STAR PAPER

A part of the Duncan Goenka Group of

companies

Raising the bar

 • 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.

An overview • Located in Saharanpur, UP.

What we achieved in 2004-5
What we achieved over the years
 2003-4

How Star’s
performance
compares with
its industry • The highest pre-interest margin among
peers •
the leading paper companies in India.
The second highest RONW 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
 • Cash flow of Rs 28.52 cr, 2004-5.
• Market capitalisation of Rs 107 cr
(closing price Rs.71, Mumbai
Improving Stock Exchange, 4 June 2005).
results • Cash flow discounted around a
but poor mere 4 times.

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

discounting April 2005).

 Total income (Rs cr)
200
185.95
172.1
180 160.2
160 148.53
140
120
100
80
60
40
20
0
2001- 2 2002- 3 2003- 4 2004- 5
25

Star: Indian 20
Profit after tax (Rs cr) 20.17

paper 15
11.56

industry’s
10
6.49 7.02

attractive 0
2 0 0 1- 2 2002- 3 2003- 4 2004- 5
27.69 28.52

growth proxy
30

25 Cash flow (Rs cr)

20

15 12.75
8.64
10

0
2001- 2 2002- 3 2003- 4 2004- 5
 • Positive EVA for two years
leading to 2004-5.
• Increasing ROCE for each
of three years leading to
Enhancing 2004-5.

shareholder • 44 per cent of cash flow

value
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.
 28.06
30

25
23.34

Enhancing 20
14.19
18.22

shareholder
15

25
10
20.06

value 20

15

9.41
13.86
5

0
2001- 2 2002- 3 2003- 4 2004- 5
8.93 Return on average
10
capital employed (%)
5

0
2 0 0 1- 2 2002- 3 2003- 4 2004- 5

1.75
1. 8
1.5 64.48
1. 6 Return on net worth (%) 70
1. 4
60 53.5
1. 2 1 46.6 47.8
50
1

0.8 40
0.5
0.6 30
0.4
20
0.2
10
0
2 0 0 1- 2 2002- 3 2003- 4 2004- 5
0
Dividend (Rs per share) 2 0 0 1- 2 2002- 3 2003- 4 2004- 5

Book value* (Rs)

*Net of revaluation reserve
 • 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.
Backed by a • Large number of stocking points
strong market even in B and C grade cities in

presence 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 • Retail customers serviced
through 50 nationwide
and reach 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.
 Some of the key customers/users
•HLL •Meghdoot Laminates
•Eveready •Novino Batteries
•ITC Limited •Waterproof corporation
•Thomson Press •Sri Kaleswari Fireworks
•Gopson Papers •Standard Fireworks
Eclectic .
•Pearson Education •Speciality Coatings
customer •Replica Press •Sri Krishna Paper

mix •Master cote

•Manu Cote
•Century Lamination
•Marino Panels
•Surya Cote •Greenply Industries
•Bloom Decor
 • Increasing output every single year for

Operational the last seven years through capacity

de-bottlenecking, equipment balancing
excellence and technology upgradation.
• Output of 71106 MT in 2004-5, the
72000
71106 highest in the company’s history.
•
70000

68000 66184 A swing capacity, enabling the company

66000

64000 62590 to make a variety of grades on more

62000 60196 than one machine.
60000

58000 • Investment of Rs 39cr in capex in the

56000

54000 last three years;

2 0 0 1- 2 2002- 3 2003- 4 2004- 5

Production (MT)
 • A decline in raw material cost as a
proportion of turnover from 26% in

Prudent raw 2001-2 to 16.6% in 2003-4 to 15.7%

in 2004-5.
material • The development of clones in the
management
30
R&D center with the objective to
increase productivity by nearly
26.1
25 20.8
100%, enhancing farmer income and
20 16.6 15.7 sustainable availability of raw
15
material.
10

0
2 0 0 1- 2 2002- 3 2003- 4 2004- 5

Raw material cost as a

percentage of gross sales
 Wood Generation (MT)
Wood Consumption (MT)

522000
600000

410400
500000

Estimated 400000

265000
270000

250660
211573
generation of

225703
234000
218724
217800
210336
300000

158400
wood vs 200000

Star’s own 100000

requirement 0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
 Government wood

Social forestry wood

Raw material
scenario:
100

96
91
89
90

Increasing use of

78
80

77
social forestry 70

resources in Star 60

50

40

30
23

22
20

11

9
10

4
0
2000-01 2001-02 2002-03 2003-04 2004-05
 • 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
Prudent energy to coal in power generation: from

management 1.95% of fuel used in 2003-4 to 10.2%

in 2004-5.
• Awarded a ‘certificate of merit’ in
1310
13 2 0

13 0 0
January 2005 by the Indian Paper
12 8 0
Manufacturers Association for
12 6 0

12 4 0
1233
1202
prudent energy management.
12 2 0
1202
12 0 0 • Rated as the most energy efficient mill
118 0
116 0
by Centre for Science and
114 0
2 0 0 1- 2 2002- 3 2003- 4 2004- 5 Environment.
Power consumed per ton
of paper manufactured (kwh) • Highest free energy generation from
by products in the industry.
 • 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.

Better working • Reduction in fixed deposits and

capital other unsecured loans from Rs 12

cr in 1999-2000 to Rs 0.70 cr in
management 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.
 42.28 40.77 43.4 40.2
45

40

35
26.81
30

25

20

15

10
5

0
2000- 1 2 0 0 1- 2 2002- 3 2003- 4 2004- 5

Better working Net Current Assets

capital
management
25 23

20
18
15
15
11
10

0
2001- 2 2002- 3 2003- 4 2004- 5

Receivables (days)
 • Productivity increased by 24% in 2004-5
in comparison to 2002-03.
• Team working approach comprising 17
quality circles of seven members each
Enhanced across departments, aggregating all

people •
points of view in speedy problem-solving.

productivity
The workmen are involved in several
quality circles and the team has won
awards in regional presentations.
 • At 28.06%, among the highest ROCE in
India’s paper industry (2004-5).

Better fiscal
management • 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.
 • Decline in interest as a proportion of
turnover from 6.25 per cent in 2001-2 to

Better fiscal 2.97 per cent in 2004-5.

management • 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 management
1.17 9.52
1.2 1.06 10
9
1 8
0.69 7 5.89
0.8
6
0.6 5 3.81 3.83
0.44
4
0.4 3
2
0.2
1

0 0
2001- 2 2002- 3 2003- 4 2004- 5 2 0 0 1- 2 2002- 3 2003- 4 2004- 5

Debt equity ratio Net profit margin (%)

24.73
8 7.13 25 22.2
7
19.2
20
6 4.8 15.91
5 15
4

2.19 2.47 10
3

2
5
1

0 0
2001- 2 2002- 3 2003- 4 2004- 5 2001- 2 2002- 3 2003- 4 2004- 5

Interest cover EBITDA margin* on net sales (%)

*Before extraordinary items
 18 0
162

Responsible
16 0

14 0
111
12 0

safety, health and 10 0

80
69

environment
60

40
20

management 0
2002- 3 2003- 4 2004- 5

Uninterrupted accident-free period (days)

160
16 0 149 10 0 0 905.5
139 900
14 0 130
800
12 0 624.5
700
10 0
600
504
80 500

60 400
300
40
200
20
10 0
0
2 0 0 1- 2 2002- 3 2003- 4 2004- 5 0
2002- 3 2003- 4 2004- 5

Decline in water consumption(m³/ton) Person days lost due to accidents

 • Investment of Rs 85-cr in asset
modernization, de-bottlenecking and
co-generation.

Looking ahead: • Investment in an increase in installed

Rs 85 cr
capacity from 71,350 TPA to 75,000
TPA.
modernization • Investment in a 5 MW multi-fuel boiler

cum expansion to increase flexibility to switch to

cheapest fuel.
 • 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

Looking ahead: projects staggered performance in the

last quarter of 2004-5 and first quarter of
Rs 85 cr 2005-6.

modernization • CREP impact likely to result in capacity

decline due to a number of small players
cum expansion 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.

The Indian • Influenced by price variations, but no

significant demand variations.
paper industry: • Speedy demand growth even in the face of

basis for emergence of substitutes from time to

time.
optimism • 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.
 • Effective backward linkages with
farmers to secure increasing raw
material availability.
• Prudent positioning in the industrial
grades due to relatively low regional
Star: points of competition – only major paper mill in

optimism •
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.
Star: points of • Modernisation cum expansion

optimism 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.

Star: points of (increase announced in April and June

2005) and decline in production costs as
optimism 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