Mr. Punamchand Malu
Managing Director
Mr. Banwarilal Malu
Joint Managing Director


Dear shareholders,

From your Company’s point of view, 2004-2005 has been an excellent year – by far, the best in recent times. Revenues have grown by 6% and profits before taxes have grown by a whopping 246% Net Profit after Taxes have grown by over 271%.This is a tremendous achievement and I expect your Company to still grow on them in the coming years. Before I discuss with you the company level matters, let me highlight briefly the scenario of newsprint industry globally and in India.


In 2004, the global demand for newsprint stood at 36.7 million tonnes, up by 2.7 percent as compared to 2003. Most of the increase in demand came from the Asian region, with an increase of around 5 percent from 7.5 million tonnes in 2003 to 8.0 million tonnes in 2004. Global newsprint capacity in 2004 was 32.3 million tonnes, a marginal rise of 1 percent from 2003. Capacity additions came from the Western European and Asian regions.


Wastepaper based units in vogue….

Newspapers key growth drivers In the last 3-4 years, wood based units have come down from 31 percent to 24 percent with respect to total installed capacity while the proportion of agro based units and waste paper based mills has increased from 9 percent to 13 percent and from 59 percent to 63 percent respectively. Waste paper based mills in India account for 85 percent of all mills. The large, medium and small newspapers largely use newsprint. Out of the total demand, large newspapers account for 45-50 percent consumption, while medium and small newspapers along with magazines and government publications account for 35-40 per cent while others like telephone directories, cheap notebooks etc. consume the balance of 10-20 percent of newsprint.


The demand for newsprint is estimated to have grown to 1.34 million tonnes in 2004-2005 and is projected to grow at a CAGR of 8.2 percent over the next 5 years reaching 2 million tonnes per annum in 2010. During the last 5 years (1999-2000 to 2004-2005), newsprint demand increased at a CAGR of 8.6 percent. There has been a phenomenal rise in the number of newspapers and their circulation. The average number of pages has also increased. Even regional newspapers have taken advantage of advances in printing and communication technology to bring multiple edition dailies. The circulation of newspapers has shot up from 115 million in 2001-2002 to 142 million copies in 2002-2003. This growth has mainly come from small towns that are catching up with city readership volumes and publications. The IRS survey estimates there are 161 million newspaper readers in India. This population is fast expanding thanks to improved literacy, circulation and disposable incomes coupled with reduction in newspaper readership costs.

The production of newsprint is estimated to have grown to 627,227 tonnes in 2004-2005. There was an increase of 9 percent as compared to the production in 2003-2004, primarily brought about by the spurt in production in the last 2 months of the year. Imports have grown at CAGR of 10.4 percent in the last 5 years (1999-2000 to 2004-2005). In 2004-2005 India is estimated to have imported about 720,000 tonnes of newsprint accounting for about 54 percent of total demand. Import of newsprint is expected to grow at a CAGR of 7-8 percent in the next 5 years, reaching nearly 1.05 million tonnes per annum by 2010. We believe, the above situation represents an excellentopportunity for low cost manufacturers like your company to expand base and capture larger share of domestic market especially in smaller cities, towns and up country consumers.

Domestic newsprint industry is plagued by lack of pricing flexibility primarily because of lopsided duty structure, with finished newsprint as well as raw material such as waste paper & wood pulp attracting same 5 percent import duties, discouraging the domestic producers from manufacturing newsprint vis-à-vis W&P paper. Since more than 50 percent of demand is met through imports, domestic prices of newsprint follow the international prices. Domestic prices are estimated to have risen by 6 percent in 2004-2005 from 2003-2004. An increase in international prices by about $20 led to an increase in domestic prices increasing by Rs. 1000 per tonne in April 2005. A further hike of $15-20 in international prices, is expected in later part of 2005.

Looking at the above scenario your company has embarked upon a program to sequentially upgrade the current operations, remove bottlenecks and expand Newsprint capacity from 60 TPD by installing a green field unit of 150 TPD at a cost of Rs. 70 Crores, taking total capacity to 210 TPD. The proposed unit will be located near the present plant and offer products in the value added segment, competing directly with imported newsprint. The above project is proposed to be set up with a debt equity mix of Rs. 45 Crores debt and fresh capital of Rs. 25 Crores. The Company proposes to tap the capital markets at a suitable opportunity, later this year. Let me end by saying that 2004-2005 has been a fantastic year. I believe, 2005-2006 will be even better year for your company. Paper prices are looking firm, demand is strong and with the Company in expansion mode, things can only get better. Let me take this opportunity to thank all our employees, suppliers and associates for their dedication, service to grow the business of your company. And my sincerest thanks to all of you, in having reposed your trust and confidence in us.
Managing Director
Joint Managing Director
Nagpur: 1 st October 2005
Information Source: CRIS INFAC Yearly Report
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