starpresentation090605 (2)

STAR PAPER STAR

PAPER A part of the Duncan Goenka Group of companies

Raising the bar

An overview An overview

• 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.

What we achieved in 2004-5

What we achieved in 2004-5

What we achieved over the years

What we achieved over the years

How Star’s performance

compares with its industry

peers

How Star’s 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)

2003-4

Intra-industry comparison, 2003-4




Share price performance: Market outperformer

Share price performance: Market outperformer

Improving results

but poor discounti

ng

Improving results

but poor discounti

ng

• 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.

contd.

Improving results

but poor discounti

ng

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).

Star: Indian paper

industry’s attractive

growth proxy

Star: Indian paper

industry’s attractive

growth proxy

148.53160.2

172.1185.95

0

20

40

60

80

100

120

140

160

180

200

2001-2 2002-3 2003-4 2004-5

6.49 7.02

11.56

20.17

0

5

10

15

20

25

2001-2 2002-3 2003-4 2004-5

8.6412.75

27.69 28.52

0

5

10

15

20

25

30

2001-2 2002-3 2003-4 2004-5

Total income (Rs cr)

Profit after tax (Rs cr)

Cash flow (Rs cr)

Enhancing shareholde

r value

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.

Enhancing shareholder value

Enhancing shareholder value

14.19

18.22

23.34

28.06

0

5

10

15

20

25

30

2001-2 2002-3 2003-4 2004-5

Return on averagecapital employed (%)

8.93 9.41

13.86

20.06

0

5

10

15

20

25

2001-2 2002-3 2003-4 2004-5

0.5

1

1.51.75

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2001-2 2002-3 2003-4 2004-5

Return on net worth (%)

Dividend (Rs per share)

46.6 47.853.5

64.48

0

10

20

30

40

50

60

70

2001-2 2002-3 2003-4 2004-5

Book value* (Rs)*Net of revaluation reserve

Backed by a strong market

presence

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 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.

contd.

Distribution and reach

Distribution and reach

• Retail customers serviced through 50 nationwide distributors, Star’s primary customers; 8% increase in dealer throughput in 2004-5.

• Presence in 13 Indian states through the dealer network.

• 85 per cent of the company’s distributors have been the company’s channel partners for at least 10 years.

• Some distributors represent the fourth generation working with the company.

Eclectic customer

mix

Eclectic customer

mix

.

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

Operational excellence

Operational excellence

• 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 company’s 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;

6019662590

66184

71106

54000

56000

58000

60000

62000

64000

66000

68000

70000

72000

2001-2 2002-3 2003-4 2004-5

Production (MT)

Prudent raw

material managem

ent

Prudent raw

material managem

ent

• 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.

26.1

20.8

16.6 15.7

0

5

10

15

20

25

30

2001-2 2002-3 2003-4 2004-5

Raw material cost as apercentage of gross sales

Estimated generation of wood vs Star’s

own requirem

ent

Estimated generation of wood vs Star’s

own requirem

ent

1584

0021

0336

2178

00

2115

73

2340

0021

8724 2700

00

2257

03

4104

00

2506

60

5220

0026

5000

0

100000

200000

300000

400000

500000

600000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Wood Generation (MT)

Wood Consumption (MT)

Raw material scenario:Increasing use of

social forestry resources in Star

Raw material scenario:Increasing use of

social forestry resources in Star

Government wood

Social forestry wood

2377

2278

1189

991

496

0

10

20

30

40

50

60

70

80

90

100

2000-01 2001-02 2002-03 2003-04 2004-05

Prudent energy

management

Prudent energy

management

• 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.

1310

12331202 1202

1140

1160

1180

1200

1220

1240

1260

1280

1300

1320

2001-2 2002-3 2003-4 2004-5

Power consumed per tonof paper manufactured (kwh)

Better working capital

management


management

• 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.


management


management

42.28 40.77 43.4 40.2

26.81

0

5

10

15

20

25

30

35

40

45

2000-1 2001-2 2002-3 2003-4 2004-5

Net Current Assets

23

1815

11

0

5

10

15

20

25

2001-2 2002-3 2003-4 2004-5

Receivables (days)

Enhanced people

productivity

Enhanced people

productivity

• 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.

Better fiscal managemen

t


t

• At 28.06%, among the highest ROCE in India’s 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.


t


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 managementBetter fiscal management

2.19 2.47

4.8

7.13

0

1

2

3

4

5

6

7

8

2001-2 2002-3 2003-4 2004-5

Interest cover

3.81 3.83

5.89

9.52

0

1

2

3

4

5

6

7

8

9

10

2001-2 2002-3 2003-4 2004-5

Net profit margin (%)

15.91

19.222.2

24.73

0

5

10

15

20

25

2001-2 2002-3 2003-4 2004-5

EBITDA margin* on net sales (%)

1.171.06

0.69

0.44

0

0.2

0.4

0.6

0.8

1

1.2

2001-2 2002-3 2003-4 2004-5

Debt equity ratio

*Before extraordinary items

Responsible safety, health and environment management

Responsible safety, health and environment management

69

111

162

0

20

40

60

80

100

120

140

160

180

2002-3 2003-4 2004-5

Uninterrupted accident-free period (days)

905.5

624.5

504

0

100

200

300

400

500

600

700

800

900

1000

2002-3 2003-4 2004-5

Person days lost due to accidents

160149

139130

0

20

40

60

80

100

120

140

160

2001-2 2002-3 2003-4 2004-5

Decline in water consumption(m³/ton)

Looking ahead: Rs

85 cr modernizati

on cum expansion

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

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.

• 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

The Indian paper

industry: basis for optimism

Star: points of optimismStar: 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.


• 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.


• 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

starpresentation090605 (2)

Documents

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