for optimism
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• 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
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• 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
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• 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.

Star points of optimism
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For any clarification, you may contact Mr. Pankaj
Virmani (Company Secretary) Tel
0132-2727731-35, 2731731-35