Company Analysis OF

INDUSTRY ANALYSIS

Global Industry Trend of Paper Industry

The Paper Industry consists of companies that use wood as raw material and produce paper, board and other cellulose-based products. Paper industry is primarily dependent upon forestbased raw materials. It was based on grasses and jute as raw material initially. Large scale mechanized technology of papermaking is used presently. The raw material for the paper industry underwent a number of changes and over a period of time, besides wood and bamboo, other non-conventional raw materials have been developed for use in the paper making. These Industries manufacture wide range of papers such as coated wood free, uncoated wood free, copy

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paper, packaging, business stationery, industrial grades and fine paper. They make paper stationery products too. The industry is dominated by Asian countries (such as China ,Japan and South Korea), North American countries (United States and Canada), Northern European countries (Finland, Sweden, and North-West Russia) Australasia and Brazil also have significant paper enterprises. India also has a minor share in the Paper Industry.

Top 5 paper producing countries ( as per statistics data by RISI)

Rank

Country

production in 2010(1000ton)

I 2 3 4 5

china United States Japan Germany Cananda

92,599 75,849 27,288 23,122 12,787

List of main company groups by production quantity (as per statistics data by RISI )

Rank 1 2 3 4 5

Company Group International Paper Stora Enso UPM Svenska Cellulosa Aktiebolaget Smurfit Kappa Group

Country United States Finland Finland Sweden United States

Production in 2010 11,922 10,812 9,914 8,948 7,650

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Paper making process

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Predictions on paper industry with the rapid advancement of Digital Technology It was predicted that the Digital Revolution would make Paper as Obsolete .But for now it looks like Paper is not going anywhere. We touch paper hundred of times each day from Newspapers to Money. the paper

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industrys activitiesand our individual use and disposal of paper in our daily liveshave enormous impacts. These include loss and degradation of forests that moderate climate change, destruction of habitat for countless plant and animal species, pollution of air and water. Use of Recycled Paper To prevent Global warming and pollution due to Paper, Recycled paper is used these days. To ensure that all paper is environmentally sustainableand that starts with recycled content. Replacing virgin tree fibers with recovered fibers reduces demand for wood, which eases pressure to harvest forests and convert natural forests into tree plantations. Making paper from used paper requires less energy and is generally a cleaner manufacturing process than making paper from trees. And because it diverts usable paper from the waste stream, recycling cuts both solid waste and greenhouse gas emissions created when paper decomposes in landfills. Benefits of Recycled Paper Compared to copy paper made from 100% virgin forest fiber, a copy paper made from 100% recycled content reduces: total energy consumption by 44% net greenhouse gas emissions by 38% particulate emissions by 41% wastewater by 50% solid waste by 49% wood use by 100% Currently, 37 percent of U.S. pulp and nearly 25 percent of Canadian pulp is produced from recovered paper

Paper Industry in India

Outlook

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Outlook for paper industry in India looks extremely positive as the demand for upstream market of paper products, like, tissue paper, tea bags, filter paper, light weight online coated paper, medical grade coated paper, etc., is growing up. Paper industry in India is the 15th largest paper industry in the world. It provides employment to nearly 1.5 million people and contributes Rs 25billion to the government's kitty. The government regards the paper industry as one of the 35 high priority industries of the country. Paper industry is primarily dependent upon forestbased raw materials. The first paper mill in India was set up at Sreerampur , West Bengal, in the year1812. It was based on grasses and jute as raw material. Large scale mechanized technology of papermaking was introduced in India in early 1905. Since then the raw material for the paper industry underwent a number of changes and over a period of time, besides wood and bamboo, other non-conventional raw materials have been developed for use in the paper making. The Indian pulp and paper industry at present is very well developed and established. Now, the paper industry is categorized as forest-based, agro-based and others (waste paper, secondary fibre, bast fibers and market pulp).In 1951, there were 17 paper mills, and today there are about 515 units engaged in the manufacture of paper and paperboards and newsprint in India. The pulp & paper industries in India have been categorized into large-scale and small-scale. Those paper industries, which have capacity above24,000 tonnes per annum are designated as large-scale paper industries .India is self-sufficient in manufacture of most varieties of paper and paper boards. Import is confined only to certain specialty papers. To meet part of its raw material needs the industry has to rely on imported wood pulp and waste paper .Indian paper industry has been de-licensed under the Industries(Development & Regulation) Act, 1951 with effect from 17th July, 1997. The interested entrepreneurs are now required to file an Industrial Entrepreneurs' Memorandum (IEM) with the Secretariat for Industrial Assistance (SIA) for setting up a new paper unit or substantial expansion of the existing unit in permissible locations. Foreign Direct Investment (FDI) upto 100% is allowed on automatic route on all activities except those requiring industrial licenses where prior governmental approval is required. Growth of paper industry in India has been constrained due to high cost of production caused by inadequate availability and high cost of raw materials ,power cost and concentration of mills in one particular area. The pulp and paper sector presents one of the energy intensive and highly polluting sectors within the Indian economy and is therefore one of the main particular interest in the context of both local and global environmental discussions. Increases in productivity through the adoption of more efficient and cleaner technologies in the manufacturing sector will be most effective in merging economic, environmental, and social development

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Government has taken several policy measures to remove the bottlenecks of availability of raw materials and infrastructure development. For example, to overcome short supply of raw materials, duty on pulp and waste paper and wood logs /chips has been reduced. Following measures need to be taken to make Indian paper industry more competitive: 1) Revision of forest policy is required for wood based paper industry so that plantation can be raised by industry, cooperatives of farmers, and state government. 2) Degraded forest should be made available to the industry for raising plantations. 3) Import duty on waste paper should be reduced. 4) Duty free imports of new & second hand machinery/equipment should be allowed for technology up gradation. 5) Improvement of key ports, roads and railways and communication facilities. ANALYSIS OF THE PAPERINDUSTR Impact of Union Budget 2011-2012: Indirect Taxes on Paper industry The budget proposals have a largely neutral impact on the paper industry.
Excise Duty:

The excise duty on paper and paperboard has been increased from 4% to 5%.
Customs Duty:

The basic custom duty on paper and paper board has been retained at 10%. The custom duty on wood pulp has also been retained at 5%. However the custom duty on waste paper has been reduced from 5% to 2.5%.

PEST ANALYSIS Political factors affecting the Paper industry The Government policies for Paper industry has been good. For almost 3 decades the Paper industry is protected by good government policies .In 1970s there was shortage of paper.

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Government provided financial incentives to paper industry through financial institutions (Datt and Sudharam) Variety of concessions were given to small paper mills. In 1974, the Government of India asked paper manufacturing industries to produce white paper and supply to the educational sector and to the Government departments at very reasonable rates .T h e g o v e r n m e n t a d d i t i o n a l l y e s t a b l i s h e d h i g h i m p o r t d u t i e s o n i m p o r t e d paper and paperboard to reduce import dependency and export of paper was banned too which led to stagnation . The Government started taking steps to get paper industry back on track and removed price and distribution controls on white printing paper in 1987. This allowed the paper industry to receive profitable returns on paper products .The Government of India exempted paper units from excise duty, provided they used 75% of non-conventional raw materials for production. Broad banding was started which means that firms now experience the freedom to manufacture any variety of paper within the overall limit of licensed capacity (1998). Since 1992, the government has taken further measures to improve the situation of the paper sector. They include excise rebate to small units, abolition of customs duty on the import of paper grade pulp and wood chips ,removal of statutory control over production, price and distribution . Customs duty on inputs and intermediate test have not been brought down on 11 a similar scale. Import of wood pulp for the production of newsprint and newsprint products are allowed on a more flexible scale. Moreover, obligations regarding licensing and excise duty have been alleviated. While the Monopolies and Restrictive Trade Practices Act(MRTP ACT) from 1991 abolished industrial licensing for almost all industries, the paper and newsprint industry except the bagasse based units has not been exempt yet. ECONOMIC FACTORS Although per capita paper consumption in India is very low compared to other countries the paper industry holds a considerable share in manufacturing production. Today more than 380 small and big paper mills produce a variety of different paper, paperboard as well as newsprint . Installed production c a p a c i t y i n c r e a s e d s u b s t a n t i a l l y f r o m 0 . 7 7 m i l l i o n t o n n e s 2 i n 1 9 7 0 - 7 1 t o 3.95 million tonnes in 1994-95. Production, however, has not increased a c c o r d i n g l y . W h i l e i n 1 9 7 0 - 7 1 p r o d u c t i o n r a n a t a l m o s t f u l l c a p a c i t y, i n 1994-95, only 2.51 million tonnes of paper and paper board were produced. As of 1995, more of paper and paper board products were produced in only 38 paper mill s . Only 48 large mills holding a share of 52% of total capacity were counted in India in 1990. Paper production in Small and medium size paper mills became important when due to a severe paper shortage in the early 1970s the government promoted establishment of bsmal, readily available paper units. As a result of paper shortage and overall government pricing policy the small and medium sector with more than 300 paper mills accounted for almost 50% of installed capacity and production in 1992. They produce primarily low quality paper such a s kraft paper and paperboards from recycled paper and various agro-fiber. The

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Demand for paper and paper products has continuously been increasing over time. Consumption of paper and paper board equaled 1.2million tonnes in 1980-81 and increased to 2.6 million tonnes . I m p o r t s a c c o u n t e d f o r a b o u t 7 % o f c o n s u m p t i o n i n 1 9 8 0 - 8 1 . W i t h t h e increase of capacity through small mostly agro-based paper mills in the early1 9 8 0 s , i m p o r t s o f p a p e r a n d p a p e r b o a r d d e c r e a s e d t o o n l y 2 % o f consumption in 1985 and to less than 1% in 1990-91. In 1994-95, however, they reached up again to over 10%. Shortage of newsprint has been even higher both in the past and today. On average, about 0.2 million tonnes of newsprint (about 40% of consumption) had to be imported in the last few years . Small agro-based mills are most likely to not survive. They will have to closed o w n d u e t o i n c a p a b i l i t y t o m e e t e n v i r o n m e n t a l s t a n d a r d s , t o o p e r a t e o n economies of scale and to compete against larger agro-based mills. SOCIAL FACTORS AFFECTING THE PAPER INDUSTRY Linked to the economic factors above social changes have significantly impacted the paper industry in relation to changing demographics in terms of the customers it targets. As such then changes in customers needs and preferences for quality paper products and changing preference towards the paper rather than fiber or plastic has increased the pace of the demand in terms of meeting these needs. Increased globalization arguably has led to customers demanding faster responses to their needs creating much more competitive business fields attempting to satisfy these desires. This is because customer shave become more environmental sensitive as well as technique and quality orientated as a result of higher educational levels and income levels creating much more discerning customers in relation to these . It provides employment to nearly 1.5 million employees in India to meet the growing demand for paper .Paper manufacturers are producing white paper and supplying it at very reasonable rates . TECHNOLOGICAL FACTORS AFFECTING THE PAPERINDUSTRY Currently Governmental as well as sector initiatives focus on overcoming the acute raw material constraints, implementing and adopting better technologies, expanding to economies of scale and decreasing environmental effluents .Various new technologies are entering the Indian market that support these movements. Presently, large paper mills are more efficient, using better and more modern technologies and appropriating economies of scale. Additionally, they provide chemical recovery facilities which reduce both emissions and e x t e r n a l e n e r g y r e q u i r e m e n t s . .

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COMPETITORS Company Sales(rs. Million) Ballarpur Industrie s AP Paper Mill Rainbow Papers 10591 5939.40 3777.25 Current price 19.55 313.7 82.95 Change( %) -0.76 -2.35 0.12 P/E ratio 165.36 0.00 23.10 Market 52 week cap(Rs high low Million) 12815.80 38/18 12475.56 389/120 7566.48 89/55

C OMPANY DESCRIPTION

The Ballarpur Group the largest manufacturer of writing and printing paper in India. It is a flagship of US 4$ Avantha group Members of the AVANTHA group which owns 49.42% of the issued share capital of Ballarpur.It has 7 manufacturing facilities, one in Malaysia and 6 in India. The subsidiaries of BILTs are Ballarpur International Graphic Paper Holdings B.V. (BIGPH); BILT Graphic Paper Products Limited (BGPPL); Sabah Forest Industries (SFI), Malaysias largest pulp and paper company; and Bilt Tree Tech Limited (BTTL).(BTTL) runs BILTs farm forestry programme in several states in India. Bilt paper PLC operates the Malaysian facility whereas the Ballarpur group retains the 3 Indian facilities. Bilt Paper PLC is focused on the manufacture of bulk coated and uncoated paper and viscous grade fibre while the rest of the Ballarpur group focuses on the manufacture of copier paper, speciality paper and tissue paper and Retail and OSSB.

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The companys segments include Coated Wood Free Paper, Uncoated Hi-bright Paper (Maplitho), Business Stationery, Copy Paper, and Speciality & Fine Paper. Coated Wood Free Paper Coated Wood Free Paper products include Art Paper C2S, including BILT Emperor Art Paper C2S, and BILT Royal Art Paper C2S; Art Paper C1S, including BILT Emperor Art Paper C1S, and BILT Royal Art Paper C1S; Art Board C2S, including BILT Emperor Art Board C2S, and BILT Royal Art Board C2S; and Black Centered Board, such as Sunlit Coated Art Board. Uncoated Hi-bright Paper (Maplitho) Uncoated Hi-bright Paper (Maplitho) products include Hi-Brights, including Sunshine Super Printing, TA Maplitho NSD Premium, SS Maplitho, Sunshine Reprographic Printing, BILT Royal Print Plus, and Sunshine Envelop Printing; Creamwove, including Easy Print, SS Maplitho NSS (Ashti), and TA Creamwove; Coloured Printing, including TA Coloured Printing; Duplicating Paper, including TA Duplicating White, and others, such as TA Maplitho Tinted, TA Maplitho Copier Grade, and Sunlit Offset Printing. Business Stationery Business Stationery products include Bonds, including BILT Royal Executive Bond (Parent Sheets), BILT Royal Executive Bond (Retail Packs), Sunlit Bond, and Super Lucky Criss Cross; Parchment, such as Lucky Parchment; and BILT Matrix, including BILT MATRIX Premium Notepads, BILT MATRIX 5 Subject Notepads, BILT MATRIX Writing Pads, BILT MATRIX Conference Pads, BILT MATRIX Executive Pads, BILT MATRIX Office Pads, and BILT Matrix Premium Multi-purpose Paper. Copy Paper Copy Paper products include Premium Copy Paper, such as BILT Copy Power; and Economy Copy Paper,such as BILT Image Copier.Speciality & Fine PaperSpeciality & Fine Paper products include Ivory Board, such as Super Lucky Ivory Board; Cartridge, such asSunshine Super Cartridge; and Ledger, such as TA Azuerlaid Ledger The major share of the high-end coated paper segment in India is with BILT. It accounts for over 53% of the coated wood-free paper market, 80% of the bond paper market and nearly 35% of the hi-bright Maplitho mark .It is also India's largest exporter of coated and uncoated paper. BILT ventured into the paper-based office stationery segment. It has 350 retail distributors spread over 270 locations which markets its stationery. BILT has huge brands such as BILT Royal Executive Bond, BILT Copy Power, BILT Image Copier and BILT Matrix which are now integral part of office stationery. BILT Ten which focuses on notebooks are targeted at students and have licensed characters such as Barbie, Spiderman, Winnie the Pooh, Hot wheels, Jungle King and Hannah Montana. In 2005, BILT

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entered into the hygiene business with two brands: Etiquette and Spruce-up. Since then, the company has acquired Premier Tissues India Limited, the leading player in hygiene tissue products in the domestic retail market. BILT acquired SFI, Malaysia, in 2007 . It was the first overseas acquisition by an Indian paper company, it transformed BILT into a major regional player, and elevated BILTs ranking among the global top 100. In 2008, BILT forayed into organised retail through P3 Paper, Print and Pens serving both B2C and B2B clients across India.

Information about the company

History The company was founded in 1945 by Lala Karam Chand Thapar as Ballarpur Paper and Straw Board Mills Limited. 'Three Aces' (paper) and 'Wisdom' (stationery) were its first two brands. Shree Gopal Paper Mills Limited in Yamunanagar was merged with the company in 1969 . In 1975, the organisation was renamed Ballarpur Industries Limited. The Southeast Asian companies sieged the company in the 1990s, who set up greenfield projects in India. But in 2001, Ballarpur Industries was able to buy out its Indonesian competitor Sinar Mas Group Indian division. After a corporate rebranding exercise in 2002, the name BILT emerged. Today, it is a wellestablished name, associated with not just paper, but also stationery products.

Locations The Headquarter of BILT is at Ballarpur, Maharashtra.

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It has 3 central nurseries in Orissa Andra Pradesh Haryana

The manufacturing units of the company are in the following locations in India

Ballarpur,Chandrapur District,Maharashtra Gaganpur,Jeypore,Orissa Yamuna Nagar District, Haryana Ashti, Gadchiroli, Maharashtra Bhigwan, Pune District, Maharashtra Chandrapur District, Maharashtra

It's Malaysian units are based in Sabah Malaysia.

SHARE HOLDING PATTERN

Holders name Promoters ForeignInstitutions FinancialInstitutions NBanksMutualFunds GeneralPublic ForeignNRI OtherCompanies Others CentralGovt No. of employees 2.5k TOP MANAGEMENT S. No. 1. 2. 3. 4. 5. 6.

No. of Shares 323960685 124163319 65472598 58604010 52642711 16565585 12828336 1280922 5550

% Share Holding 49.42% 18.94% 9.99% 8.94% 8.03% 2.53% 1.96% 0.20% 0.00%

Name Gautam Thapar R R Vederah Akhil Mahajan PV Bhide Sanjay Labroo B Hariharan

Designation Chairman Managing Director Company Secretary Additional Director Independent Director Group Director - Finance

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7.

A P Singh

Nominee Director - LIC

FINANCIAL PERFORMANCE OF THE COMPANY

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SWOT analysis of ballarpur industry Strengths Large and growing domestic paper market Some competitive PMs in newsprint, cartonboard and coated woodfree Relatively low personnel and fuel costs (although personnel productivity is lower than in many competing countries and the quality of coal varies) Up to date research institute (CPPRI) Know how in non wood pulping and applications Well developed printing industry Local market knowledge English language

Weaknesses Fibre shortage, especially virgin wood fibre Small and fragmented industry structure, many non competitive mills/machines (both quality and cost wise) + fragmented market Highly skilled and job specific manpower is not available Quality and availability of some of the domestic pigments and chemicals Environmental problems of most of the small pulp mills and also some big mills Low level of internationalisation of the industry Low standard of converting industry Infrastructure, transportation High cost of raw material including wood, non wood and waste paper High energy costs (from grid) High cost of financing Lack of local capability for design and development and machinery manufacture + process control systems Obsolence of technology, quality targets are not met by many mills (eg. newsprint produced by small mills) Impact of high local taxes (sales tax, entry tax, etc.) on inputs of paper

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 Low input into mill level R&D

Competitive opportunities Enormous domestic market potential Modern, world scale paper machine would be cost competitive in most grades Forest plantation potential Development of the industry cluster on broader basis (including paper industry and related industries:machinery + chemicals) based on FDI and use of local personnel Integrates of combined wood and agro based papermaking Market DIP mill Increasing use of carbonates and fillers Government literacy program increasing demand for printing/writing papers WTO: foreign participation/FDI would speed up restructuring Low labor costs (allow eg. cost effective sorting of imported mixed waste) Back haul possibilities for containers to lower waste paper transport costs Export potential

Competitive threats Unprepared mills for international competition (WTO entry) both on price and quality Decline in capacity due to environmental pressures Decline in capacity as some of the segments/group of mills are unable to compete at national and international levels with respect to quality and cost of products. Short term planning for raw material Fragmented market makes entry for a world scale unit difficult Delayed forest plantations, deficit of wood fibres Lack of international perspective in project development and implementation Capacity of announced projects is small considering market growth will speed up import growth Weakening competitiveness of domestic industry due to shortage and cost of basic inputs Perceived difficulty of operating environment reduces the speed of FDI

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STRATEGIES EMPLOYED BY BILT

PLANNED STRATEGY The strategy type of BILT in the early days was planned strategy. Over the years the company has grown big and has six manufacturing units across India. Though the Paper industry has been cyclical over the years, the pattern has been very much predictable. PROCESS STRATEGY BILT was taken under the Avantha group. The group has of late been trying tobuild a brand of its own. The group is being led by Gautam Thapar.Avantha group went global with some acquisitions.A brief insight into how Gautham Thapar has worked over the years would help us to get understanding of his leadership styleLooking at the way he has run the business over the years, we can observe that he hadbeen actively involved in each of the strategic decisions and not someone who wouldgive free reign to any of his sub-ordinates as far as the decision making is concerned.I feel, Ballarpur industries under Gautham Thapar has of late been following the Process Strategy

INNOVATIVE STRATEGY
The basic production process on which firms used to rely has now changed since early 1800s,Fourdrinier paper machine in France and England led to the mass production of Paper products. Where earlier production processes relied on the craft knowledge of skilled operatorsand superintendents, newer production processes incorporate sophisticated sensors,information systems, and software-based

process controls

Some of the other major innovations in the paper industry over the years have beenlisted below: 1)Minimisation of paper consumption by the introduction of innovative andefficient systems. 2)Maximising Recycled paper content 3)The paper industry attributes this apparent reduction to a rising proportion of energy from wood fuel and black liquor. Black liquor is a sludge of chemicals andlignin that is a by-product of the pulping process. Emissions from these sourcesare currently excluded from measurements of greenhouse gases. However, thispractice is extremely controversial and is currently being reviewed by the U.S.Environmental Protection Agency and others 4)Exexposure to international products have forced the Indian firms to change product

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packaging.Firms have started improving the printing and packaging of their products to retain the product appeal among the customers both in Indian and abroad

GENERIC STRATEGIES

Ballarpur industries have adopted the low cost generic strategy BILT is planning to become a fully integrated paper player in the industry. It has a large distributionnetwork to cater to the fragmented paper market and it has a vertically integratedbusiness model from wood to pulping, chemicals and captive power. BILT's cost structure would improve after the successful completion of its backward integration..Additional cost savings will be driven by the company's increasing reliance on ownwood from its Malaysian plantation, the pulp from which would be brought to Indiafrom September 2011. BILTs strategy is to operate in low -cost economies such as India and Malaysia, whichalso have strong domestic Business expansion BILTs acquisition of SFI in 2007 was a watershed event it was the first overseasacquisition by an Indian paper company. This acquisition transformed BILT into a majorregional player, and elevated the company's ranking among the global top 100 Ballarpur industries have diversified heavily over the years. The revenues from thepaper and pulp division accounted to roughly around 67% whereas the stationarydivision accounted to around 33%. Hence the diversification type of BILT can be termedas Related.However, within the paper and pulp division, the company has concentrated onlowering the cost of raw materials by going for vertical integration. BILT acquired SabahForest Industries which operates an integrated paper and pulp mill in Malaysia. Also, it has concentrated on Farm Forestry since 1990 through its subsidiarycompany BILT Tree Tech Ltd. (BTTL). Backward integration was also done with itscaustic soda/chlorine manufacturing facility, which is a vital raw material in theproduction process of paper. BILT has expanded its presence in global market throughthe acquisition of Malaysian firm Sabah Forest Industries which too was into thebusiness of paper and pulp. Hence, with in paper and pulp division, the companys diversification can be termed as related linked diversification can be termed as related linked.However, in the stationary

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division, BILT has launched numerous products. It startedwith the premium notebook brand matrix. It then went on to launch stationaryproducts such as pencils, Tapes &Glue sticks, sticknotes, Art series, Files & Folders .

. . .

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