Andhra Paper Annual Report 2003-04

Managements discussion and analysis
The Andhra Pradesh Paper Mills Limited Annual Report 2003-04
29
INDIAS PAPER AND PAPERBOARD SEGMENT HAD AN ESTIMATED TOTAL EFFECTIVE INSTALLED CAPACITY OF 6.15 MN TONNES IN 2002-03
Global paper industry overview

The paper industry is cyclical, influenced by economic growth, industrial production, promotional expenditure, population growth and supply dynamics. The global paper industry can broadly be divided into:
Paper Industry
Projected global demand

(In mn tonnes) 2000 313.3 2005 356.4 2010 402.0
Source: Jaakko Poyry
Indian scenario
India is among the top 18 global paper producers and top
Newsprint
Paper and paperboard
15 paper consumers. Its paper industry can be broadly classified into:

Paper Industry
Writing and Printing Industrial and Packaging

Paper and paperboard
Newsprint
Specialities Writing and Printing The writing and printing segment accounts for 32 per cent of the global paper consumption while packaging, speciality and newsprint accounts for 50 per cent, 6 per cent and 12 per cent respectively. Specialities Indias paper and paperboard segment had an estimated total effective installed capacity of 6.15 mn tons in 2002-03, with writing and printing paper accounting for close to 39 per cent, compared to industrial paper (57 per cent) and speciality paper (4 per cent). The structure of the Indian paper industry is a legacy of past government policies, which favoured small capacities. As a result, highly fragmented mills (under 20,000 tpa) account for 60 per cent of installed capacity. The total number of mills is around 900, with capacities ranging from 1 to 600 tpd. Industrial and Packaging Glazed Standard
Global demand
The global paper and paperboard market is dominated by North America, Western Europe and Asia. Asia accounts for approximately 32 per cent of the global paper consumption while North America and Europe account for 31 per cent and 28 per cent respectively. Asian countries have experienced higher demand growth due to higher economic growth (7-10 per cent per annum). The World Paper and Paperboard Demand is expected to reach 402 mn tonnes by 2010 at a CAGR of two per cent.
30
Regionwise capacity break-up
45 39
27 18
29 23 13 8
South
West
North & Central
East & North East
No. of mills
Capacity (%)
Indian demand
Indias paper consumption at 5.05 mn tpa accounts for 4.7 per cent of the Asian and 1.5 per cent of the global paper consumption. Indias per capita consumption was approximately 4.5 kg compared to the world average of 53 kg. Indias paper and paperboard demand, growing at 6 per cent annually, is expected to accelerate on account of improved socioeconomic factors, favourable demographics and increasing user sophistication. As a result, domestic paper and paperboard demand is expected to reach 8.3 mn tonnes by 2010 at a CAGR of 7 per cent, while newsprint is expected to grow at 6 per cent CAGR.
closed mills) was 6.15 mn tonnes and 1.05 mn tonnes respectively. Most mills are based in West India, though they are small and medium-sized. The majority of large-sized mills are located in South India, primarily due to a high demand derived out of a high literacy rate, closer access to raw material resources and proximity to consuming markets. Nearly 40 per cent of Indias pulp mills use wood as their principal raw material, while 32 per cent use agro-waste and the rest, waste paper (Source: ICRA).
are 11 kg and 53 kg respectively. Jaakko Poyry, a leading paper industry consultant, estimates Indias demand, at 7 per cent CAGR growing to 6.0 mn tpa by 2005 and 8.3 mn tpa by 2010. Interestingly, it has projected a supply shortage of about 0.7 mn tpa in 2010. According to a study undertaken by ICRA Advisory Services, the consumption of paper will rise to around 7.3 mn tonnes in 2004-05, while production is placed at around 6.5 mn tonnes. This growing demand is not being met by a corresponding rise in capacities due to high capital costs and environmental constraints. According to a recent report by CRIS-INFAC, the global demand for paper and paperboard is expected to rise at a CAGR of 5.8 per cent, even as capacity is expected to
Indian outlook
The Indian paper industry has demonstrated secular annual volume growth of 6 per cent, broadly mirroring its GDP growth. Despite a consistent rise in demand, the per capita consumption of paper in India is still a low 4.5 kg while South Asian and World averages
Indian supply
Indias effective installed capacity for paper and paperboard and newsprint (excluding
31
Indias increasing consumption

Segment
W&P Creamwove Maplitho- SS Coated Speciality Industrial Newsprint 6.1% 6.2% 8.2% 6.6% 5.6% 6.0% 5.1% 10.5% 11.1% 7.9% 6.2% 6.0% Textbooks, notebooks Publishing, office applications High quality printing Tissue, labels, fax, etc. Packaging / FMCG Newspaper
Growth rate 2000-04 2005-10
Growth drivers
Source : SPB-PC, Cris Infac
increase by 2.1 per cent only, translating into enhanced realizations. Within the overall projected growth rate of 7 per cent CAGR, segmental growth rates vary, largely determined by the end use of the product variety.
While offset printing paper is expected to remain the most in demand, cut-size paper is gaining importance in the context of increasing computerization and net connectivity. The inflow of foreign investment in print and media is expected to increase the demand for quality paper produced by domestic paper houses. The up-gradation of technology in the printing industry will impact the demand for paper. Plateless and digital printing will grow the demand for cut-size paper as print and distribute evolves to distribute and print and print on demand. Packaging: Indias per capita consumption of corrugated boxes is just 1.5 kg while the global average is close to 15 kg and the US average 80 kg. According to a study, about 95 per cent of all products are packed
in corrugated boxes in the US, an indication of the vast potential in the business. Indias Agricultural and Processed Food Export Development Authority (APEDA) has worked out a product-specific strategy for increasing agricultural exports to over Rs. 10,000 cr per year for six agro commodities fruits, meat and cereals to name a few. The consumption of corrugated boxes in the food sector in India is less than 20 per cent as against over 35 per cent worldwide an emerging opportunity. Newsprint: India is ranked fourth in newspaper circulation in the world. It is expected that newspapers will remain relevant even in 2020 since electronic magazines or digital newspapers on the Internet are expected to be confined to less than 5 per cent of the countrys population. Given that in a decade the literacy level has jumped by 13.17 per cent to 65.38 per
Opportunities
Writing and Printing: A growing literacy is expected to accelerate off-take. The government expects every Indian citizen to possess at least eight years of education by 2010 (Source: Department of Education). Besides, participation in higher education is expected to rise from 6 per cent to 10 per cent by the end of the 10th Plan period. With government departments and directorates being increasingly computerised, the demand for desktop and laser printing is rising, increasing the demand for a specific variety of paper.
32
THE COMPANYS ANNUAL POWER REQUIREMENT FOR BOTH THE UNITS IS AROUND 25 MW, OF WHICH 20 MW IS GENERATED CAPTIVELY.
cent (Census 2001), newspaper circulation shows attractive growth prospects.
Installation of DCS Control in Digesters to improve the cooking process Installation of modern centricleaners in PM3, leading to improved cleanliness in paper
power at a competitive price. Rice husk, being abundantly available in the area, is being used to substitute a part of the high cost use of coal.
Shop floor upgradation

APPM continues to demonstrate a commitment to stronger manufacturing standards, helping it compete better. During the year under review, the Company embarked on the following initiatives:
Unit: CP
Quality
At APPM, quality obsession extends across functions, processes and management tiers. Much of this initiative is driven by a stateof-the-art laboratory, which helps analyze and address customer complaints, contributing to product improvement. This initiative covers end products as well as a multi-stage scrutiny of the various processes.
Retrofit of the straw pulp washing system to reduce pollution loads at source Modification of PM1 for improved paper quality and higher production Re-build of PM2 wet-end to produce multi-layered paper with improved quality and functional properties
Unit: APPM
Modification of the bleaching unit to introduce chlorine dioxide stage in place of hypo stage in one of the bleaching streets, thereby reducing pollution load and also improving paper strength and brightness
Energy management
The Companys annual power requirement for both the units is around 25 MW, of which 20 MW is generated captively. To reinforce its access to cheap and continuous power supply, APPM made a strategic investment in Andhra Pradesh Gas Power Corporation Limited, which entitles it to source 5 MW of
Research & Development

During the year under review, the Company extended its Research & Development to the following process improvements:
Change in the head box of PM5 improving quality, capacity and grammage control
Improving chemical recovery from 91.7 per cent to 92.7 per cent in 2003-04
Dedicated machine for alkaline sizing: Improved brightness, strength and permanence
33
IN A DIFFICULT INDUSTRY ENVIRONMENT, APPM STRENGTHENED ITS OPERATING MARGIN REDUCING INTEREST COST BY 4.4 PER CENT OVER THE PREVIOUS YEAR.
Introduction of enzymes at the bleaching stage: Reduced AOX content in effluents Introduction of enzymes in stock preparation: Enhanced paper strength and reduced energy consumption
revenue-bearing securities. In view of this, the APPM ensures that funds are never idled. As a result, share holders funds are invested to generated a reasonable rate of return through internal utilization and/or external investment in risk-free securities.
in 2003-04. This improvement transpired as a result of a number of initiatives:
Rationalisation of input costs through newer avenues of raw material sourcing Rationalisation of personnel cost and increased productivity Increase in production volumes, enabling a better distribution of fixed expenses
Chemical addition to lime sludge: Reduction in oil consumption
Besides this, the R&D initiative was extended to product development, such as: Hi-tech inkjet paper: Uncoated paper with low ink retention and low surface absorption, ideal for ink-jet printing applications. Cup-stock: Customized development for the beverage industry.
Revenue
The total income of the Company for the year 2003-04 was Rs. 462 cr compared to Rs. 425 cr in 2002-03, a growth of 9 per cent. The other income represents profit from treasury operations and miscellaneous income.
The higher profits were ploughed into efficient fund management, which reduced interest cost by 4.4 per cent over the previous year.
Margins Surplus management

Being a highly capital-intensive industry, it is necessary to sweat every rupee in the business to the maximum either through business operations or investment in In a difficult industry environment, APPM strengthened its PBDT margins from 10.2 per cent in 2002-03 to 10.4 per cent in 2003-04 and net profit margin from 4.7 per cent in 2002-03 to 5.2 per cent
Net worth
The Indian paper industry is a capitalintensive one. Success is determined by the return of capital employed, which should be higher than the fixed income-bearing investment opportunities available to
34
APPM EARNED A HIGHER RETURN ON ITS NET WORTH AT 7.9 PER CENT (AGAINST 7.2 PER CENT IN 2002-03), ENABLING IT TO REPORT A HIGHER EVA AT RS.19.98 CR.
investors. The Company earned a higher return on its net worth at 12.10 per cent (against 10.93 per cent in 2002-03) on a higher net worth base (by close to three per cent over the previous fiscal). This was the result of two initiatives, namely:
Capital
APPMs capital comprised 118,28,890 equity shares of Rs. 10/- each. The Companys equity doubled over a period of five years. The increase in equity was on two accounts.
Public (20%)
Bank, F.I. & Gov. Bodies (9%) Pvt. Corp. Bodies (3%) L.N. Bangur & Associates (68%)
Improvement in sales realization through a change in the product mix, Reduction in finance costs
Rights issue in April, 1999, in the ratio 1:1 at a premium of Rs. 150 per share (when the face value of share was Rs. 100 per share)
Loans and Interest

The quantum and cost of funds is critical to the survival of a capital-intensive business - the difference between success and failure. APPM has succeeded over the years due to its ability to mobilise requisite funds at the right time and at the right (read low) coupon rate. In 2003-04, a decline in the cost of funds to the tune of 4.4 per cent was made possible through the following initiatives:
This enabled the Company to report a higher EVA than the previous year.
(in Rs. cr)
19.98 17.33 12.28
Shares issued (ratio 1:3) for the amalgamation of Coastal Paper Mills in January 2001.
In January 2002, the Company made a private placement of 14.5 per cent preference shares to ICICI Bank Limited in lieu of their holding in Coastal Paper. The Company redeemed these shares in
2001-02 02-03
03-04
2003-04.
EVA
35
APPM MADE AN INVESTMENT IN ANDHRA PRADESH GAS POWER CORPORATION LIMITED, ALLOWING IT TO ACCESS POWER AT A COMPETITIVE PRICE.
Swap of high cost loans with low cost foreign currency loans Prepayment of high cost loans Reduction of interest on public and trade deposits Availment of FCNR (B) and PCFC for working capital requirements.
from 12.6 per cent in 2002-03 to 8.2 per cent in 2003-04 and strengthen interest cover from 3.1 to 5.8 times.
Unit: CP and into effluent equipment as well as quality and improvement in productivity at Unit: APPM. The Company is now taking its investment program ahead with a Rs. 554 cr modernization-cum-expansion initiative, which will increase capacity and incorporate the best technologies in operations and effluent management by 2007.
Gross block
The size and quality of the gross block represents a paper manufacturers competitive edge. The better the asset quality, the better the Company can sweat the asset and shrink its payback tenure. At APPM, Gross Block/Turnover Ratio improved to 1.01 in 2003-04 from 0.96 in 2002-03. Every tonne of installed capacity represented Rs. 28,952 of the gross block, considerably lower than the prevailing replacement cost. Over the decade, the Company invested more than Rs. 170 cr in technology upgradation, efficiency improvement and pollution abatement.
This helped the Company maintain a healthy Debt-Service Coverage Ratio (2.02 in 200304) and reduce its average interest cost
5.8
Investments
The Company had an investment portfolio of Rs. 28 cr as on 31 March 2004. The bulk of this investment was in the form of 13,40,000 equity shares of Rs. 10 each of Andhra Pradesh Gas Power Corporation Limited. This investment entitles the Company to access 5 MW of power at a competitive unit price. The other investments are short-term in nature and comprise units in mutual funds.
3.1 2.6
2001-02 02-03
03-04
Interest cover (times)
During the year under review, it invested Rs. 22 cr in altering the product mix at
36
OVER THE YEARS, THE COMPANY INCENTIVISED EARLY REMITTANCE FROM DEALERS WITH A CASH DISCOUNT
Inventory
At APPM, as in the paper industry, inventory management is a critical driver of working capital outlay for a number of reasons:

maintains a sufficient stock of imported and domestic waste paper, wood, coal and chemicals. On the finished goods side, APPM manufactures products only against a specific demand, minimizing end-product obsolescence.
the other hand, could inflate working capital requirements, raising interest liability. Over the years, the Company incentivised early remittance from dealers with a cash discount on the one hand and stipulated a penal clause with a high interest rate for dealers who failed to remit on schedule on the other. The effectiveness of the system is reflected in the numbers: close to 90 per cent of the sales from Unit: APPM enjoyed a receivables position of less than 10 days.
A very wide product range The primary raw material has to be obtained from diverse sources and stored for a long period
Debtors
Generally, receivables management represents the last leg of the Companys transaction. A quicker recovery enables the Company to transact a larger volume of business with the same fund base, strengthening fiscal efficiency. A delay, on
The supply of coal, the other critical input, is regulated, prompting companies to maintain an adequate buffer
Over the years, the Company leveraged the power of IT to monitor active, high value and critical items of raw materials on a daily basis to eliminate the incidence of a production delay due to raw material paucity. For slower moving items, APPM updates the lead-time and the re-ordering levels based on supplier status and the number of sourcing points. Besides, the Company
Creditors
At APPM, creditors management is critical as two of the Companys most critical inputs wood and coal must not only be
29 25 23
purchased in a large quantity but their corresponding credit period has considerably shortened. For instance, the payment cycle for wood declined from an average 21 days
2001-02 02-03
03-04
to 10 days while coal payments must be made in advance.
Debtors (days)
37
DURING 2003-04, VARIOUS INITIATIVES HELPED BRING DOWN THE COST OF WORKING CAPITAL FROM 12 PER CENT TO 5.9 PER CENT.
For the other chemicals and consumables, the Company instituted a system where suppliers are paid on time. Payments requested before the scheduled time-period are subject to a high coupon rate, an innovative measure that ensures that the Company enjoys the full credit period available to it. Thanks to these initiatives, the Companys creditors position was at a comfortable 33 days of turnover in 2003-04.
Working capital
Working Capital is the term used for funds required in day-to-day operations. It is used to fund the purchase of raw material, maintain stock, buy stores and consumables, fund overheads, administrative expenses and put the product in dealer warehouses. Working capital management assumes significance when primary raw material suppliers must be paid immediately (inspite of raw material having to be stocked months in advance) and customers must be sold material on credit.
During 2003-04, the total working capital limits stood at Rs. 23 cr out of which Rs. 17 cr was converted into FCNR(B) and PCFC limits, bringing down the cost of working capital from 12 per cent to 5.9 per cent. The Company has also effectively utilised the interest free sales tax deferment loan for working capital requirements. In addition, APPM also availed of the LIBORlinked finance under the buyers credit line. This was used to pay the creditors (through foreign LC payments) for imported raw material used at Unit: CP. This prudent fiscal initiative helped improve the working capital cycle. Besides, the finance cost for imported
8.2
41 34 33 12.9 12.6
LC payments reduced by close to 300 400 basis points.
Exports
2001-02 02-03 2001-02 02-03 03-04 03-04
The Companys products cover a wide range of colours, makes and textures to suit every consumer need. Consistency in quality,
Creditors (days)
Interest cost (%)
38
THE COMPANY EXPORTS PRODUCTS TO COUNTRIES LIKE AUSTRALIA, NEW ZEALAND, SINGAPORE, HONG KONG, MALAYSIA AND OTHERS.
backed by excellence in service has helped carve a niche for its products in countries like Australia, New Zealand, Egypt, Iran, UAE, Singapore, Hong Kong, Malaysia, Mauritius, Myanmar, Nigeria, Tanzania, Kenya and Sri Lanka, among others. These international forays have helped earn various prestigious Export Awards from the State and Central Governments and organizations like CAPEXIL. Year 1999-00 2000-01 2001-02 2002-03 2003-04 Quantity
(Tonnes)
for deffered tax liability has been provided at Rs. 1.30 crs., which will not involve a cash out go.This lower liability is partially due to the tax benefits derived from exports under Section 80HHC of the Income Tax Act. The other benefits availed by the Company include: Deemed export credit under the (DEPB
This is available to only those export organizations making a commitment for exports in future (calculated as per a prescribed norm). The Company availed of this benefit of Rs. 202 lacs in 2003-04 for the import of the head box and the sheet cutter. Interest free sales tax deferment loan: This benefit is available to companies which undertake a substantial expansion / modernisation at its operational facilities, enhancing its capacity by more than 25 per cent. The acquisition of Coastal Paper made the Company eligible for this interest-free facility. Under this scheme, the sales tax collected in any particular month is to be paid to the government after a span of 14 years (without any interest liability). In 200304 the Company retained Rs. 18.19 cr (Rs. 15.28 crs in 2002-03).
Value
(Rs./Lakhs)
scheme): Under this scheme, 4 per cent of the FOB value of exports (8 per cent upto Jan 2004) can be set off against the customs duty payable on import of capital goods. The credit available to APPM during the year under review was Rs. 3 cr. Reduced import duty on capital good (under the EPCG scheme): This scheme offers a concessional rate of customs duty (5 per cent) on the import of capital goods.
6828.04 5313.40 7349.00 10680.00 7394.15
1735.61 1792.66 1710.40 2516.08 2185.77
Tax
The Income Tax provision has been made at Rs. 1.97 crs. In addition to it, provision
39
THE COMPANY CONVERTED RUPEEBASED TERM LOANS INTO A RS. 7 MN FOREIGN CURRENCY LOAN, RESULTING IN A GAIN OF RS. 1.75 CR
Forex management
During the year, the foreign exchange inflow was Rs. 22 cr on account of the export of paper. The outflow of Rs. 42 cr mainly represented the import of raw materials and capital goods. The Company also effectively capitalised on the opportunity of a lower interest rate regime and a stronger Rupee by converting Rupee-based term loans into a Rs. 7 mn foreign currency loan, resulting in a gain of Rs. 1.75 cr through effective foreign currency management.
adequate records and documents were maintained as required by the laws of the lands in which the Company is based. Internal audits and checks were regularly conducted and the internal auditors recommendations were seriously considered. The Companys audit committee reviewed the internal control system and looked into the observations of the statutory and internal auditors. All efforts are being made to make the internal controls more effective.
prescribed by the government for the paper industry will necessitate substantial investments in state-of-the-art technologies prevalent in the global industry, without any significant return. This warrants the Governments intervention in providing concessional finance for funding these projects and safeguarding the viability of the paper industry.
Forward-looking initiatives
Over the years, the Company will strengthen its customer relationship management by continuously training marketing personnel and distributors to proactively explore valueaddition opportunities with customers and drive direct customer sale to nearly 70 per cent of its total sales. The Company expects to introduce a regional pricing approach to maximize its realizations. APPM expects to enhance its distribution effectiveness through a web-enabled window that integrates dealers with its database.
Threats
The inadequate availability of raw material and the consequent economies of scale pose a serious threat to the growth of the paper industry in India. As per estimates made by IPMA, the requirement of the precious wood based resource will catapult from the present 5.2 mn tonnes to 13 mn tonnes by 2020, requiring a large allocation of land for fresh plantation. Besides, the stringent environmental standards
Internal control
The Company has an internal control system, which is efficient and commensurate with the size of its operations and organizational expanse. It ensures that all the assets and properties are adequately safeguarded and protected against unauthorized use or disposition and all the transactions were properly recorded and reported, for which
Risk management
41
Risks are inherent in all businesses. The challenge for the Company is to effectively and responsibly manage and control the risks on a sustained basis to enhance returns. APPMs risk-management revolves around:
Risk identification and risk measurement: Facilitated through corporate policies that provide risk standards and guidelines (credit, market, liquidity, funding and operational). Risk management: Facilitated through the involvement of senior management for approval, reviews and other policy measures. The end-point responsibility in risk-management is vested with the senior management, which approves the initiatives and makes a continuous review of risk assessment
Risk control: Facilitated through an ongoing check of whether the risk taken is in line with the Companys risk appetite
Economy risk
Since the performance of the Indian paper industry is largely dependent on the countrys economic growth, a slowdown in the latter can stagger profits for manufacturers. Risk mitigation The Indian economy has reported a GDP growth of around five per cent for the last five years. More importantly, the GDP growth for the third quarter of 2003-04 was in excess of 10 per cent, making India one of the fastest growing economies in the world. Year GDP growth (%) Paper industry growth (%) 2001-02 5.6 5.82 2002-03 2003-04 4.3 5.16 8.1 5.81
large capital expenditure at the right time. An error in estimation can, therefore, affect its survival. Risk mitigation APPM has leveraged the knowledge of industry and market situations to generate higher returns on capital and lower its capital cost. APPM has consistently invested funds in manufacturing plants to bring them in line with the latest technology. This prudence was reflected in the enhanced market presence and leadership across specific categories due to improved product quality and lowered costs. (Rs./crore) Year Capital Investment 1990-95 62.20 1996-2000 93.15 2001-04 227.85*
The Company expects to leverage this growth with the widest range of writing, printing and industrial paper, which not only constitutes the major consuming-end of the paper market but also accounts for the fastest growth during an economic upturn. The Company services small and large requirements across general and niche segments, insulating it from a downward cycle.
The paper industry is on the threshold of a great emerging demand. APPM expects a supply shortage in a number of paper varieties in the near future considering the slow increase in the total installed capacity of paper companies in India. Anticipating this scenario, the Company consolidated its market share by acquiring Coastal Papers. To strengthen its competitive position further, the Company is implementing a Rs. 554 cr capital expenditure plan, which will enhance capacity, quality and cost competitiveness.
Industry risk
The demand for paper is perennial and major fluctuations occur largely due to changes in the overall economic growth. However, on the supply side the business is cyclical, considering the huge capital investments involved in capacity expansion. This makes it necessary for the Company to incur
Product substitution risk

Information technology has revolutionised data management systems worldwide. A number of electronic storage devices capable of holding large amounts of data
42
DESPITE LESS THAN FIVE PER CENT OF WOOD RESOURCES BEING USED BY THE PAPER INDUSTRY, IT IS LARGELY BLAMED FOR DISTURBING THE ECOLOGICAL BALANCE
have made paper redundant in select applications. With a number of companies evolving towards paperless offices, information technology forms one of the major threats for the paper industry. Risk mitigation Though on the one hand, information technology has made paper redundant in select applications, in certain areas it has had a reverse effect in increasing demand. This can be attributed to the following two reasons:
and capture market share. Risk mitigation Because of a substantial demand-supply gap in certain categories of paper (newsprint), imports occupy a sizeable share in the market. However, imports do not constitute a major threat in the other categories, since the requirement of paper is far lower than the minimum viable import quantity. Also, the transportation cost adds to the landed price, making imports unviable across a number of varieties. Despite the expected thrust in demand for paper, the industry may not seem attractive enough for foreign players to establish manufacturing units in the country for three reasons: international giants tend to set up mammoth capacities compared to their Indian counterparts (while Indian companies have machine capacities ranging between 150-250 tpd, their international counterparts install machinery capable of producing between 1000-1500 tpd). Besides, the domestic demand is not commensurate with supply, thus depressing realizations and stretching the period of investment payback. Additionally, the scarcity of wood will prevent these huge capacities from producing at optimum levels.
act as additional deterrents. Risk mitigation On one hand, the paper industry is plagued due to a paucity of raw materials. On the other hand, despite less than five per cent of wood resources being used by the paper industry, it has been largely blamed for disturbing the ecological balance Paper Industry (3.50%) Construction Industry (6.50%)
Information technology data processing and storage devices, however efficient, are subject to corruption and downtime, making data loss an irreversible reality. Under the circumstances, the print media is still a durable storage option Sophisticated IT equipment requires superior paper quality. So while desktop printing has moved from dot-matrix to ink-jet to laser equivalents, the quality of paper needed has trended towards the value-added
FUEL (90.00%)
Use of Wood
APPM is better off compared to its competitors due to the advantageous position enjoyed by the State of Andhra Pradesh where its plants are located. The state of Andhra Pradesh enjoys a surplus of hardwood. As per data compiled by IPMA, the existing generation of hardwood in Andhra Pradesh is around 13.5 lakh tonnes (4 lakh tonnes from paper mills farm forestry schemes and the rest from private farm forestry). The requirement of AP-based paper mills is 11.5 lakh tonnes (as per IPMA), leaving a surplus of two lakh tonnes. This surplus is expected to touch six lakh tonnes
The Company specialises in this value-added segment. For instance, its Copier Paper is and Inkjet Paper uncoted rated as amongst the best in the industry.
Globalisation risk
In the era of trade liberalisation, globalisation poses a major threat to Indian paper manufacturers. Large multinationals might set up manufacturing facilities or dump their products in India to milk the huge potential of the countrys under-penetrated markets
Raw materials risk

The industry is heavily dependent on nature, wood being the principal raw material for paper manufacture. Further, the countrys prevailing forest conservation laws and the competing demand for hardwoods from the construction and firewood sectors could
43
APPM RATIONALISED ITS WATER CONSUMPTION FROM 177 CU M/TONNE TO 140 CU M/TONNE OF PAPER.
by 2006-07 following the increase in the mills farm forestry schemes. APPM has been able to mitigate its risk through self-sustainable measures in this regard. The Company initiated farm forestry in 1989, which services its wood requirement to the extent of nearly 80 per cent. The extension of this programme is expected to make the Company completely self-sufficient for its entire raw material requirements within three years (for a better understanding, we request readers to refer to the raw material section on page 14).
of sustainable water availability due to a high dependence of its operations on water. Paper industry uses large quantities of water in all its processes: from the first stage of production to the finished product. This industry would become unviable without water. Risk mitigation Both the units of the Company are located on the banks of the perennial river Godavari (East Godavari District, Andhra Pradesh). The Godavari river and also networks of the canal systems of the numerous irrigation projects represent large water banks supplying water to APPM units throughout the year. These are further aided by a more than average rainfall in the area. Besides, the impending implementation of the MDP plan shall reduce the water consumption by around 40 per cent from the present level. As a resource-respecting organisation, the Company has progressively invested and modified its facilities to rationalise its water consumption from 177cu m/tonne of paper to 140cu m/tonne of paper. Interestingly, the Company fulfilled the Pollution Control Board norms stipulated for the year 2005 in 2003-04 (we also request readers to refer to the special booklet on Environment Management).
Risk mitigation The paper manufacturing technology has been relatively stable over the last few years but process changes have been necessitated in response to quality concerns, environmental norms and process flow improvements. The Company has consistently modified and upgraded its processes in line with the evolving technology and industry scenario. In 2003-04 alone, it invested Rs. 22 cr towards changing of the head box (PM-5), altering the product mix (PM-2) and installing pollution abatement equipment. Over the last decade, the Company has won several awards for operational efficiency, energy conservation and environment management achieved out of its consistent efforts in process modernisation.
Energy risk
Apart from raw materials, power supply is second most critical factors in the business of paper manufacture. A non-timely supply of power can bring the operations to a halt and undue increments in tariffs can affect margins. Risk mitigation The Companys total power requirement is 25 MW. Of this, it derives 20 MW from captive generation, while 5 MW is sourced from the Andhra Pradesh Gas Power Corporation Limited at a competitive rate. A combination of these sources ensures an uninterrupted power availability. During the last five years, the Company invested about Rs. 60 cr in various modernization plans, which translated into a declining energy consumption.
Productivity risk
Low productivity can undermine viability in a capital-intensive business. Paper industry employs a high proportion of capital employed compared to turnover. It is critical to utilise the machines effectively to accelerate payback and profitability. Risk mitigation The Companys productivity increased due to a number of initiatives:
Technology risk
In a capital-intensive business, if the technology is not aligned to evolving standards, the Company may not be able to generate the required return from its capital.
A meticulous production plan was worked out at the beginning of each month, which rationalised inter-batch downtime. Despite catering to the
Water availability risk

The paper industry shares the global concern
44
THE LONG-STANDING RELATIONSHIP OF DISTRIBUTORS WITH THE COMPANY (25-30 YEARS ON AN AVERAGE) IS A CRITICAL BUSINESS DRIVER.
demands of small and large customers, the Company operated its plant at almost 100 per cent capacity

dioxide bleaching Replacement of the head box of PM5 of Unit: APPM

four regional offices and dealers. Unlike competition, the distribution network of this Company is its critical strength. Distributors have a long-standing relationship with the Company (25-30 years on an average) and their deep-rooted knowledge of the market demand has transformed them into critical drivers of the Companys business. APPM maintains a regular contact with its distribution agents to understand the nature of local demand. This knowledge drives the production schedule and helps the Company place the right product at the right place and the right time, helping it manage its working capital effectively. It also enables the Company to maintain a near-zero level of inventory at the production site, thereby improving funds management.
A reduction and reallocation of the workforce from 2981 on 31 March 2003 to 2802 on 31 March 2004 strengthened per person productivity by eight per cent
Rebuilding of PM-2 of Unit: CP Creation of a quality control lab with state-of-the-art equipment/instruments
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Brand risk
APPM is migrating from generic to branded products. A brand creates product differentiation in a commoditised industry. It not only puts additional responsibility on brand building but requires ongoing investments to create a distinctive image in the minds of customers. Risk mitigation Paper is largely sold as a commodity in the domestic market. Of late, companies have initiated a stronger branding of value-added varieties. As a forward-looking initiative, the Company markets its value-added copier paper under the Millennium brand name. The Companys brand recall is expected to strengthen following the Companys proposed investment in enhancing its quality.
A peaceful industrial relations record ensured that not a single days work was lost due to labour problems
As a result in 2003-04, man and machine productivity was better. The fixed asset turnover ratio improved from 1.59 in 200203 to 1.74 in 2003-04 while revenues per person grew by 17 per cent over the previous year.
10
Quality risk
In a business where a range of paper varieties must be made, including a variety of shades and grammages within each category, any quality variation can be business-threatening. Risk mitigation At the Company, quality was consistently achieved across all batches, varieties and shades through a quality culture endorsed by a quality certification and subsequent revalidation. Over the years, the Company has consistently taken initiatives towards quality improvement. The recent initiatives include:
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Customer concentration risk

A dependence on large institutional buyers and dealers could adversely affect Companys operations in case these buyers lower their volumes or discontinue business with the Company. Risk mitigation The Company maintains a cautious mix of sales: 40 per cent from the retail trade and 60 per cent from industrial consumers. It derives nearly 60-65 per cent of its revenues from the Southern and Western regions of India. The following table provides the dispersion of the Companys revenue from the different regions.
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Distribution risk
The paper industry thrives on a high turnover and low margins. For achieving high volumes, the Companys products must reach the market place with the least lag time and minimum transport cost. Risk mitigation The Companys products are sold across Indias geographical length and breadth through a distribution chain that comprises
Alteration of the bleaching stream from hypo chloride bleaching to chlorine
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AT APPM, A CASH FLOW OF RS. 47.64 CR. IN 2003-04 WILL ENABLE THE REPAYMENT OBLIGATION OF RS. 29.39 CR IN 2004-05 WITH EASE.
Regional revenue split (%) Zone Unit: APPM Unit: CP North South East West 24 16 45 57 17 10 14 17
The efficacy of the strategy is reflected in the numbers: conversion costs as a per cent of total income reduced from 66 per cent to 60 per cent in 2003-04, debt-equity ratio declined from 0.87 in 2002-03 to 0.70 and interest cost as a proportion of total income declined from 4.69 per cent in 2002-03 to 2.15 per cent in 2003-04. As a result of prudent fiscal management, average interest cost declined to 8.2 per cent. Besides, a cash flow of Rs. 47.64 cr. in 2003-04 will enable the Company to cover its repayment obligation of Rs. 29.39 cr in 2004-05 with ease.

consumables. Captive energy and energy-saving investments, significantly reducing the energy bill. Efficient treasury operations helping reduce the interest liability. An excellent man-management, improving labour productivity. All these factors helped the Company improve its net profit margin to 5.20 per cent (4.72 per cent in 2002-03). The appointment of a professional external agency to tighten operations is expected to enhance the profitability of the Company in 2004-05.
The Company is adequately insulated from the risk of customer attrition. It exports close to 10 per cent of its entire production to more than 15 countries. Exports grew from Rs. 17.35 cr in 1999-2000 to Rs. 21.86 cr in 2003-04.
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Finance risk
In a business that is capital-intensive, even a marginally higher cost of capital can translate into a long-term burden, which can affect the Companys ability to compete in the marketplace. Risk mitigation The importance of a large quantum of low cost finance is a necessity for the paper industry, both in daily operations and for capital investment into the business. In the paper industry, the working capital cycle on an average ranges between two to three months and the project cost of a greenfield paper unit of 100,000 tpa capacity is estimated at around Rs. 750 cr. Both clearly underscore the role of competent treasury operations. As an adequate de-risking measure, the Company has kick-started a virtuous cycle: a reduction in operational costs, the repayment of loans, a re-negotiation of interest rates on existing loans, the swapping of loans to reduce interest outflow and improving profitability.
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Margins risk
The paper industry thrives on high volumes and low margins. Any decline in the margins can severely affect Companys capital building and strengthening process. Risk mitigation The following factors helped the Company counter the cyclicality in its business:
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Environment risk
The manufacture of paper must comply with the environmental parameters as specified by the government. Any failure in fulfilling the statutory obligations can lead to a plant shutdown. Risk mitigation The Company fully comprehends the possible environmental hazards involved with the production of paper. It has continuously invested in machinery and processes that not only meet the norms set by the governmental agencies but also exceed them. For a detailed report on environmental management we would request you to go through the environment management section in this report.
A flexibility to provide paper in any quantity and quality leading to a 5-10 per cent premium over the prevailing realisations, strengthening the bottomline.
A focus on value-added products, translating into improved margins.
A closer and stronger raw material linkage, reducing the Companys raw material and logistics costs.
The identification of new chemical sourcing avenues, reducing the cost of
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Five years at a glance

OPERATING RESULTS: 2003-04 Production Sales Turnover Profit before depreciation and tax Depreciation Provision for tax Provision for Deferred Tax Profit after tax Dividend on Equity Shares Dividend on Preference Shares Tax on Dividend Retained Profit SOURCES OF FUNDS: Share Capital -- Equity Share Capital -- Preference Reserves & Surplus Shareholders Funds Borrowings Deferred Credits Total APPLICATION OF FUNDS Net Fixed Assets Investments Net Current Assets Miscellaneous Expenses (To the extent not written off) Total Book Value per Equity Share Earnings per Share Dividend (Equity) Rs. lacs Rs. Rs. % 36633.85 168 20 35 36251.47 154 16 25 35401.83 141 10 25 26993.78 145 25 30 20143.25 123 13 25 Rs. lacs Rs. lacs Rs. lacs Rs. lacs 26203.42 2829.68 7091.22 509.53 25955.45 3681.57 5851.64 762.81 26356.35 2952.35 5167.74 925.39 15814.79 6510.68 4058.18 610.13 12355.65 4918.30 2617.16 252.14 Rs. lacs Rs. lacs Rs. lacs Rs. lacs Rs. lacs Rs. lacs Rs. lacs 1182.89 19107.09 20289.98 13539.21 2804.66 36633.85 1182.89 163.33 17585.39 18931.61 14946.30 2373.56 36251.47 1182.89 326.67 16333.63 17843.19 15505.98 2052.66 35401.83 1124.89 15154.18 16279.07 10714.71 26993.78 1124.89 12722.56 13847.45 6295.80 20143.25 Tonnes. Tonnes. Rs. lacs Rs. lacs Rs. lacs Rs. lacs Rs. lacs Rs. lacs Rs. lacs Rs. lacs Rs. lacs Rs. lacs 151692 149743 44943.88 4664.31 2001.55 197.00 130.00 2335.76 414.01 18.70 55.45 1847.60 2002-03 149874 146125 40860.40 4157.21 1921.66 169.00 140.00 1926.55 295.72 42.50 37.89 1550.44 2001-02 154322 156967 42375.50 3532.30 1873.84 120.00 155.00 1383.46 295.72 214.46 15.13 858.15 2000-01 88745 86801 28555.07 4035.32 991.81 240.00 2803.51 337.47 --34.42 2431.62 1999-00 94334 95281 27020.73 2639.55 894.19 310.00 1435.36 253.04 ---38.97 1143.35
In view of the amalgamation of erstwhile Coastal Papers Ltd., with the Company during the year 2001-02, the figures of the earlier years are not comparable.
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Directors profile
Shri L. N. Bangur
Shri L. N. Bangur, a reputed industrialist, has been the Chairman of the Company since 1992 and a Director since 1985. He is the Chairman of the Committee of Directors (Commercial), the Committee of Directors (Finance) and the Investors' Grievance Committee of the Board. Shri Bangur is the Chairman of Digvijay Investments Limited, Maharaja Shree Umaid Mills Ltd. and The Peria Karamalai Tea & Produce Co. Ltd., and a Director of several finance and investment companies. Presently, he is a managing committee member of the Associated Chambers of Commerce & Industry, the Federation of Indian Chambers of Commerce and Industry and a committee member of Bharat Chamber of Commerce. Dr. N. Tata Rao, a Masters in electrical engineering from Illinois Technology, USA, has been a Director of the Company since 1989. He is a distinguished personality in the field of power generation and transmission and was Chairman of the Madhya Pradesh State Electricity Board and A.P. State Electricity Board for more than two decades. He is a Director of Amarraja Power Systems Ltd., VBC Ferro Alloys Ltd., Lakshmi Finance & Industrial Corporation Ltd. and Industrial Meters Ltd. Smt. Alka Bangur, an industrialist and a post-graduate in English and Hindi, is an MBA and has been a Director of the company since 1996. She is the Managing Director of The Peria Karamalai Tea & Produce Co. Ltd. and a Director of Maharaja Shree Umaid Mills Ltd., The Marwar Textiles (Agency) Pvt. Ltd., Apurva Export Private Ltd. and Mugneeram Ramcoowar Bangur Charitable & Religious Company. Shri N. Srinivasan, a leading Chartered Accountant with more than four decades of experience, has been a Director of the Company since 1998. He is Vice Chairman of the Audit Committee and a member of the Committee of Directors (Commercial), the Committee of Directors (Finance), the Investors' Grievance Committee and Remuneration Committee of the Board. He is also a Director of United Breweries Ltd., Herbertsons Ltd., Tractors and Farm Equipment Ltd., The Peria Karamalai Tea & Produce Company Ltd., India Cements Capital & Finance Ltd., Ador Multiproducts Ltd., Amco Batteries Ltd., the United Nilgiri Tea Estates Company Ltd. and GATI Ltd., among others. He is a managing committee member of the Associated Chambers of Commerce and Industry of India, Madras Chamber of Commerce & Industry, Indo Australian Chamber of Commerce and the Employers' Federation of Southern India. Shri R. K Joshi, a graduate in Mechanical Engineering and an associate of the Insurance Institute of India, has been a Director of the Company since 2001. He has more than three decades of experience in General Insurance Corporation of India (GIC) and its subsidiaries. He is also the Chairman of the Audit Committee of the Board. Presently, he is working as General Manager in GIC. Ms. Sheetal Bangur, a post-graduate in Commerce and Business Administration, has been a Director of the Company since 2002. She is a member of the Committee of Directors (Commercial) and the Committee of Directors (Finance) of the Board. She is also a Director of Samay Books Ltd., The Swadeshi Commercial Co. Ltd. and Mugneeram Ramacoowar Bangur Charitable & Religious Company. Shri Surendra Singh, an MSc and an IAS (Retd.), has been a nominee director of the Company since 2003. He is also a member of the Audit Committee and Remuneration Committee of the Board. He was Executive Director of the World Bank, Cabinet Secretary to the Government of India, Secretary to the Government of India, Ministry of Industry and Special Secretary to the Prime Minister of India. He was also Chairman of Maruti Udyog Ltd. Presently, he is a Director of CMC Limited, the West Bengal Power Development Corporation Ltd., Jubilant Organosys Limited, BAG Films Limited, UTI Bank Limited and NIIT Ltd. Shri R.C. Mall, a graduate in Chemical Engineering, has been the Executive Director of the Company since 1997. He is also a member of the Committee of Directors (Commercial), the Committee of Directors (Finance) and Investors Grievance Committee of the Board. He has more than three decades of experience at various levels and in different facets of project management and administration of large pulp and paper mills like J.K. Paper Mills, Orient Paper Mills and Star Paper Mills.
Dr. N. Tata Rao
Smt. Alka Bangur
Shri N. Srinivasan
Shri R. K. Joshi
Ms. Sheetal Bangur
Shri Surendra Singh
Shri R. C. Mall
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Directors report
To The Members Your Directors have pleasure in presenting 40th Annual Report and the Audited Accounts for the year ended 31st March, 2004.
Financial Results 2003-04

Sales and other income (after accounting for accretion/decretion in stocks) Gross Profit Less: Depreciation Less: Provision for Current Tax Deferred Tax Net Profit Less: Income tax paid for earlier years Add: Profit brought forward from previous Year Profit available for appropriation Appropriations Transfer to General Reserve Transfer to Capital Redemption Reserve Transfer to Debenture Redemption Reserve Transfer from Debenture Redemption Reserve Interim dividend on Preference Shares Tax on Interim preference dividend paid Proposed dividend on equity shares Tax on Equity Dividend Balance carried to Balance Sheet 20.00 1.63 (2.25) 0.19 0.02 4.14 0.53 25.18 49.44 461.69 46.64 20.01 1.97 1.30 23.36 0.28 26.37 49.44
Rs./Crores 2002-03
424.75 41.58 19.22 1.69 1.40 19.27 0.23 15.65 34.69 1.93 1.63 1.00 0.43 2.96 0.37 26.37 34.69
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Performance: The year under review concluded with your Company registering production of 1,51,692 MTs. and sales of Rs.449.44 crores. The Profit Before Tax (PBT) was Rs.26.62 crores. The Profit after deferred tax stood at Rs.23.36 crores as compared to Rs.19.27 crores in the previous year registering a growth of 21 per cent due to improved sales realizations and restructuring of debts. Dividend: An interim dividend at 14.5 per cent amounting to Rs.18,70,085/- on 1,63,334 Redeemable Cumulative Preference Shares of Rs.100/-each for the period from 1st April, 2003 to 14th January, 2004 was declared by the Board and paid on 14th January, 2004. The said Preference Shares were also redeemed on 14th January, 2004. Your Directors are pleased to recommend a dividend of Rs.3.50 per share on 1,18,28,890 equity shares of Rs.10/- each aggregating to Rs. 4,14,01,115/- for the year ended 31st March, 2004. Change in the status of the Company: Government of Andhra Pradesh disinvested its entire shareholding in the Company i.e. 30,00,000 equity shares of Rs.10/- each to Digvijay Investments Ltd. in terms of the Agreement dated 12th December, 2003 entered into by Digvijay Investments Ltd. with Government of Andhra Pradesh. With the acquisition of Governments shareholding, Digvijay Investments Ltds shareholding in the Company had gone up from 30.16 per cent to 55.52 per cent and consequently, the Company became a subsidiary of Digvijay Investments Ltd. with effect from 18th December, 2003. Marketing & Exports: The process of revival of the domestic paper industry evidenced during the previous financial year, witnessed setbacks in the current year, especially with respect to
writing & printing and industrial grades like kraft paper. MG grades and newsprint did witness some buoyancy during the last two quarters and this helped improve realizations. In Unit: APPM, domestic sale was 86,126 MTs. Exports were restricted to 7,029 tons as compared to 10,680 MTs in the previous year. This conscious restriction in volume was due to the slump in international prices, followed by a drop in realizations on account of the appreciation of the Rupee vis--vis the US Dollar. In Unit: CP, domestic sale was 56,222 MTs. The year also witnessed the first direct export of 366 MTs from this unit to Congo, Ethiopia, Malaysia, Nigeria, Senegal, Sri Lanka and Yemen. a) Raw Materials Unit: APPM Raw Material procurement: During the year, procurement of bamboo industrial cuts from Government of Andhra Pradesh was under way. A major portion however, had to be procured from other sources in order to meet the demand. The pulpwood segment witnessed an increase in prices due to stiff competition. Concerted efforts and prudent assessment of market situation could result in sustaining the raw material requirement. Raw Material development: The farm forestry scheme could achieve a target of 36.3 million seedlings distribution to cover an area of approx. 4,800 hectares of land under plantation against 32.5 million seedlings and 4,000 hectares of land in the previous year. Efforts were made to identify wastelands in the catchment areas for development of green cover and afforestation to meet the future demand of raw material. Research and Development in the field of low cost planting techniques and macro
propagation of Casuarina species has been a continuous process showing desirable results. b) Raw Materials Unit: CP i) Rice straw: Due to good Monsoon during the year 200304, the availability of rice straw has gone up compared to previous year and the prices have come down reasonably. Further, some quantity of material has been moved by State Government through railway rakes to other drought hit areas like Ananthapur district etc. The required quantity is available in nearby areas i.e., from East and West Godavari Districts. ii) Waste Paper: The required quantity of different grades of waste paper both imported and indigenous was procured during the year as per production schedule. Some of the imported waste paper grades required to manufacture newsprint have been substituted by indigenous material. However, the prices of imported waste paper have gone up substantially during the year under review due to demand from China and other new plants in Europe and the USA. The prices of major varieties went up by 20 per cent including the impact of raising sea-freight. High lights of Socio-economic activities a) Rural Areas The Company continued to organise farmers meet to foster interactions and a fruitful exchange of ideas directly with agrarian community for adoption of new technologies for better realisation for farm forestry plantations. The benefits of low cost planting have percolated to the grass-roots as farmers and their families begin to enjoy an upgraded socio-economic status leading to the strengthening of existing bonds of trust with the Company. As a part of farm forestry programme, four million seedlings were developed and
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distributed exclusively in the rural areas of East Godavari District in collaboration with the local administration. b) Tribal area development The Company also tied-up with Integrated Tribal Development Agency (under Velugu Scheme of Government of Andhra Pradesh) in its drive towards poverty elimination.The Companys programme comprises of raising of eucalyptus clonal plantations across 1000 acres of land per annum continuously for four years, which is expected to yield sustained supply of 40,000 MT of pulpwood per year from fourth year to the 14th year (10 year-period). c) Local area Godavari Pushkarams,a-once-in-12-year event, was celebrated from 30th July, 2003 to 10th August, 2003. The Company not only helped the District Administration in the successful conduct of the Pushkarams but also directly involved in: a) Distribution of around 1.2 lakh free food packets to Pushkaram pilgrims; b) Providing 1,569 tankers for drinking water; c) Organized medical camps for treating around 3,000 patients; d) Seting-up Information Center and organized other public relation activities aggregating to around Rs.6 lakhs. The District Administration and the local press appreciated the contributions made by the Company. d) Other welfare measures During the year under review, the Company also constructed a culvert near Chagalnadu Lift Irrigation Project in Katheru Village to help farmers conveniently cross the canal and also to facilitate effluent channels. The Company also provided sewing machines to 10 under-privileged women and made arrangements for their training.
Environment: Over the years, the Company has been making consistent efforts to ensure a cleaner environment through a number of initiatives. Mill development plan: The Company proposes to undertake a Mill Development Plan costing around Rs.554 crores to be implemented in 2 phases for improvement in technology, energy efficiency, marketability, long-term environmental compliance and for synergising the operations of both the Units: APPM & CP. The implementaiton of the MDP while increasing the production capacity from 1,53,500 MTPA to 1,97,700 MTPA will also lead to substantial reduction in variable costs and improvement in sales realizations with better value addition by going in for high-end products. Particulars of Employees: There were no employees whose particulars are required to be disclosed under Section 217 (2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975. Public Deposits: 57 deposits totaling Rs.22.33 lacs due for repayment on or before 31st March, 2004 were not claimed by the depositors on that date. Deposits aggregating to Rs.15.45 lacs were refunded upto 31st May, 2004. During the year under review, the Company has transferred a sum of Rs.13,000/- being the amount of deposits matured and remaining unclaimed for a period of seven years to the Investor Education & Protection Fund. Auditors: M/s.Brahmayya & Co., Chartered Accountants, Visakhapatnam, Auditors of the Company will retire at the conclusion of the ensuing Annual General Meeting and being eligible offer themselves for re-
appointment. Directors: During the year under review, ICICI Bank Limited withdrew the nomination of Shri P.J.V.Sarma with effect from 23rd September, 2003 and IFCI Ltd. withdrew the nomination of Shri S.D.Mathur with effect from 27th November, 2003. IDBI had nominated Shri Surendra Singh as its nominee Director in the place of Shri S.Ramachandran with effect from 6th October, 2003. Consequent upon disinvestment, the Government of Andhra Pradesh had withdrawn its nominee directors viz. Shri S.K.Arora, Shri K.V.Rao and Shri S.N.Daga from the Board of Directors of the Company with effect from 19th January, 2004. The Board of Directors places on record its warm appreciation of the excellent contribution made by Shri P.J.V.Sarma, Shri S.D.Mathur, Shri S.Ramachandran, Shri S.K.Arora, Shri K.V.Rao and Shri S.N.Daga during their tenure as Directors of the Company. Industrial Relations: During the year under review, the Industrial Relations were generally cordial. Constitution of Audit Committee: As required under Sec. 292 of the Companies Act, 1956 read with Clause 49 of the Listing Agreement, an Audit Committee was constituted by the Board and the present members of the Audit Committee are: 1) Shri R.K.Joshi, Chairman 2) Shri N.Srinivasan, Vice Chairman 3) Shri Surendra Singh During the year under review, Shri S.D.Mathur, Shri S.Ramachandran and Shri P.J.V.Sarma ceased to be Members of the Audit Committee consequent upon withdrawal of their nominations as Directors by the respective Institutions.
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Awards: The District Administration, Rajahmundry awarded a certificate of commendation for assisting the Administration in solving the leakage of LPG tanker on a public road, thereby avoiding a serious disaster in a busy traffic junction of Rajahmundry town. The Company was also awarded another certificate of commendation by the District Administration for commendable activities in the field of Social Forestry. The Company also received a Special Award on 7th November, 2003 from CAPEXIL sponsored by Ministry of Commerce, Govt. of India in recognition of their outstanding export performance in respect of Paper & Paper Board for the year 2002-03. Directors Responsibility Statement: Your Directors hereby confirm and declare that: a) in the preparation of Annual Accounts for the year ended 31st March, 2004, the applicable accounting standards had been followed along with proper explanation relating to material departures
as explained in note No.5 of Schedule 20 (II) of the said Annual Accounts; b) they had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year i.e. 31st March, 2004 and of the profit of the Company for that period; c) they had taken proper and sufficient care of the maintenance of adequate accounting records in accordance with the provisions of Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting the fraud and other irregularities; d) they had prepared the accounts for the year ended 31st March, 2004 on a going concern basis. Reply to Auditors Observations: As regards observation vide Item Nos.4 (d) & (e) of Auditors Report dt.29.05.2004 regarding Accounting Standard 22 on
accounting for taxes on income, a detailed explanation has been given in Note No.5 of Schedule 20 (II) of the Annual Accounts for the year ended 31.03.2004. Acknowledgements: Your Directors wish to place on record their gratitude to the Central Government and the Government of Andhra Pradesh, ICICI Bank Ltd., IFCI Ltd., IDBI, IDBI Bank Ltd. and Export-Import Bank of India besides the Companys Bankers viz., State Bank of India and Canara Bank for their continued support during the year. Your Directors also wish to convey their thanks to the valued customers and dealers for their continued patronage during the year. Your Directors also place on record their appreciation of the contribution made by all the employees during the year under review.
For and on behalf of the Board,
Place: Secunderabad Date :25th June, 2004
L.N.Bangur Chairman
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ANNEXURE I
Information under Section 217 (1) (e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 and forming part of Directors Report: A.CONSERVATION OF ENERGY: I. Measures taken for conservation of energy: 1) Installation of VFD for air circulation fan in Paper Machine No.3 for hood and PV system. 2) Installation of VFD for ID fan of Recovery Boiler No.2. 3) Installation of Electronic Governor for 12 MW TG set. 4) Unitization of compressors in paper machines. 5) Installation of VFD for ID fan of Coal Fired Boiler (IJT). 6) Installation of Automatic Power Factor Correction panel for 12 MW TG set. 7) Installation of energy efficient stock pumps in Bleach Plant No.2 (Pulp Mill). 8) Installation of flash heat recovery system in Paper Machine No.3. II. Proposals being implemented for reduction of energy consumption are: 1) Replacement of pump (One) with energy efficient pumps in clear water pump house. 2) Installation of energy efficient pumps in Recovery Boiler No.2. 3) Installation of Automatic Power Factor Correction panel for Stal TG set. 4) Installation of VFD for air circulation fan in Paper Machine No.3. III. Impact of the above measures on the consumption of energy: The above measures have resulted in reduction in consumption of energy, improvement in steam generation, reduction in machine downtime, reduction in cost of production etc.
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FORM 'A' 2003-2004 FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY. PARTICULARS UNIT CURRENT YEAR PREVIOUS YEAR
A) POWER & FUEL CONSUMPTION: 1) ELECTRICITY: Purchased Units Total amount Rate/Unit b) Own Generation: I) Through Diesel Generator: Units a) lacs/KWH Rs./lacs Rs. 427.59 1212.55 2.84 475.36 1217.31 2.56
lacs/KWH KWH Rs lacs/KWH Rs. lacs/KWH Rs. lacs/KWH Rs. lacs/kwh Rs. Tonnes Rs/lacs Rs./ton Kl Rs./lacs Rs/Kl Tonnes Tonnes Rs/lacs Rs./ton KWH Kl Tonnes
4.43 2.72 9.57 7.66 0.69 325.88 2.38 896.14 1.60 444.76 1.95 279198 3667.12 1313 1153 122.31 10608 6981 11804 93.36 791 1313 0.008 1.841 0.078
13.59 3.18 7.46 14.88 0.72 301.65 2.58 893.79 1.45 400.09 1.89 251732 3353.66 1332 949 101.66 10718 7320 17848 165.45 927 1324 0.006 1.680 0.119
Units/Ltr of Diesel Oil Cost/Unit i I) Through Steam Turbine (Back Pressure) Units Cost/Unit i i I) Through Steam Turbine (Condensing) Units Cost/Unit i v I) Through Steam Turbine (Double extraction-cum-Condensing) Units Cost/Unit v) Through Steam Turbine (Single extraction-cum-Condensing) Units Cost/Unit 2) COAL (STEAM/SLACK) Quantity Total Cost Average Rate 3) FURNACE OIL & LSHS Quantity Total Amount Average Rate 4) SAW DUST Quantity 5) Husk & others Quantity Total amount Average Rate B) CONSUMPTION PER TON OF PRODUCTION: Electricity Furnace Oil/LSHS Coal Tonnes Husk & others
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B.TECHNOLOGY ABSORPTION: FORM B FORM FOR DISCLOSURE OF PARTICULARS WITH RESPECT TO ABSORPTION Research & Development (R & D) 1. Specific areas in which R & D carried out by the Company. 2. Benefits derived as a result of the above R & D. Studies for the modification of the process/Pollution abatement. Identification of functional additives/chemicals and their plant trials for cost reduction/quality improvement. Development/Improvement of quality of papers for Export and Domestic markets. Identification of pulping additives and conducting plant trials. Bleached pulp quality improvement through process modification. Identification of Enzymes and additives for pulp refining energy reduction and bleach chemical consumption reduction and conducting plant trials. 3. Future plan of action Expenditure on Research & Development: a) Capital b) Recurring c) Total d) Total R & D expenditure as a percentage of Total Turnover B. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION As the Company has not imported any technology, the requisite information is not given. C. Foreign Exchange Earnings and Outgo: Foreign Exchange earned Foreign Exchange utilized : Rs.21.86 crores : Rs.41.92 crores : Rs. ---: Rs. 59.65 lakhs : Rs. 59.65 lakhs : 0.13% Identification of alternate fibrous raw materials. Continuation of New Product Development studies. Evaluation of alternate fibrous raw materials. Plant trials with enzymes for reduction of refining energy and pollution load. Identification of functional additives/chemicals for Product development and process quality improvement. New product development & product quality improvement.
For and on behalf of the Board,
Place: Secunderabad Date : 25th June,2004
L.N. BANGUR Chairman
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The financial section
AUDITORS' REPORT
To The Members of The Andhra Pradesh Paper Mills Limited, Rajahmundry. 1 We have audited the attached Balance Sheet of The Andhra Pradesh Paper Mills Limited as at 31st March, 2004, the Profit and Loss Account and also the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We have conducted our audit in accordance with auditing standards generally accepted in India. These Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of The Companies Act, 1956 of India (the `Act) and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we set out in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4 Further to our comments in the Annexure referred to above, we report that: a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit. b) In our opinion, proper books of account, as required by law have been kept by the company so far as appears from our examination of such books. c) The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account. d) In our opinion the Balance Sheet and Profit and Loss Account dealt with by this report comply with the accounting standards referred to in Sub Section (3c) of Section 211 of the Companies Act, 1956 with the exception of Accounting Standard 22, on Accounting for Taxes on Income, referred to in Note no.5 of Schedule 19 (ii). e) In our opinion and to the best of our information and according to the explanations given to us, subject to not fully providing for deferred tax liability in accordance with Accounting Standard 22 issued by the Institute of Chartered Accountants of India, referred to in Note no.5 of Schedule 19 (ii), the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view, in conformity with the accounting principles generally accepted in India: i) in the case of the Balance Sheet of the state of affairs of the company as at 31st March 2004. ii) in the case of the Profit and Loss account, of the Profit for the year ended on that date. iii) in case of the cash flow statement, of the cash flows for the year ended on that date f) On the basis of written representations received from the Directors as on March, 31, 2004 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2004 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Act. For Brahmayya & Co. Chartered Accountants
Camp: Secunderabad Date : 29.05.2004
V. Seetaramaiah Partner Membership No.003848
64
ANNEXURE TO THE AUDITORS REPORT REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE: i) a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. b) The fixed assets have been physically verified by the management during the year in accordance with a phased programme of verification which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. According to the information furnished to us, no material discrepancies have been noticed on such verification. c) The Fixed Assets disposed off by the company during the year do not form a substantial part thereof. ii) a) Physical verification of inventory has been conducted during the year by the management at reasonable intervals. b) The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business. c) On the basis of our examination of the records of inventory, we are of the opinion that the company is maintaining proper records of inventory. The discrepancies noticed on such verification between the physical stocks and the book records were not material. iii) The Company has neither granted nor taken any loans, secured or unsecured to/from Companies, firms or other parties to whom the provision of section 301 of the Companies Act, 1956 apply. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensuratewith the size of the company and the nature of its business with regard to purchase of inventory, fixed assets and sale of goods. During the course of our audit, no major weakness has been noticed in the internal controls. a) According to the information and explanations given to us, we are of the opinion that the transactions that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered. b) In our opinion and according to the information and explanationsgiven to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and exceeding the value ofrupees five lakhs in respect of any party during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time. vi) In our opinion and according to the information and explanations given to us, the company has complied with the provisions of sections 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from public. No order has been passed by the Company Law Board. In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the Rules made by the Central Government for the maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. a) According to the records of the company, the company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund, employees state insurance, incometax, sales-tax, wealthtax, custom duty, excise duty, cess, and other material statutory dues applicable to it. b) According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, wealth x.
tax, sales tax, customs duty, excise duty and cess were in arrears as at 31st March 2004 for a period of more than six months from the date they became payable. c) As at 31st March 2004, there have been no disputed dues,which have not been deposited with the respective authorities in respect of Income-tax, Wealth-tax, Excise Duty and Cess, except disputed excise duty under Central Excise Act of Rs.2.11crores pending before the Appellate Commissioner, Customs and Central Excise and Rs.4.25 crores pending before the Customs, Central Excise and Service Tax Appellate Tribunal, disputed Sales-tax under Andhra Pradesh General Sales-tax Act and Central Sales-tax Act of Rs.0.25 crores pending before the Appellate Deputy Commissioner and 0.85 crores pending before the Andhra Pradesh High Court and disputed income-tax under Indian Income-tax Act of Rs.0.06 crores pending before the Commissioner of Incometax (Appeals) have not been deposited in view of the matters pending before the respective appellate authorities. The Company has no accumulated losses and has not incurred cash losses during the financial year covered by our audit and the immediately preceeding financial year. In our opinion and according to the information and explanations given to us, the Company has not defaulted in repayment of dues to financial institutions, banks or debenture holders. The Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures and other securities. In our opinion, the Company is not a chit fund or a nidhi/mutual benefit fund/society. Accordingly, the provisions of this clause are not applicable to the Company. In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other instruments. Accordingly, the provisions of this chapter are not applicable to the Company. The company has not given any guarantees for loans taken by others from banks or financial institutions. In our opinion, the Term Loans have been applied for the purposes for which they were raised.
xi.
xii. xiii.
iv)
xiv.
v)
xv. xvi.
xvii. According to the information and explanations given to us and on overall examination of the Balance Sheet of the company, we report that no funds raised on short term basis have been used for long term investment and vice versa. xviii. During the year, the Company has not made any allotment of shares and accordingly the provisions of this chapter are not applicable to the Company. xix. The Company has created securities in respect of debentures issued in earlier years. During the year, the Company has not raised money by Public issue. According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit. For BRAHMAYYA & CO., Chartered Accountants Place : Secunderabad Date : 29.05.2004 (V. SEETARAMAIAH) Partner Membership No.003848
xx. xxi.
vii. viii.
ix.
65
The Andhra Pradesh Paper Mills Limited

BALANCE SHEET As AT 31St March, 2004
Schedule No. SOURCES OF FUNDS Shareholders' Funds a) Capital b) Reserves & Surplus Loan Funds a) Secured Loans b) Unsecured Loans Deferred Credits Total APPLICATION OF FUNDS Fixed Assets a) Gross Block b) Depreciation c) Net Block d) Capital works-in-progress Investments Current Assets, Loans and Advances a) Inventories b) Sundry Debtors c) Cash and Bank Balances d) Other Current Assets Interest accrued on Deposits & Investments e) Loans and Advances Less:Current Liabilities & Provisions Net Current Assets Misc. Expenditure to the extent not written-off or adjusted Total Significant Accounting Policies and Notes on Accounts 20 11 12 129.25 2814.79 15233.97 8111.85 7122.12 509.53 36633.85 250.80 2290.19 13865.78 7983.24 5882.54 762.81 36251.47 8 9 10 8703.94 2791.08 794.91 7977.23 2783.85 563.71 7 6 44441.79 18669.06 25772.73 430.69 26203.42 2798.78 42718.47 17037.12 25681.35 274.10 25955.45 3650.67 3 4 5 10214.61 3324.60 13539.21 2804.66 36633.85 12272.60 2673.70 14946.30 2373.56 36251.47 1 2 1182.89 19107.09 20289.98 1346.22 17585.39 18931.61 As at 31.03.2004 Rs. Lacs As at 31.3.2003
As per our report of even date For Brahmayya & Co., Chartered Accountants
For and on behalf of the Board, Sudhir Bhansali Executive Vice President (Finance) & Chief Finance Officer C. Prabhakar Company Secretary L.N. Bangur Chairman
V. Seetaramaiah Partner Place:Secunderabad Date :29th May 2004 66
R.C. Mall Executive Director

PROFIT AND LOSS ACCOUNT For the year ended 31st March, 2004
Schedule No. INCOME Sales Accretion /(Decretion) in Stocks Other Income Total EXPENDITURE Materials Consumed Excise Duty Staff Costs Manufacturing Expenses Other Expenses Interest and Finance Charges (Net of receipts) Deferred Revenue Expenses Written off Depreciation Total Profit before tax Provision for taxation Profit after Current Tax Provision for deferred Tax Profit for the year Profit brought forward from Previous Year Exceptional Items: Income Tax paid for earlier years Balance available for appropriation APPROPRIATIONS Transfer to General Reserve Transfer to Capital Redemption Reserve Transfer to Debenture Redemption Reserve Transfer from Debenture Redemption Reserve Interim Dividend on Preference Shares Corporate Tax on Interim Preference Dividend Paid Proposed Equity Dividend Corporate Tax on Dividend Balance carried to Balance Sheet Significant Accounting Policies and Notes on Accounts Earnings per Equity Share (Basic & Diluted) (Rs.) Year ended 31.03.2004 44943.88 563.36 662.23 46169.47 13410.27 5086.53 4279.14 14380.22 3071.89 981.21 295.90 2001.55 43506.71 2662.76 197.00 2465.76 130.00 2335.76 2636.86 28.41 4944.21 2000.00 163.33 ___ (225.00) 18.70 2.40 414.01 53.05 2517.72 4944.21 20 19.57 15.93 Rs. Lacs Year ended 31.03.2003 40860.40 949.44 664.68 42474.52 11452.96 4242.08 3831.76 13690.90 2811.42 1990.76 297.43 1921.66 40238.97 2235.55 169.00 2066.55 140.00 1926.55 1565.02 22.61 3468.96 192.66 163.33 100.00 ___ 42.50 ___ 295.72 37.89 2636.86 3468.96
13 14
15 16 17 18 19
For and on behalf of the Board, Sudhir Bhansali Executive Vice President (Finance) & Chief Finance Officer C. Prabhakar Company Secretary L.N. Bangur Chairman
V. Seetaramaiah Partner Place:Secunderabad Date :29th May 2004
R.C. Mall Executive Director
67

SCHEDULES FORMING PART OF BALANCE SHEET
Schedule 1 SHARE CAPITAL
Authorised 1,87,50,000 Equity Shares of Rs.10/- each 5,00,000 Redeemable Cumulative Preference Shares of Rs.100/- each. Total Issued and Subscribed 1,18,30,000 Equity Shares of Rs.10/-each fully paid up 4,90,000 14.5% Redeemable cumulative Preference Shares of Rs.100/- each. Total Paid up 1,18,28,890 Equity Shares of Rs.10/- each fully paid up. 14.5% Redeemable cumulative Preference Shares of Rs.100/- each. (Previous Year 163334) (All the 1,63,334 Shares redeemed during the year.) Total Of the above Equity Shares: 65,68,106 Equity Shares of Rs.10/- each are held by M/s.Digvijay Investments Ltd.-The holding Co. 9,98,500 Equity Shares of Rs.10/- each were allotted as fully paid up pursuant to a contract without payment being received in cash. 11,25,000 Equity Shares of Rs.10/- each fully paid up were alloted for consideration other than cash as Bonus Shares by Capitalisation of Reserves. 5,80,000 Equity Shares of Rs.10/- each were alloted to the shareholders of CPL pursuant to the Scheme of Amalgamation without payment being received in cash. 31.03.2004 1875.00 500.00 2375.00 1183.00 490.00 1673.00 1182.89 1182.89 Rs. Lacs 31.03.2003 1875.00 500.00 2375.00 1183.00 490.00 1673.00 1182.89 163.33 1346.22
Rs. Lacs
Schedule 2 RESERVES & SURPLUS

Capital Redemption Reserve As per last Balance Sheet Add: Transfer from Profit & Loss Account Share Premium As per last Balance Sheet Less: Premium on prematured redemption of Optionally Fully Convertible Debentures transferred to Profit & Loss Account Asset Revaluation Reserve As per last Balance Sheet Less: Transfer to Profit & Loss Account* General Reserve As per last Balance Sheet Add: Transfer from Profit & Loss Account Debenture Redemption Reserve: As per last Balance Sheet Add: Transfer from Profit & Loss Account Less: Transfer to Profit & Loss Account Surplus in Profit & Loss Account Total 434.67 163.33 843.58
31.03.2004 271.33 163.33 843.58
31.3.2003
598.00
434.66
219.41 548.32 78.08 12621.96 2000.00 500.00 225.00
624.17
824.39 276.07 12429.31 192.66 400.00 100.00
843.58
470.24
548.32
14621.96
12621.97
275.00 2517.72 19107.09
500.00 2636.86 17585.39
* Adjusted against depreciation Rs.73.04 lacs and Loss on Discarded Assets Rs.5.04 Lacs - Previous Year depreciation Rs.73.76 lacs and Profit on sale of Fixed Assets Rs.202.31 Lacs. 68

Rs. Lacs
Schedule 3 SECURED LOANS

1. Term Loans from a. IFCI Ltd. (Repayable within one year Rs.615.64 lacs; Previous year Rs.615.64 lacs) b. IDBI (Repayable within one year Rs.399.12 lacs; Previous year Rs.399.12 lacs) c. ICICI Bank Ltd. (Repayable within one year Rs.285.72 Lacs; Previous year Rs.892.86 lacs) d. Exim Bank (Repayable within one year Rs.471.56 Lacs) e. State Bank of India (Repayable within one year Rs.500 Lacs) 2. Debentures: a. 11.5% -15,00,000 Non-convertible Debentures of Rs. 100/- each (Redeemable within one year Rs.500 lacs, Previous year Rs.500 lacs) b. 13.5%- 5,00,000 Non-convertible Debentures of Rs. 100/- each (Redeemable within one year Rs.166.67 lacs, Previous year Rs.166.67 lacs) c. 14%- 7,50,000 Optionally Fully convertible Debentures of Rs. 100/- each 3. Cash Credit from: a. State Bank Of India b. Canara Bank Total NOTES :
31.03.2004 1539.10 1314.70 857.14 2211.00 1125.00 750.00 333.33 ___ 1090.38 993.96 10214.61
31.03.2003 2154.74 1713.82 4125.00 ___ ___ 1250.00 500.00 750.00 749.18 1029.86 12272.60
1. Term loans from the financial institutions viz. IFCI Ltd., I.D.B.I, ICICI Bank Ltd., Exim Bank and SBI are secured by a first charge on all movable and immovable properties of the Company situated at Rajahmundry,Serinarasannapalem and Kadium subject to note no 5. 2. 11.5% Non-Convertible Debentures privately placed with IDBI Bank Ltd., are secured by a first charge ranking pari passu with Financial Institutions on the fixed assets of the Company situated at Rajahmundry and Serinarasannapalem as per the Debenture Subscription Agreement subject to note no 5. These debentures are redeemable in 12 equal quarterly instalments beginning from 01.01.2003 3. 13.5% Non-Convertible Debentures of privately placed with IDBI are secured by movable and immovable properties belonging to Coastal Papers Division situated at Kadium as per the Debenture Subscription Agreement subject to note no 5. These Debentures are redeemable in equal instalments at the end of 5th,6th & 7th year from the date of allotment i.e. 17.12.1998. 4. 14% Optionally Fully Convertible Debentures privately placed with ICICI Ltd., are secured by movable and immovable properties situated at Kadium and certain properties situated in the State of Gujarat belonging to Coastal Papers Division as per the Debenture Subscription Agreement. These Debentures were prepaid during the year. 5. The working capital facilities from State Bank of India and Canara Bank are secured by hypothecation of raw materials, finished stock, stock in process, stores and spare parts etc. along with second charge on the fixed assets of the Company situated at Rajahmundry, Serinarasannapalem and Kadiam respectively.
69

Rs. Lacs
Schedule 4 UNSECURED LOANS

1. a) Fixed Deposits (including *unclaimed deposits of Rs.22.33 lacs, Previous Year Rs.10.51 lacs) (Includes from Directors Rs.3.90 lacs, Previous Year Rs.1.40 lacs) (Rs.554.05 lacs payable within one year, Previous year Rs.693.40 lacs) b) Interest due thereon * 2. Other Loans : a) Short Term Loans from Scheduled Banks b) Security Deposits from Dealers including Interest there on Total
31.03.2004 1113.73
31.03.2003 1196.01
3.82 1143.87 1063.18 3324.60
1.81 500.00 975.88 2673.70
* Amounts due and outstanding to be credited to Investor Education and Protection Fund Rs.NIL (Previous Year Rs.NIL)
Rs. Lacs
Schedule-5 DEFERRED CREDITS

Interest Free Sales Tax Deferment Loan Deferred Tax Liability (Net) Total
31.03.2004 1541.66 1263.00 2804.66
31.03.2003 1240.56 1133.00 2373.56
Rs. Lacs
Schedule 6 FIXED ASSETS

Gross Block At Cost Particulars Land Roads & Drainages Buildings: On Freehold Land On Leasehold Land Plant & Machinery Electrical Installations Furniture & Fixtures Trucks & Vehicles Goodwill Total Capital works-in-progress (at cost) (Including Capital Advances) Total Less:Transfer from Asset Revaluation Reserve Total Previous Year As at Additions Sales/ 01.04.03 Adjustments 254.13 28.95 19.62 --0.03 --Upto 31.03.04 273.72 28.95 Depreciation Upto 01.04.03 --18.16 For the On Sales/ Year Adjustments --1.03 --------419.36 0.43 1.90 20.96 --442.65 Upto 31.03.04 --19.19 1620.99 6.01 15209.88 415.62 588.74 228.43 580.20 18669.06 Net Depreciated Block As at 31.03.04 273.72 9.76 As at 31.03.03 254.13 10.79
3683.68 94.79 6.96 --35318.07 1957.86 483.38 0.21 695.24 38.99 314.09 78.83 1933.97 42718.47 2190.30
--3778.47 1493.28 127.71 --6.96 5.95 0.06 438.36 36837.57 13969.89 1659.35 0.44 483.15 405.14 10.91 2.48 731.75 540.32 50.32 25.67 367.25 217.58 31.81 1933.97 386.80 193.40 466.98 44441.79 17037.12 2074.59
2157.48 2190.40 0.95 1.01 21627.69 21348.18 67.53 78.24 143.01 154.92 138.82 96.51 1353.77 1547.17 25772.73 25681.35 430.69 274.10 26203.42 25955.45
42718.47 2190.30
466.98 44441.79 17037.12 2074.59 73.04 466.98 44441.79 17037.12 2001.55 278.51 42718.47 15102.04 1995.42
442.65
18669.06 73.04 18596.02 17037.12
42718.47 2190.30 41115.86 1881.12
442.65 60.34
26203.42 25955.45 25955.45 26356.35
70

Rs. Lacs
SCHEDULE 7 INVESTMENTS
Investments: (Long Term): (At cost) Trade - Unquoted : 13,40,000 Shares of Rs.10/- each fully paid up in Andhra Pradesh Gas Power Corpn. Ltd. Non-Trade - Quoted: 1,000 Equity Shares of Rs.10/- each fully paid up in Tamilnadu News Print Ltd. 2,12,800 Equity Shares of Rs.10/- each fully paid up in Kedia Distillery Ltd. 10,00,000 Equity Shares of Rs.10 each fully paid up in IFCI Ltd, sold during the year Non-Trade:(Unquoted) (I) Trust Securities: UTI Money Market Fund 736 Units of Rs.10/- each UTI GSF Software 7,93,231 Units of Rs.10 each APIDC Venture Capital Fund 750 Units of Rs.1000 each HDFC Income Fund (Previous Year 21,72,790 Units of Rs.10/- each) Zurich India Liquid Fund (Previous Year 16,23,474 Units of Rs.10/- each) GSSIF Investment Plan (Previous Year 14,86,552 Units of Rs.10/- each) IDBI Principal Income Fund (Previous Year 3,56,980 Units of Rs.10/- each) IFCI Bonds - II Option (Previous Year 935 Bonds of Rs.1,00,000/- each) Magnum Insta Cash Fund 7,06,255 Units Of Rs.10 each K Bond Unit Scheme 99 Institutional Plan 6,05,705 Units Of Rs.10 each (Previous year 3,23,330 Units of Rs.10/- each) Birla Cash Plus Retail Plan 12,37,906 Units Of Rs.10 each Birla MIP Plan 6,54,893 Units Of Rs.10 each Alliance Monthly Income 10,44,428 Units Of Rs.10 each DSP ML Savings Plus 17,14,799 Units Of Rs.10 each Templeton India Short Term Income Plan 8,640 Units Of Rs.1000 each Tata Income Fund Bonus - Bonus Units 9,67,614 Units Of Rs.10 each, received during the year (ii) Equity Shares: 30,000 Shares of Rs.10/- each fully paid up in Somar Granites Pvt. Ltd. Total of Quoted & Unquoted Investments Less: Provision for diminution in the value of investments Total of Investments Book Value Aggregate Value of : Quoted Investments Unquoted Investments 62.81 2860.68 2923.49
31.03.2004
31.03.2003
1538.37 1.10 61.71 62.81 1.10 61.71 100.00
1538.37
162.81
0.12 294.75 4.61 100.00 100.00
0.12 294.75 6.56 311.05 212.37 211.35 50.00 935.00 50.00
210.67 100.37 208.39 200.40 100.00
3.00 1322.31 2923.49 124.71 2798.78 Market value 0.62 0.62
3.00 2074.20 3775.38 124.71 3650.67 Book Value 162.81 3612.57 3775.38 Market value 40.38 40.38
(6,35,72,554 Units purchased and 6,35,63,053 Units Sold during the year) (Previous Year 3,06,28,298 Units purchased and 2,46,66,227 Units Sold)
71

SCHEDULES FORMING PART OF BALANCE SHEET
SCHEDULE-8 INVENTORIES
Stores, Chemicals, Components, Spare Parts, Building Materials,Loose Tools Raw Materials Materials-in-transit/ awaiting inspection Work-in-process Finished Goods Stock of Scrap Total 31.03.2004 2554.08 3665.38 35.22 144.56 2253.50 51.20 8703.94 Rs. Lacs 31.03.2003 2449.76 3581.04 84.03 124.29 1710.41 27.70 7977.23 Rs. Lacs
SCHEDULE-9 SUNDRY DEBTORS

Secured : Considered Good Unsecured: Debts outstanding over six months: Considered Good Considered Doubtful Debts outstanding less than six months : Considered Good Less: Provision for Doubtful Debts Total
31.03.2004 837.48
31.03.2003 659.14
185.05 185.05 1768.55 1953.60
359.90 14.90 374.80 1764.81 2139.61

14.90
1953.60 2791.08
2124.71 2783.85
Rs. Lacs
SCHEDULE-10 CASH AND BANK BALANCES

Cash on hand Cheques on hand With Scheduled Banks in : Current Accounts (including Rs.11.86 lacs on account of unpaid dividends Previous Year Rs.10.42 lacs) Deposit Accounts Remittances-in-Transit Total
31.03.2004 11.23 46.29 109.55 237.40 390.44 794.91
31.03.2003 16.77 79.70 39.52 218.23 209.49 563.71 Rs. Lacs
SCHEDULE-11 LOANS, ADVANCES AND DEPOSITS

(Unsecured considered good) Advances recoverable in cash or kind or for value to the received Inter Corporate Deposits Income-tax paid under protest/ Refund Receivable Advance Income Tax (Net of Provision) Deposits with Customs, Port Trust and Excise Authorities Other Deposits Claims Receivable Total
31.03.2004 1255.05 30.90 636.33 45.64 280.30 330.19 236.38 2814.79
31.03.2003 979.64 30.90 658.64 23.71 95.27 317.11 184.92 2290.19
72

Rs. Lacs
SCHEDULE-12 CURRENT LIABILITIES AND PROVISIONS

Current Liabilities : Sundry Creditors - Capital - Others @ Advances from Customers Unclaimed Dividends * Other Liabilities Interest accrued but not due on Loans Provisions : Proposed Equity Dividend Corporate Tax on Dividend Total
31.03.2004 174.86 3881.29 70.85 11.86 3341.43 164.50 7644.79 414.01 53.05 8111.85
31.03.2003 78.04 3673.09 141.87 10.42 3512.37 233.84 7649.63 295.72 37.89 7983.24
@ Includes Rs.124.36 lacs(since paid) (Previous year Rs.90.71 lacs) due to Small Scale Industrial Undertakings to the extent such parties have been identified from the available information and there are no Small Scale Industrial Undertakings where the outstandings are due for more than 30 days. * Amounts due and outstanding to be credited to Investor Education and Protection Fund Rs.NIL (Previous Year Rs.NIL)
SCHEDULES FORMING PART OF PROFIT AND LOSS ACCOUNT

Year ended 31.03.2004
Rs. Lacs Year ended 31.03.2003
Schedule 13 ACCRETION/(DECRETION) IN STOCKS

Accretion/(Decretion) In Stocks i) Closing Stocks a) Finished Goods b) Work-in-Process ii) Opening Stocks a) Finished Goods b) Work-in-Process Accretion/(Decretion) in Stocks
2253.50 144.56 2398.06 1710.41 124.29 1834.70 563.36
1710.41 124.29 1834.70 772.01 113.25 885.26 949.44
Rs. Lacs Year ended 31.03.2004 0.03 88.19 45.34 335.29 103.45 50.75 39.18 662.23 Year ended 31.03.2003 0.03 76.78 192.20 248.27 6.31 128.17 12.92 664.68
Schedule 14 OTHER INCOME

Income from Investments Profit on sale/Redemption of Investments Profit on sale of Fixed Assets Miscellaneous Income Claims Received Provisions no longer required Sundry Credit Balances written back Total
73

Rs. Lacs Year ended 31.03.2004 3581.04 12702.10 16283.14 Less: Closing Stock B. Packing Materials Consumed Total 3665.38 12617.76 792.51 13410.27 Year ended 31.03.2003 3456.62 10780.94 14237.56 3581.04 10656.52 796.44 11452.96
Schedule 15 MATERIALS CONSUMED

A. Raw Materials Consumed Opening Stock Add: Purchases
Rs. Lacs Year ended 31.03.2004 3448.56 463.15 367.43 4279.14 Year ended 31.03.2003 3013.04 438.94 379.78 3831.76
Schedule 16 STAFF COSTS

Salaries, Wages & Bonus Contribution to Provident and other Funds Workmen & Staff Welfare Expenses Total
Rs. Lacs Year ended 31.03.2004 8098.15 5157.92 253.38 736.23 134.54 14380.22 Year ended 31.03.2003 7756.70 4950.85 186.90 661.07 135.38 13690.90
Schedule 17 MANUFACTURING EXPENSES

Spare Parts, Components and Stores consumed Power & Fuel Repairs & Maintenance of Buildings Repairs & Maintenance of Machinery Paper conversion charges Total
74

Rs. Lacs Year ended 31.03.2004 76.35 89.23 231.87 25.13 33.15 2.50 0.50 1.84 1.41 2.50 0.50 3.99 1.41 Year ended 31.03.2003 65.92 71.04 208.60 21.33 28.09
Schedule 18 OTHER EXPENSES

Rent Rates & Taxes Insurance Commission to Directors Directors' Fees and Allowances Auditors' Remuneration For Statutory Audit For Tax Audit For Certification and Management Services For Reimbursment of Expenses Cost Audit Fees Cash Discounts Forwarding, Transportation and Other Sales Expenses Donations Research & Development Expenses Miscellaneous Expenses Bad debts, Deposits & Advances Written off Less: Adjusted against provision made for doubtful debts & deposits Provision for dimunition in investments Provision for Doubtful Debts Loss on Discarded Assets Total
6.25 0.60 1219.61 683.14 1.98 59.65 604.57
8.40 0.55 972.33 750.76 5.00 24.05 581.67
52.22 14.90 37.32 3.04 3071.89
114.55 112.72 1.83 60.00 11.18 0.67 2811.42 Rs. Lacs Year ended 31.03.2004 866.43 209.62 244.98 100.87 63.48 0.70 167.23 Year ended 31.03.2003 1259.17 223.08 383.49 124.92 149.08 16.33 220.71
Schedule 19 INTEREST AND FINANCE CHARGES (NET OF RECEIPTS)

Interest on Term Loans Interest on Deposits Interest on Debentures Lease Rentals Interest on Royalty Other Interest Bank and Finance Charges Premium Paid on Prematured Redemption of Optionally Fully Convertible Debentures Less:Transferred from Share Premium Account Less: Interest and discounting charges received on Loans, Bonds, Deposits, Advances and Trading Debts through Banks, foreign exchange variation and others (Including Rs.Nil on Inter Corporate Deposits, Rs. 73.08 lacs on Bonds, Rs.6.10 lacs on IT Refunds and Rs.168.89 lacs on Foreign exchange variation - previous year Rs.0.36 lacs, Rs.130.90 lacs Rs.0.88 lacs and Rs.Nil respectively) (Income-tax deducted at source Rs.43.45 lacs, Previous Year Rs. 48.30 lacs) Total
219.41 219.41 1653.31 672.10 2376.78 386.02
981.21
1990.76 75
SCHEDULE 20 : ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

Annexure to and forming part of Balance Sheet as at and Profit & Loss Account for the year ended 31st March 2004:
I.ACCOUNTING POLICIES: i) General: Financial Statements are prepared on accrual basis under the historical cost convention and in accordance with the accounting standards specified in Sub section 3(c)of Section 211 of the Companies Act, 1956. ii) Fixed Assets: a) Fixed Assets, other than Land, Buildings and Plant & Machinery of erstwhile Coastal Papers Ltd (CPL), are stated at cost less accumulated depreciation. Cost of acquisition of fixed assets is net of CENVAT and inclusive of freight, duties, taxes, incidental expenses including interest on specific borrowings and preoperative expenses as allocated. Machinery acquired on lease prior to 01.04.2001 has not capitalised. b) Land, Buildings and Plant & Machinery of CPL were revalued during the year 1992-93,which now appear at Carrying values based on such valuation. c) Expenses incurred for modernisation and balancing of Plant and Machinery under the modernisation-cum-renovation scheme are capitalised. d) Goodwill represents excess of liabilities over assets taken over from CPL, amoritsed over a period of 10 years. iii) Investments: Investments are stated at cost, inclusive of all expenses relating to acquisition. Provision for diminution in the market value of longterm investments is made, if in the opinion of the Management such diminution is permanent in nature. iv) Inventories: a) Finished goods are valued at cost, inclusive of excise duty, or market value whichever is lower. b) Stocks of raw materials (including inter division transfers), stores,spare parts, material- in-transit etc. are valued at cost after providing for obsolescence. Cost includes expenses of procurement, excise and custom duties and is net of credits under CENVAT Scheme. c) Work-in-process is valued at cost which includes material, direct labour and related over-heads. d) Scrap is valued at estimated realisable value. v) Revenue Recognition: a) Sales are inclusive of excise duty, export incentives and net of trade and quantity discounts and rebates. b) Interest and dividend income from investments is accounted on accrual basis. c) Insurance and other claims/refunds and Export Incentives are accounted for as and when admitted by appropriate authorities. d) In accordance with past practice, Inter Division transfers are at agreed prices and not eliminated in financial statements. x) vi) Retirement Benefits: a) The Unit: APPM has various schemes of retirement benefits such as Provident Fund, Superannuation Fund and Gratuity Fund which are administered by the Trustees of independently constituted Trusts recognised by the Income-tax Authorities. The periodic contributions to the funds are charged to revenue. Contributions to Gratuity Fund are made on the basis of actuarial valuation. b) In unit-CP periodical contributions made to statutory Provident Fund and premium under group gratuity policy paid to LIC of India are charged to revenue. c) There is no special scheme for encashment of leave on retirement. d) Actual payments made/amount due under the Voluntary Retirement Scheme of employees is amortised over a period of 5 years. vii) Depreciation on fixed assets: a) Depreciation is charged under straight line method on Plant & Machinery of units APPM and CP and buildings of unit-CP applying the rates worked out in accordance with the provisions of Section 205 (2) (b) of the Companies Act, 1956 prevalent in respective years of acquisition in respect of items acquired prior to 1.7.1986 and in accordance with Schedule XIV of the Companies Act, 1956 in respect of items acquired after 01.07.1986. b) Depreciation on other fixed assets is charged under writtendown value method in accordance with Schedule XIV of the Companies Act, 1956. c) In respect of Buildings and Plant & Machinery of unit-CP the difference between the depreciation calculated on the revalued amount and that calculated on the original cost is recouped from " Asset Revaluation Reserve". viii) Deferred Revenue Expenditure: Expenditure (including expenditure on Research & Development) incurred in respect of which benefit is expected to flow into future periods, is amortised over the expected period of benefit. ix) Assets taken on Lease: In respect of Assets acquired on financial lease prior to 1st Arpil, 2001,the entire lease rentals are charged to revenue. Foreign Currency Transactions: Foreign currency assets and liabilities covered by forward contracts are stated at the forward contract rates while those not covered by forward contracts are restated at rates ruling at the year end. Exports/Imports are accounted at forward contract rates/exchange rates prevailing on the date of transaction. Exchange variation relating to fixed assets are adjusted in the cost of the asset and those relating to revenue are credited / charged to Profit & Loss Account.
76
II) NOTES ON ACCOUNTS 1. Estimated amount of contracts remaining to be executed on Capital Account and not provided for (net of advances) 2. Contingent Liabilities: a) Unexpired Bank Guarantees and Letters of Credit b) Commitment towards future Lease Rentals. c) Claims against the Company not acknowledged as debts d) Additional compensation in respect of land acquired by the State Government for the Company, as the company has disputed the execution petition filed by the land owners in the District Court,Rajahmundry. Based on similar cases decided by the Andhra Pradesh High Court and the Supreme Court, the additional compensation according to the Management may not become payable. An amount of Rs.98.78 lacs paid under protest on this account, pursuant to the directions of the High Court is shown under the head "Loans and Advances". e) Disputed Excise Demands. f) Disputed Sales Tax demands g) Disputed ESI demands h) Disputed Vacant Land Tax An amount of Rs.200.01 Lacs (Previous year Rs. 99.48 lacs) paid under protest against items(e) to (h) is shown under the head "Loans and Advances". "In respect of items (e) to (h) relating to disputed claims and demands the Company has been advised by Counsel that the demands are not sustainable in law" 3 Demands raised by Income tax Department for the assessment years from 1994-95 to 2001-2002 were disputed in appeals and the entire amount was paid under protest and shown under the head "Loans and Advances". The disputed demands mainly relate to depreciation claims on Pollution Control and Energy Saving Plant & Machinery, not accepted by the Assessing Officer. The Company's claims are based on expert technical opinion that the demands are not sustainable. 4 Other deposits grouped under "Loans and Advances" includes Rs.69.59 lacs, refund of which is under adjudication before the Supreme Court. 5 The Company's writ petition challenging the retrospective operation of Accounting Standard 22, read with ASI 6, issued by the Institute of Chartered Accountants of India has been admitted by the Hon'ble High Court of Andhra Pradesh.The Company has been advised by eminent Counsel that it need not provide Deferred Tax Liability in respect of financial year prior to1.4.2001 and that the Deferred Tax Liability can be provided at the effective tax rate and tax laws applicable to the company. In view of the mater being subjudice, provision already made upto financial year 2001-2002 towards Deferred Tax Liability is not presently reviewed and adjusted.Deferred Tax Liability for the years 2002-2003 onwards has been provided at the effective tax rate and tax laws applicable to the company.
Unit
2003-2004
2002-2003
Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs
42.51 1059.23 30.37 279.73 130.66
431.94 1487.20 124.60 146.60 130.66
Rs.lacs Rs.lacs Rs.lacs Rs.lacs
540.29 277.70 34.16 104.86
269.88 379.76 34.16 ___
Rs.lacs
534.44
527.74
77
NOTES ON ACCOUNTS (contd.....) 6 The deferred tax liability as at 31st March 2004 comprises of the following: a. Deferred Tax Liability: (i) Related to fixed assets (ii) Deferred Revenue Expenses b. Deferred Tax Assets: (i) Unpaid Interest,Taxes etc., (ii) Provision for Doubtful debts, Investments etc. (iii) Unabsorbed losses under Income Tax Act
Unit
2003-2004 2002-2003
Rs.lacs Rs.lacs
1227.98 46.14 1274.12 1.58 9.54 11.12 1263.00 28.93 37.48 92.30 336.19 14.63 509.53
1199.34 52.00 1251.34 12.12 7.50 98.72 118.34 1133.00 48.06 75.29 98.50 100.00 422.45 18.51 762.81
Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs
c. Provision for deferred tax (net) 7 Misc. expenditure to the extent not written off comprises of a. Expenditure relating to Research & Development b. Expenditure on major machinery replacement c. Payments under Voluntary Retirement Scheme d. Non - Competition Fee e. Interest/Premia relating to unexpired period of Term Loans f. Development of Application Software Total 8 Related Party Transactions: Related parties in terms of AS-18 issued by the Institute of Chartered Accountants of India a. Holding Company Digvijay Investments Limited b. Promoters: The Peria Karamalai Tea & Produce Co. Ltd. Maharaj Shree Umaid Mills Ltd. MB Commercial Co. Ltd. The Swadesh Comml. Co Ltd. The Kishore Trading Co Ltd. c. Key Management Personnel: Mr. R.C. Mall, Executive Director d. Others- Enterprises in which Promoter Directors hold substantial Interest: Samay Books Ltd. Transactions carried out with related parties: Nature of Transactions
(a) (b ) (c) Holding Promoters Key Company Management Personnel

Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs () () () () 89.20 () () () () 435.92 (301.48) () 2.59 (2.65) 47.45 (116.87) 1.08 (5.04) () 22.45 (17.59) () () 0.21 (0.14) 0.03 (0.07) () ()
(d) Others-Enterprises in which Promoter Directors hold Substantial Interest

() 132.67 (24.07) 6.72 (4.13) () () (2.17) 0.23 ()
Total
1. Managerial Remuneration 2. Sale of Goods 3. Purchase of Goods 4. Expenses 5. Dividend 6. Receivables 7. Payables
22.45 (17.59) 568.59 (325.55) 6.72 (4.13) 2.80 (2.79) 136.68 (116.94) 1.08 (7.21) 0.23 ()
Figures in brackets relate to previous year.
78
NOTES ON ACCOUNTS (contd.....)
Unit
2003-2004
2002-2003
The Company has not given any loans to its Associate Companies.
10 Earnings per Share(EPS) a) Net profit as per Profit and Loss Account Less: Preference Share Dividend & Corporate Tax thereon Net Profit Available for Equity Share holders b) Weighted Average number of equity shares used as denominator for calculating EPS c) Basic and Diluted Earnings per share of Rs.10 each. 11 The amounts shown under the following heads in Profit and Loss Account are exclusive of amounts charged to other heads of accounts: a) Stores & Spares consumed b) Salaries and Wages c) Rent d) Rates and Taxes e) Insurance f) Miscellaneous Expenses 12 Adjustments in respect of income and expenditure not relating to the year, Net Credit 13 Executive Director's Remuneration : Salary and Allowances Contribution to Provident & other Funds Other perquisites Total 14 Directors' Remuneration : Computation of Net Profit under Section 198 of the Companies Act: Profit before Taxation Add: Directors' Commission Directors' Fee Executive Director's Remuneration Deferred Revenue Expenditure Written off (Net) Rs.lacs Rs.lacs Less: Profit on sale of Investments Premium paid on Redemption of Debentures Capital Profit on sale of Fixed Assets Rs.lacs Rs.lacs Rs.lacs Rs.lacs Commission to Directors @ 1% Rs.lacs 106.19 2820.88 88.19 219.41 2513.28 25.13 116.19 2395.86 76.78 185.89 2133.19 21.33 79 Rs.lacs Rs.lacs Rs.lacs Rs.lacs 2662.76 25.13 4.35 22.45 2235.55 21.33 5.20 17.59 Rs.lacs Rs.lacs Rs.lacs Rs.lacs 16.83 5.09 0.53 22.45 13.81 3.41 0.37 17.59 Rs.lacs 3.69 1.81 Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs Rs.lacs 376.90 174.86 8.16 9.52 4.41 18.39 328.07 190.21 8.64 12.05 3.93 18.74 Rupees 19.57 15.93 Rs.lacs Rs.lacs Nos 21.10 2314.66 11828890 42.50 1884.05 11828890 Rs.lacs 2335.76 1926.55
NOTES ON ACCOUNTS (contd.....) 15 The Company operates in only one business segment of Paper and Paper boards of different varieties and there is no geographical segment to be reported. 16 Quantitative Information in respect of goods manufactured and sold (a) Licensed Capacity (Paper Industry is exempt from industrial Licensing) (b) Installed Capacity (as certified by Executive Director) Paper and Paper Boards of different varieties(Pulp Plant is an integral part of Paper Plant and therefore capacity and actual production of pulp are not seperately shown) (c) Quantum of Production, Sales and Stocks: Opening Stock Production Sales (includes 1236 & 1372 tonnes for the current year / previous year respectively consumed internally) Closing Stock (d) Value of Sales and Stocks: Opening Stock Sales (Includes Rs. 570.90 lacs and Rs 434.36 lacs for the current year and previous year respectively, consumed internally) Closing Stock (e) Consumption of Raw Materials: i) Quantities: a) Bamboo b) Hardwood c) Waste Paper Cuttings, Softwood Pulp etc (Includes internally consumed 1246 Mts-Previous year 929 Mts.) d) Rice Straw, Bagasse etc ii) Values (including handling and feeding charges) a) Bamboo b) Hardwood c) Waste Paper Cuttings, Softwood Pulp etc. (includes internally consumed Rs. 105.12 lacs Previous year Rs.77.52 lacs) d) Rice Straw, Bagasse etc. 80
Unit
2003-2004
2002-2003
Not Applicable
MT
153500
153500
MT MT MT
7339 151692 149743
3590 149874 146125
MT
9288
7339
Rs.lacs Rs.lacs
1710.41 44943.88
772.01 40860.40
Rs.lacs
2253.50
1710.41
MT MT MT
41542 201580 70204
38556 215332 65685
MT
31240
21533
Rs.lacs Rs.lacs Rs.lacs
1198.00 5391.36 5743.90
1132.29 4655.38 4708.01
Rs.lacs
284.50
160.84
NOTES ON ACCOUNTS (contd.....) iii) Indigenous iv) Imported v) Percentage of each to total Raw Materials consumed : a) Indigenous b) Imported (f) Consumption of Stores,Chemicals, Components and Spare Parts: i) Values (including Duty, Freight and handling expenses) a) Indigenous b) Imported ii) Percentage of each to total consumption a) Indigenous b) Imported (g) Values of Imports on CIF basis in respect of: a) Capital Goods b) Raw Materials c) Components, Chemicals and Spare Parts (h) Earnings in Foreign Exchange in respect of Export of Paper
Unit Rs.lacs Rs.lacs
2003-2004 8963.41 3654.35
2002-2003 7087.74 3568.79
% %
71.04 28.96
66.51 33.49
Rs.lacs Rs.lacs
12596.56 525.79
12051.13 539.87
% %
95.99 4.01
95.71 4.29
Rs.lacs Rs.lacs Rs.lacs Rs.lacs
611.03 2952.71 467.44 2185.77
158.20 2633.96 385.86 2516.08
17.
Expenditure in Foreign Currencies in respect of Interest, Travelling, Periodicals and Sales Expenses
Rs.lacs
160.91
44.68
18
Previous Year's figures have been regrouped wherever necessary.
For and on behalf of the Board, Sudhir Bhansali Executive Vice President (Finance) & Chief Finance Officer C Prabhakar Company Secretary L.N.Bangur Chairman
V Seetaramaiah Partner Place:Secunderabad Date :29th May 2004
R.C.Mall Executive Director
81

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH, 2004 Rs.Lacs 31.3.2003 2235.55 1921.66 1.83 297.43 0.67 60.00 11.18 (76.78) (192.20) (130.93) 2376.78 (255.12) 6250.07 557.02 (699.66) (831.81) (134.84) 5140.78 (2376.78) (142.92) 2621.08 (1881.28) 68.43 (4166.00) 207.54 3408.56 130.93 255.12 (1976.70) (163.33) 2274.27 (2653.05) (361.84) (42.50) (946.45) (302.07) 865.78 563.71
31.03.2004 A CASH FLOW FROM OPERATING ACTIVITIES : Net Profit before Tax and Extraordinary items Adjustments for: Depreciation Claims,Bad Debts,Irrecoverable Advs W.off Misc. Expenditure written off Loss on Discarded Assets Provision for Diminution of Investments Provision for Doubtful Debts Profit on Sale of Investments Profit on Sale of Assets Income from Investments Interest Paid Interest Received Operating Profit before Working Capital Changes Adjustments for: Trade and other Receivables Inventories Trade Payables Deferred Revenue Expenditure Cash Generated from Operations Interest Paid Income Tax Paid Net Cash from Operating Activities (A) B CASH FLOW FROM INVESTING ACTIVITIES : Purchase of Fixed Assets Capital Work-in-Progress Purchase of Investments Sale of Fixed Assets Sale of Investments Income from Investments Interest Received Net Cash used in Investing Activities (B) C CASH FLOW FROM FINANCING ACTIVITIES : Redemption of Preference Shares Premium paid on Redemption of Debentures Proceeds from Borrowings Repayment of Borrowings Dividends paid including tax on dividend Interim Dividend on Preference Shares Tax on Interim Preference Dividend Net Cash used in Financing Activities (C ) Net Increase/Decrease in Cash & Cash Equivalents Cash and Cash Equivalents as at 1.4.2003 Cash and Cash Equivalents as at 31.3.2004 As per our report of even date For Brahmayya & Co., Chartered Accountants (2190.30) (156.59) (1018.87) 60.64 1959.92 73.11 599.02 (673.07) (163.33) (219.41) 4727.85 (5833.84) (333.61) (18.70) (2.40) (1843.44) 231.20 563.71 794.91 2662.76 2001.55 37.32 295.90 3.04 (88.19) (45.34) (73.11) 1653.31 (599.02) 5848.22 (447.99) (726.73) (4.84) (42.62) 4626.04 (1653.31) (225.02) 2747.71
For and on behalf of the Board, Sudhir Bhansali Executive Vice President (Finance) & Chief Finance Officer C Prabhakar Company Secretary L.N.Bangur Chairman R.C.Mall Executive Director
V Seetaramaiah Partner Place:Secunderabad Date :29th May 2004 82

BALANCE SHEET ABSTRACT Balance Sheet Abstract and Companys General Business Profile
I. Registration Details Registration No.
State Code
3 1 0 3 2 0 0 4 Balance Sheet Date II. Capital raised during the Year (Amount in Rs.thousands) Public Issue N I L Bonus Issue N I L III. Position of Mobilization and Deployment of Funds (Amount in Rs.thousands) Total Liabilities 3 6 6 3 3 8 5 SOURCES OF FUNDS Paid-Up Capital 1 1 8 2 8 9 Deferred Credits 2 8 0 4 6 6
Secured Loans 1 0 2 APPLICATION OF FUNDS Net Fixed Assets 2 6 2
Rights Issue N I L Private Placement
Total Assets
3 7 6
8 0 0
5 9
Reserves & Surplus 1 9 1 0 Unsecured Loans 3 3 2 4
1
Investments 2 7 9 8 Misc. Expenditure
7 5
8 3
Net Current Assets 7 1 2 2 1 2 Accumulated Losses N I L IV. Performance of Company (Amount in Rs.thousands) Turnover including other Income 4 6 1 6 9 4 7 + / Profit/Loss Before Tax +
Total Expenditure 4 3 5 0 + / + Profit/Loss After Tax 2 3 3 5 Dividend Rate %
6 7
7 6
2 6 6 2 Earning Per Share in Rs. 2
7 0
V. Generic Names of Principal Products / Services of Company Item Code No.(ITC Code) 4 8 0 2 9 9 Product Description C R E A
M 1
W 9 P 9 T 0 P 0 E 0 R
Item Code No.(ITC Code) 4 8 0 2 Product Description K R A F T Item Code No.(ITC Code) 4 8 0 5 Product Description U N C O
Item Code No.(ITC Code) 4 8 0 1 Product Description
For and on behalf of the Board, Sudhir Bhansali Executive Vice President (Finance) & Chief Finance Officer C. Prabhakar Company Secretary L.N. Bangur Chairman R.C. Mall Executive Director 83
V Seetaramaiah Partner Place:Secunderabad Date :29th May 2004
NOTICE
NOTICE is hereby given that the 40th Annual General Meeting of the Members of The Andhra Pradesh Paper Mills Limited will be held on Saturday, the 7th day of August, 2004 at 3.00 P.M at Sri Venkateswara Anam Kala Kendram, Rajahmundry 533 104, East Godavari District, Andhra Pradesh to transact the following business: ORDINARY BUSINESS: 1. To consider and adopt the Balance Sheet as at 31st March,2004, Profit and Loss Account for the year ended as on that date and the Reports of the Directors and Auditors thereon. 2. To note the interim dividend on preference shares and declare dividend on the equity shares for the year ended 31st March, 2004. 3. To appoint a Director in place of Smt. Alka Bangur who retires by rotation under Article 142 of the Articles of Association of the Company and is eligible for re-appointment.
4. To appoint a Director in place of Dr. N. Tata Rao who retires by rotation under Article 142 of the Articles of Association of the Company and is eligible for re- appointment. 5. To consider and, if thought fit, to pass, with or without modification, the following resolution as an Ordinary Resolution: RESOLVED THAT pursuant to the provisions of Section 224 and other applicable provisions, if any, of the Companies Act,1956, the retiring Auditors Messrs. Brahmayya & Co., Chartered Accountants, Visakhapatnam, be and are hereby re-appointed as Auditors of the Company to hold office from the conclusion of this Meeting until the conclusion of next Annual General Meeting of the Company at a remuneration of Rs.5.00 lakhs net of service tax plus reimbursement of travelling and out-of-pocket expenses. SPECIAL BUSINESS: 6. To consider and if thought fit, to pass, with or without modification, the following resolution as a Special Resolution: RESOLVED THAT the Article 4 of the Articles of Association of the Company be and is hereby amended by insertion of the following at the end of Article 4. By an Agreement dated 10th February, 1966 between Shri G.D.Somani, Government of Andhra Pradesh (GoAP) and The West Coast Paper Mills Ltd., (WCPML), Shri G.D.Somani agreed to transfer all his rights, powers and authorities contained in the Agreement dated 13th May, 1964 in favour of WCPML and the rights, powers and responsibilities of GoAP and WCPML were delineated. By an Agreement dated 16th April, 1981 between WCPML and the Digvijay Investments Limited (DIL), WCPML assigned to DIL all its rights and obligations under the agreement dated 10th February,1966. By an Agreement dated 12th December, 2003 between Governor of Andhra Pradesh on behalf of GoAP and DIL, it was agreed between GoAP and DIL that all subsisting rights and obligations of GoAP and the DIL with respect to each other arising out of the above agreements dated 10th February, 1966 and 16th April, 1981 stand terminated with effect from 18th December, 2003. 7) To consider and if thought fit, to pass, with or without modification the following Resolution as an Ordinary Resolution: RESOLVED THAT in supercession of the Resolution passed at the 34th Annual General Meeting of the Company held on 4th September, 1998, the consent of the Company be and is hereby accorded in terms of Section 293 (1) (d) and other applicable provisions, if any, of the Companies Act, 1956, to the Board of Directors for borrowing from time to time any sum or sums of money on such terms and conditions and with or without security as the Board of Directors may think fit which together with the monies already borrowed by the Company (apart from temporary loans obtained or to be obtained from the Company's Bankers in the ordinary course of business) may exceed the aggregate, for the time being, of the paid-up capital of the Company and its free reserves, that is to say, reserves not set apart for any specific purpose provided that the total amount of money or monies so borrowed by the Board shall not at any time exceed the limit of Rs.500 crores (Rupees five hundred crores only). FURTHER RESOLVED THAT the Board of Directors be and is hereby authorised to do and perform all such acts, deeds and things 84
as may be necessary, desirable or expedient to give effect to the Resolution. 8) To consider and if thought fit, to pass, with or without modification the following Resolution as an Ordinary Resolution: RESOLVED THAT in supercession of the Resolution passed at the 34th Annual General Meeting of the Company held on 4th September, 1998, the consent of the Company be and is hereby accorded in terms of Section 293(1)(a) and other applicable provisions, if any, of the Companies Act, 1956, to the creation by the Board of Directors of the Company all such mortgages, charges and hypothecations in addition to the existing mortgages, charges and hypothecations created by the Company, in such form and manner and with such ranking and at such time and on such terms as the Board of Directors may determine, all or any of the movable and/or immovable properties of the Company both present and future and/or the whole or any part of the undertaking(s) together with power to take over the Management of the Company in certain events of default in favour of all or any of the Financial Institutions/Banks/any other investing agencies in India or abroad/ trustees for the holders of Debentures/Bonds/other instruments which may be issued to and subscribed by all or any of the said Financial Institutions/Banks any other investing agencies or any other persons(s)/Bodies Corporate by private placement or otherwise to secure Rupee Term Loan/Foreign Currency Loans/Debentures/Bonds or other instruments of any equivalent aggregate value not exceeding Rs.500 crores (Rupees five hundred crores only) together with interest at the respective agreed rates, compound interest, additional interest, liquidated damages, commitment charges, premia on pre-payment or on redemption, costs, charges, expenses and other monies payable by the Company to the aforesaid parties or any of them under the Agreement(s)/Arrangement(s) entered into/to be entered into by the Company in respect of the said Loans/Debentures/Bonds or any other Instruments. FURTHER RESOLVED THAT the Board of Directors of the Company be and is hereby authorised to finalise with the aforesaid parties or any of them, the documents for creating mortgage(s)/ charge(s) and accepting or making any alterations, changes, variations to or in the terms and conditions, to do all such acts, deeds, matters and things and to execute all such documents and writings as it may be considered necessary for the purpose of giving effect to this Resolution.
By Order of the Board For The Andhra Pradesh Paper Mills Limited Registered Office: Rajahmundry - 533 105 East Godavari District Andhra Pradesh Date: 25th June, 2004
C.Prabhakar Company Secretary
NOTES
1. A member entitled to attend and vote at this Annual General Meeting is entitled to appoint a proxy to attend and vote instead of himself and the proxy need not be a member of the Company. The proxy form duly completed must reach the Registered Office of the Company at least forty eight hours before the commencement of the meeting. 2. The Explanatory Statement pursuant to Section 173 (2) of the Companies Act, 1956 in respect of Item Nos. 6 to 8 is annexed hereto. 3. Register of Members and Share Transfer Books of the Company will remain closed from 15th June, 2004 to 25th June, 2004. (both days inclusive). 4. Securities and Exchange Board of India (SEBI) informed that trading in equity shares of the Company would be compulsory in dematerialised form by all investors with effect from 28th August, 2000. The Company had entered into agreements in March, 2000 with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Shareholders can dematerialise their equity shares in the Company through their Depository Participants. 5. The dividend for the year ended 31st March, 2004 as recommended by the Board, if sanctioned, at this Annual General Meeting will be
payable on or after 23rd August, 2004 to those Members whose names appear in the Companys Register of Members as on 25th June, 2004. In respect of shares held in Electronic form, the Dividend will be payable on the basis of beneficial ownership as per the details furnished by NSDL and CDSL for this purpose. Shareholders holding shares in electronic form may please note that their bank account details as furnished by their depositories to the Company will be printed on the dividend warrants and the Company will not entertain any direct request from such shareholders for deletion/change in such bank details. Shareholders who wish to change, their bank account details are advised to intimate their depository participants (DPs) about such change with complete details of bank accounts. 6. The Members holding shares in physical form are requested to notify any change in their address immediately to the Registrars/Company and those Members holding shares in electronic form should inform change in address to their Depository Participants. 7. The Members are requested to bring their copies of Annual Report to the Meeting. 8. As per the provisions of the amended Companies Act, 1956 facility for making nominations is available to the shareholders in respect of the shares held by them in physical form. The shareholders holding shares
85
in physical form can download the nomination form prescribed under the Companies Act 1956 from our Website: www.andhrapaper.com. In respect of shares held in electronic form, the nomination should be recorded with the respective Depository Participants.The Company would not accept any nomination in respect of such shares. 9. ECS Mandate Form is also put on our website. Interested shareholders can download this form from the website. 10. INFORMATION REQUIRED UNDER THE LISTING AGREEMENT As required under the Listing Agreement, the particulars of the Directors who are proposed to be re-appointed are given below: SMT. ALKA BANGUR: Smt. Alka Bangur, has been associated with the Company as Director from 14th September, 1996. She is a post graduate in English and Hindi and MBA. She is a social worker. She promoted Dharamshalas, Trusts, Schools, Colleges and Hospitals all over the country. She is the Managing Director of The Peria Karamalai Tea & Produce Co. Ltd., and also a Director of Maharaja Shree Umaid Mills Ltd., The Marwar Textiles (Agency) Pvt. Ltd., Apurva Export Private Ltd., and Mugneeram Ramcoowar Bangur Charitable & Religious Co., DR. N. TATA RAO: Dr. N. Tata Rao has been associated with the Company as Director from 3rd October,1989. He is an engineering graduate and also has done M.S. in electrical engineering from Illinois Technology, U.S.A. He is a distinguished personality in the field of power and was Chairman of The Madhya Pradesh State Electricity Board and A.P. State Electricity Board for more than two decades. He is also a Director of Amarraja Power Systems Ltd., VBC Ferro Alloys Ltd., Lakshmi Finance & Industrial Corporation Ltd., Industrial Meters Ltd., and Konaseema EPS Oakwell Power Ltd. EXPLANATORY STATEMENT PURSUANT TO SECTION 173 (2) OF THE COMPANIES ACT,1956. Regarding Item No.6. It was provided in Article 4 of the Articles of Association of the Company that the Company is promoted in pursuance of Agreement dated 13th May, 1964 between Government of Andhra Pradesh and Shri G.D.Somani. Subsequently, an Agreement was entered into on 10th February. 1966 between Shri G.D.Somani, The West Coast Paper Mills Ltd. and the Government of Andhra Pradesh whereby Shri G.D.Somani agreed to transfer all his rights, obligations, powers and authorities contained in the Agreement dated 13th May, 1964 to The West Coast Paper Mills Ltd. and the rights, powers and responsibilities of Government of Andhra Pradesh underThe West Coast Paper Mills Ltd. were delineated. By another Agreement dated 16th April, 1981 between The West Coast Paper Mills Ltd. and Digvijay Investments Ltd. The West Coast Paper Mills Ltd. assigned to Digvijay Investment Ltd. all its rights and obligations under the Agreement dated 10th February, 1966. By another Agreement dated 12th December, 2003 between Government of Andhra Pradesh and Digvijay Investments Ltd., it was agreed that all subsisting rights and obligations of Government of Andhra Pradesh and Digvijay Investments Ltd. with respect to each other arising out of the above Agreements dated 10th February, 1966 and 16th April, 1981 stand terminated with effect from completion date i.e. 18th December, 2003. The amendment as specified in the Notice has become necessary following the disinvestment of Governments shareholding of 30,00,000 equity shares of Rs.10/- each in the Company in favour of Digvijay Investments Ltd.
Copies of the Agreements referred to above are available for inspection of the shareholders at the Registered Office between 10.00 A.M. and 12.00 Noon on any working day upto the date of Annual General Meeting. None of the Directors, except Shri L.N.Bangur, being the Director of Digvijay Investments Ltd., is concerned or interested in the Resolution. Regarding Item No.7. The Company proposes to undertake a Mill Development Plan (MDP) with a view to improve technology, energy efficiency, marketability, long-term enviornmental compliance and to synergize the operations of both the Units: APPM & CP. The proposed MDP aims to achieve the following objectives:
To bring about cost competitiveness through reduction in variable costs and higher productivity. To achieve qualitative up-gradation of products to increase sales realization through value addition. To become globally competitive in product quality and cost. To meet and comply with the prospective changes of environmental issues as are embodied in the Corporate Responsibility on Environment Protection (CREP) of the MoEF, Government of India.
The proposed MDP costing around Rs.554 crores will be implemented in 2 phases. For financing a part of the capital outlay, the Company would be approaching the Financial Institutions both in India and abroad and Banks and other agencies for raising loans, Debentures etc. In order to enable the Board to borrow monies in this regard, the Members are requested to authorise the Board under Section 293 (1) (d) of the Companies Act, 1956 to borrow monies upto Rs.500 crores (Rupees five hundred crores only) as against Rs.300 crores authorised earlier. The Board recommends this Resolution for approval by the Members. None of the Directors of the Company is in any way concerned or interested in this Resolution. Regarding Item No.8: As already informed under Item No.7, the Company would be borrowing monies to part financing the Mill Development Plan (MDP). For this purpose, the Company would be required to create mortgage/charge on the movable and immovable properties of the Company in favour of Lenders. Hence, the Members are requested to approve the proposal for creation of Mortgage/Charge to secure the borrowings from Lenders. The Board recommends this Resolution for approval by the Members. None of the Directors of the Company is in any way concerned or interested in this Resolution.
By Order of the Board For The Andhra Pradesh Paper Mills Limited Registered Office: Rajahmundry 533 105 East Godavari District Andhra Pradesh Date : 25th June, 2004
C.Prabhakar Company Secretary
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CORPORATE INFORMATION BOARD OF DIRECTORS (As on 29th May, 2004 ) L.N. Bangur, Chairman Dr. N. Tata Rao Alka Bangur N. Srinivasan R.K. Joshi Ms. Sheetal Bangur Surendra Singh (IDBI Nominee) R.C. Mall, Executive Director EXECUTIVES Corporate Office: Sudhir Bhansali P.B. Naidu L.M. Hoogan. K. George Thomas M. Sambasiva Rao Works: P.K. Suri U.V. Satyanarayana J.K. Jain COMPANY SECRETARY C. Prabhakar REGISTERED OFFICE Rajahmundry 533 105 East Godavari District, Andhra Pradesh, India Tel. : (0883) 2471831 to 2471838 Fax : (0883) 2461764 E.mail:appmrjy@andhrapaper.com WORKS Unit: APPM Rajahmundry 533 105 East Godavari District, Andhra Pradesh, India Tel. : (0883) 2471831 to 2471838 Fax : (0883) 2461764 E.mail:appmrjy@andhrapaper.com Unit: CP Industrial Area, MR Palem - 533 126 Kadiyam Mandalam,East Godavari District, Andhra Pradesh, India, Tel. : (0883) 2454651 Fax : (0883) 2453538 E.mail:appmcp@andhrapaper.com Website:www.andhrapaper.com AUDITORS Brahmayya & Co., Chartered Accountants Visakhapatnam COST AUDITORS Narasimha Murthy & Co., Cost Accountants Hyderabad PRINCIPAL BANKERS State Bank of India Canara Bank CORPORATE OFFICE 501-509, Swapnalok Complex, 5th Floor, 92/93 Sarojini Devi Road, Secunderabad-500003,Andhra Pradesh, India Tel. : (040) 27813625, 27813715 Fax : (040) 27813717 E.mail.appmcorp@andhrapaper.com Executive Vice President (Operations) General Manager (Works) General Manager (Raw Materials) Executive Vice President (Finance) & Chief Finance Officer Senior Vice President (Commercial) Senior Vice President (Projects) Senior Vice President (Marketing) General Manager (Commercial)
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Do not go where the path may lead, go instead where there is no path and leave a trail.
Ralph Waldo Emerson
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Andhra Paper Annual Report 2003-04

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Managements discussion and analysis

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Global paper industry overview

Projected global demand

Source: Jaakko Poyry

Paper and paperboard

15 paper consumers. Its paper industry can be broadly classified into:

Writing and Printing Industrial and Packaging

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Regionwise capacity break-up

North & Central

East & North East

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Indias increasing consumption

Growth rate 2000-04 2005-10

Source : SPB-PC, Cris Infac

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

cent (Census 2001), newspaper circulation shows attractive growth prospects.

Shop floor upgradation

Research & Development

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

in 2003-04. This improvement transpired as a result of a number of initiatives:

Chemical addition to lime sludge: Reduction in oil consumption

Margins Surplus management

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Loans and Interest

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Interest cover (times)

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

to 10 days while coal payments must be made in advance.

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

LC payments reduced by close to 300 400 basis points.

Interest cost (%)

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

6828.04 5313.40 7349.00 10680.00 7394.15

1735.61 1792.66 1710.40 2516.08 2185.77

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Product substitution risk

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Raw materials risk

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Water availability risk

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

dioxide bleaching Replacement of the head box of PM5 of Unit: APPM

Customer concentration risk

Alteration of the bleaching stream from hypo chloride bleaching to chlorine

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

A focus on value-added products, translating into improved margins.

The identification of new chemical sourcing avenues, reducing the cost of

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Five years at a glance

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Dr. N. Tata Rao

Smt. Alka Bangur

Ms. Sheetal Bangur

Shri Surendra Singh

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

Financial Results 2003-04

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

The Andhra Pradesh Paper Mills Limited Annual Report 2003-04

For and on behalf of the Board,