Dear Shareholder,
Across the globe, certain factors are providing a growth impetus to the global paper
industry, while others are holding it back. Broadly speaking, the industry is being
strengthened by increasing e-commerce demand for cardboard as packaging material, new
market opportunities thanks to increasing demand from the growing middle class in emerging
markets, as well as increasing demand for hygiene products. Equally, however, the industry
is facing headwinds from feedstock cost sensitivity, high investment costs to sustain
future growth, and competition of plastics with cardboard in certain aspects of packaging.
Not surprisingly, therefore, global paper demand is estimated to be growing at a low but
steady rate of around 2% to 3% per year.
Thankfully for us, India is a fast growing market. The domestic market of paper is over
16 million tonnes per annum (TPA), with over 2 million TPA being imported. By 2024-25,
under the baseline scenario, domestic consumption is projected to rise to 23.5 million
TPA. If the industry gets the right impetus, the optimistic forecast by the Indian Paper
Manufacturers' Association estimates paper consumption in India to increase to 36.90
million TPA by 2024-25. Even as I pen this letter, about 1 million TPA of integrated pulp,
paper and paperboard capacity has to be created in India on an annual basis over several
years to meet the growing demand.
However, it is important to note that paper production is highly capital intensive and
investments are lumpy in nature.
In the last five years, there have been consistent investments by leading players in
the industry, and over ' 20,000 crore has been spent on capacity addition. This investment
drive has brought in a sudden spurt of new capacity well in excess of the annual increase
in domestic demand. Consequently, capacity utilisation of much of the new equipment
invested has been economically unviable.
Though most companies, including BILT, had estimated a gestation period while planning
their investments, the fact is that this period has been longer than initially expected.
For one, while rate of growth of paper demand in India exceeds that of the world as a
whole, this demand growth has been slower than expected. Second, with global excess
capacities, there have been increased imports into India — which has significantly
reduced prices of certain grades of paper, especially in the value added segments like
coated paper, where BILT is a major player.
This business scenario has put severe financial pressure on companies like BILT which
had made sustained investments in capacity and technology. Consequently, we had to
recalibrate our business plans internalizing a much longer gestation period for these new
investments. As a result, your
Company had to go through a very difficult phase over the last couple of years. There
was considerable stress on our ability to service financial obligations; and inadequate
working capital prompted severe curtailing of business operations.
Thankfully, FY2019 has been different — and one that I dare say was a watershed
year for your Company's revival roadmap. Operationally, BILT is back on track on a new
growth trajectory. It has already demonstrated its abilities to meet obligations of the
restructured financial plans for its principal entity. And the management is confident of
finalising restructuring plans with our financial partners for some of the other step-down
subsidiaries in FY2020.
Let's look at the highlights of the Company's consolidated performance in FY2019:
• Even with working capital constraints at both our principal facilities —
Ballarpur and Bhigwan — we increased production to service the market. At Bhigwan,
the production growth was a significant 81%, which has brought the scale of operations
back on track. At Ballarpur, too, there has been around 5% growth. Consequently, revenue
from operations has increased by 45% to ' 3,643 crore in FY2019.
• Concerted efforts at improvements in operating efficiencies continued unabated
across the facilities. In addition, there were several improvements brought about in
existing products; and new products added to provide value addition and enhance the
average realisations. As a result, operating margins before exceptional items (EBIDTA)
increased from 14% in FY2018 to 18.5% in FY2019.
• The topline growth with improved operating margins has translated into operating
profits before exceptional items (EBIDTA) for the consolidated entity almost doubling to '
676 crore in FY2019 compared to the last year. This
is particularly impressive as it is after accounting for the losses incurred in some of
the other facilities and entities that are yet to be revived.
• Finance cost reduced by 8% for the consolidated entity.
• All these efforts contributed to a reduction in net losses before exceptional
items, tax and discontinued operations from ' 840 crore in FY2018 to ' 433 crore in
FY2019. After accounting for all other factors, total net losses for FY2019 was ' 1,071
crore — which represents a 47.4% reduction over FY2018.
Thus, your Company has continued on the revival path initiated in FY2018 and
operational performance has improved significantly.
While the emphasis on running the operational unit more efficiently and driving
profitable growth remain the paramount objectives, there are some critical issues that
your Company has been actively working on resolving.
In the early part of FY2018, there were issues with the lenders of BGPPL and the entity
was advised to be taken to NCLT. Subsequently, after obtaining a stay, it finalised a
restructuring package for this entity with the financial creditors; and BGPPL has already
started servicing its debt as per the restructured package.
The Kamalapuram pulp mill has been shut since FY2014. There have been several efforts
to revive this entity, including introduction of an outside investor. The Government of
Telangana has been supportive in revival efforts and agreed to provide ' 45 crore subsidy
every year for a period of seven years. The banks are now finalising a restructuring
package in line with what was accepted for BGPPL. And BILT has also made commitments to
make an investment in this plant. We expect a clear path to emerge in the first half of
FY2020, with the facility focusing on paper grade pulp.
Operations at Sabah Forest Industries (SFI) have been affected for the last couple of
years. The Company had already decided on exiting the business and was in talks with
interested investors. However, with a changed political environment in the region, the
progress on arriving at a solution for SFI is taking longer than expected. We are,
however, confident that the new government will appreciate and understand our stance on
the subject after they get the requisite time to study the business condition.
During the entire difficult phase of restructuring the business and positioning it back
on a growth trajectory, our human resource function and senior management worked very hard
in being able to successfully retain most of our talent. My thanks to them.
My thanks, too, to our sales and distribution partners, suppliers and vendors who have
stuck with us during these difficult times.
I assure all of them that we are now well on the path of profitable growth.
Finally, Mr Gautam Thapar, our Chairman and Chief Executive over the last decade and a
half, stepped down from his office on 31 March 2019. He continues to be on the Board of
your Company. I take this opportunity to thank him for being the Chairman of the Board at
BILT for all these years, and look forward to his regular advice and guidance.
I want to thank all the banks and financial intermediaries who continue to support our
business. And to you, our shareholder, my gratitude for continuing to repose faith in
BILT. The worst is behind us, and we will walk together on the next stage of prosperity
for your Company.
Yours sincerely,
| B Hariharan |
| Chairman & Executive Director |