MIRA INFORM REPORT

Report Date :

18.12.2007

IDENTIFICATION DETAILS

Name :	STAR PAPER MILLS LIMITED
Registered Office :	27, Biplabi Trailokya, Maharaj Sarani, Kolkata – 700 001, West Bengal
Country :	India
Financials (as on) :	31.03.2006
Date of Incorporation :	31.08.1936
Com. Reg. No.:	21-8726
CIN No.: [Company Identification No.]	L21011WB1936PLC008726
TAN No.: [Tax Deduction & Collection Account No.]	CALS00135C
Legal Form :	Subject is a public limited liability company. The company’s shares are listed on the stock exchanges.
Line of Business :	Manufacturer of Writing and Printing paper, paper boards and MG Kraft Paper.

RATING & COMMENTS

MIRA’s Rating :

Ba

RATING		STATUS	PROPOSED CREDIT LINE
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory

Maximum Credit Limit :	USD 4300000
Status :	Satisfactory
Payment Behaviour :	Regular
Litigation :	Clear
Comments :	Subject is a well established and reputed company having satisfactory track. Directors are reported as experienced and respectable businessmen. Trade relations are reported as fair. Business is active. Payments are reported as usually correct and as per commitments. The company can be considered normal for business dealings at usual trade terms and conditions.

LOCATIONS

Registered Office :	27, Biplabi Trailokya, Maharaj Sarani, Kolkata – 700 001, West Bengal, India
Tel. No.:	91-33-22427380/81/82/83/86
Fax No.:	91-33-22427383
E-Mail :	spmlcal@cal3.vsnl.net.in
Website :	http://www.starpapers.com
Plant :	At Saharanpur, Uttar Pradesh

DIRECTORS

Name :	Mr. G. P. Goenka
Designation :	Chairman and Wholetime Director
Name :	Mr. Madhukar Mishra
Designation :	Managing Director
Name :	Mr. S. P. Vohra
Designation :	Director
Name :	Mr. Pramod Khaitan
Designation :	Director
Name :	Mr. Shiroani Sharma
Designation :	Director
Name :	Mr. B. L. Bihani
Designation :	Director
Name :	Mr. P. N. Ghatalia
Designation :	Director
Name :	Mr. Srivardhan Goenka
Designation :	Director
Name :	Mr. M. P. Pinto
Designation :	Director (Nominee – IDBI)
Name :	Mr. N J Jhaveri
Designation :	Director
Name :	Ms. Supriya Gupta
Designation :	Director

KEY EXECUTIVES

Name :	Mr. M C Gupta
Designation :	Company Secretary
Name :	Mr. Y. Goel
Designation :	Company Secretary

BUSINESS DETAILS

Line of Business :	Manufacturer of Writing and Printing paper, paper boards and MG Kraft Paper.
Brand Names :	“STAR”

PRODUCTION STATUS

Particulars	Actual Production
Writing and Printing paper, paper boards and MG Kraft Paper	2500 tpd

GENERAL INFORMATION

No. of Employees :	800
Bankers :	Bank of Baroda Punjab National Bank

Banking Relations :	Satisfactory
Auditors :
Name :	Lodha & Company Chartered Accountants
Associates/Subsidiaries :	Nil

CAPITAL STRUCTURE

Authorised Capital :

No. of Shares	Type	Value	Amount
40,000,000	Equity Shares	Rs. 10/- each	Rs. 400.000 Millions

Issued, Subscribed & Paid-up Capital :

No. of Shares	Type	Value	Amount
15,610,000	Equity Shares	Rs. 10/- each	Rs. 156.100 millions

FINANCIAL DATA

[all figures are in Rupees Millions]

ABRIDGED BALANCE SHEET

SOURCES OF FUNDS		31.03.2006	31.03.2005	31.03.2004
SHAREHOLDERS FUNDS
1] Share Capital		156.100	156.100	156.100
2] Share Application Money		0.000	0.000	0.000
3] Reserves & Surplus		911.200	849.800	1253.600
4] (Accumulated Losses)		0.000	0.000	0.000
NETWORTH		1067.300	1005.900	1409.700
LOAN FUNDS
1] Secured Loans		644.100	439.700	549.200
2] Unsecured Loans		1.000	7.000	27.300
TOTAL BORROWING		645.100	446.700	576.500
DEFERRED TAX LIABILITIES		0.000	0.000	0.000
TOTAL		1712.400	1452.600	1986.200
APPLICATION OF FUNDS
FIXED ASSETS [Net Block]		1292.700	1048.200	1488.800
Capital work-in-progress		134.200	136.900	44.700
INVESTMENT		210.700	193.500	193.500
DEFERREX TAX ASSETS		0.000	0.000	0.000
CURRENT ASSETS, LOANS & ADVANCES
	Inventories	357.900	319.900	286.500
	Sundry Debtors	66.400	63.800	82.000
	Cash & Bank Balances	13.400	11.400	69.400
	Other Current Assets	0.000	0.000	0.000
	Loans & Advances	555.200	557.400	522.400
Total Current Assets		992.900	952.500	960.300
Less : CURRENT LIABILITIES & PROVISIONS
	Current Liabilities	623.200	603.100	482.200
	Provisions	294.900	275.400	218.900
Total Current Liabilities		918.100	878.500	701.100
Net Current Assets		74.800	74.000	259.200
MISCELLANEOUS EXPENSES		0.000	0.000	0.000
TOTAL		1712.400	1452.600	1986.200

PROFIT & LOSS ACCOUNT

PARTICULARS		31.03.2006	31.03.2005	31.03.2004
Sales Turnover		2183.600	2119.600	1963.200
Other Income		44.700	79.700	41.600
Total Income		2228.300	2199.300	2004.800
Profit/(Loss) Before Tax		146.000	302.600	136.300
Provision for Taxation		53.200	100.800	20.600
Profit/(Loss) After Tax		92.800	201.800	115.700
Expenditures :
	Raw Materials	467.300	333.500	326.500
	Excise Duty	301.600	304.300	274.500
	Power & Fuel Cost	463.900	376.500	324.000
	Other Manufacturing Expenses	351.600	402.800	361.400
	Stock Adjustments	12.800	[14.200]	[5.400]
	Employee Cost	215.800	204.800	234.600
	Selling and Administration Expenses	51.600	51.200	36.700
	Miscellaneous Expenses	67.900	88.700	160.000
	Interest & Financial Charges	60.400	75.500	90.900
	Depreciation	89.400	73.600	65.300
Total Expenditure		2082.300	1896.700	1868.500

SUMMARISED RESULTS

PARTICULARS	30.09.2007 [Full Year]
Sales Turnover	3171.600
Other Income	206.600
Total Income	3378.200
Total Expenditure	2911.500
Operating Profit	466.700
Interest	108.600
Gross Profit	351.800
Depreciation	161.200
Tax	3.200
Reported PAT	127.000
Dividend [%]	175.000

KEY RATIOS

PARTICULARS	31.03.2006	31.03.2005	31.03.2004
Debt Equity Ratio	0.53	0.56	0.87
Long Term Debt Equity Ratio	0.43	0.50	0.74
Current Ratio	0.98	1.14	1.23
TURNOVER RATIOS
Fixed Assets	1.16	1.24	1.22
Inventory	6.44	6.99	6.91
Debtors	33.54	29.08	22.57
Interest Cover Ratio	3.42	5.01	3.54
Operating Profit Margin (%)	13.55	21.31	19.67
Profit Before Interest and Tax Margin (%)	9.45	17.84	16.35
Cash Profit Margin (%)	8.34	12.99	13.28
Adjusted Net Profit Margin (%)	4.25	9.52	9.96
Return on Capital Employed (%)	13.04	26.40	21.81
Return on Net Worth (%)	8.95	21.92	24.77

LOCAL AGENCY FURTHER INFORMATION

HISTORY

Subject was controlled by the Bajorias and it became a sick unit and came under the purview of BIFR in 1986-87. As per the rehabilitation package, the company was taken over by the Duncan Goenka Group. The company’s product mix consists of writing and printing paper, paper boards and MG kraft paper. The products are marketed under the brand name Star.

In 1994, the company expanded and diversified by increasing capacity at its plant in Saharanpur, Uttar Pradesh, besides incorporating a pulping plant. The company also diversified into the sugar segment and is setting up a unit near Saharanpur, with an estimated capacity of 2500 tpd.

The company came out with a public issue in May 1995. In 1995, the company changed it product mix from bleached (60%) and unbleached (40%) to 100% bleached products. During 1998-99, the company on-going modernisation scheme, the chemical recovery boiler and the evaporator plant were commissioned which resulted in considerable savings in the cost of energy and chemicals.

During the year 1999-2000, the company has produced a special variety of document paper for printing the Constitution of India and has started commercial production of photocopier paper for marketing under its own ‘Star Copier’ brand.

The year in retrospect 

During the year the Company completed modernization of Paper Machine # 2, installation of Multifuel Boiler and retrofit of Turbine. While there was lower production during the year due to plant shuts required for completing these jobs, the company will reap the benefits in the form of increased production and lower costs in the coming years. 

As mentioned in the last Annual Report, there were sharp increases in prices of wood and fuel oil. The company made strenuous efforts to control costs in all other areas and was partially able to mitigate the impact.

These measures coupled with improvement in realization enabled the company to post a profit of Rs. 92.800 Millions. 

Prospects for 2006-07 

Upward trend in costs of raw material and fuel continues. The company will strive to meet the challenges by focusing on improved efficiencies. 

Implementation of other parts of modernization project initiated last year is progressing well and will be completed during the current year. 

Environment, pollution control and safety  

The company is accredited with ISO 14001: 2004 and ISO 9001:2000. Its efforts in this field were once again recognized in the form of a Gold Award for Environmental Excellence and also for Safety in paper Industries from the Greentech Foundation. 

Social farm forestry 

In order to increase the yield and improve economics for the farmers, the company started Clonal technology programme in the year 1996. Two high yielding clones of Eucalyptus have been developed and based on encouraging field performance, are being commercialized. The company has created necessary infrastructure for clonal multiplication and plans to expand this in a phased manner.  

This will help in enhancing rural incomes and facilitate sustained availability of raw material to the Company. 

In the face of rising wood prices, the company has further enhanced the tree plantation programme under social forestry scheme. 

Human resource and welfare Industrial relations remained cordial. The Company continues to emphasis enhancement in employee skills. The Directors wish to place on record their deep appreciation for dedication of employees. 

MANAGEMENT DISCUSSION AND ANALYSIS 

The global paper industry 

The health of the global paper industry is influenced by economic growth, global trade, industrial activity, corporate prosperity, advertising, population growth, literacy and demand-supply dynamics. 

While demand growth for writing and printing paper remained modest in the mature markets of Western Europe and North America, the markets of Asia, primarily driven by China and India, reported a demand surge. Demand for the packaging grades also grew faster in the developing economies compared to the mature markets of North America. As a result, the total global demand for paper and paper. products is estimated to have grown 1 per cent to around 344 million tonnes in 2005. The global paper industry is expected to grow at a compounded annual growth rate (CAGR) of two per cent with a consumption volume of 402 million tonnes by 2010. 

According to Jaakko Poyry, the global trade of paper and board amounts to 112 million tonnes, accounting for 31 per cent of global consumption. The principal exporting regions comprised Central Europe, Nordic countries and North America, largely on account of the availability of abundant wood fiber in these regions and corresponding production of paper and allied products. Interestingly, demand for paper is slowing in these mature markets leading to increased export. 

Europe, North America and Asia represent the key paper markets of the world. A brief description on the performance of these markets in 2005 is highlighted below. 

Europe: Production of writing and printing paper in Europe is estimated to have aggregated to 39.20 million tonnes in 2005, while demand is expected to have aggregated to around 35 million tonnes. Europe emerged as a net exporter of writing and printing paper to the extent of 3.80 million tonnes in 2005, signifying faster growth in production over slower growth in demand. Furthermore, the production and demand for carton boards in Western Europe was also estimated to have de-grown by two per cent apiece to six million tonnes and 4.50 million tonnes respectively in 2005.

North America: Production of writing and printing paper totaled 28.20 million tonnes in North Amarica in 2005, unchanged from 2004. Total demand reached around 30.20 million tonnes, representing a two per cent drop compared to 2004. This is a strong reflection on the fact that while production remained the same in 2005, demand dipped during the year under review. 

Asia: The capacity for writing and printing paper grew in Asia to the extent of five per cent, primarily driven by china and India. Total demand in the region aggregated to around 38 million tonnes, driven by a four per cent rise over 2004. Growth in demand was the fastest in China, which surged by approximately six per cent. Asia. 

Wrap it up... 

According to a recent study undertaken by Pira International, paper and board emerged as the globally-preferred packaging material over other varieties, indicating robust and sustainable demand for paper and paper-based products. 

The Indian paper industry 

Estimated at Rs. 150000 Millions, the Indian paper industry comprises the writing, printing, industrial and newsprint segments. Though India is the fifteenth largest paper market in the world (1.40 per cent of the world's paper and board consumption and 4.70 per cent of the Asian consumption), the interesting point to note is that demand for paper and allied products in India is growing faster at around six per cent compared to a demand growth of about three per cent the world over. The Indian paper industry provides employment to around 13 cr people and contributes about Rs. 25000 Millions to the exchequer. 

A number of interesting trends are driving the Indian paper industry, briefly described below. 

Slow capacity growth: The Indian installed paper manufacturing capacity is expected to grow at a compounded annual growth rate of a mere 3.70 per cent to 8.75 million tonnes per annum in 2008-09. This growth in paper production is largely expected to be a mix of debottlenecking undertaken by companies and brownfield expansions. However, long gestation period will result in slow pace of capacity addition. 

Demand rising: According to Jaako Poyry, the demand for paper in India is projected to grow at a compounded annual growth rate of 6.10 per cent to an estimated 7.40 million tonnes in 2008-9. In terms of various segments of paper the demand for: 

* Industrial paper (which enjoys the largest chunk of the total paper demand at around 60 per cent) is estimated to grow at a compounded annual growth rate of 6.70 per cent. 

* Writing and printing paper (accounting for 40 per cent of the total paper demand) is expected to grow at a compounded annual growth rate of 5.50 per cent. 

According to Jaakko Poyry, this demand-supply mismatch is expected to result in a supply shortage of around 0.7 million tonnes in 2010. 

Cost push and increase in realizations: paper prices in India increased in tranches in 2005. This was primarily driven by increasing input cost. The cost of coal rose in 2005 (thereby inflating power and fuel costs) and so did key chemicals. Price increases were reflected in other paper varieties as well (newsprint, industrial paper and coated paper among others). 

Demand drivers 

* The Budget 2005-6 increased the total outlay under Sarva Siksha Abhiyan from Rs. 10040 Millions in 2005-6 to Rs. 71560 Millions in 2006-7 while Rs. 87500 Millions will be transferred to Prarambhik Siksha Kosh from the education cess. The increased outlay for education will drive demand and volumes for writing paper. Besides, a cut in excise duty on printing, writing and packaging papers from 16 per cent to 12 per cent will enhance affordability. 

* Growth in the domestic paper industry mirrors the growth of the Indian economy. While India's GDP grew 8.4 per cent in 2005-6, domestic demand for paper and paper products grew to nearly 6.30 million tonnes during the same period. As per the Central Government estimates, the Indian GDP is likely to grow by 8.10 per cent in 2006-7, even as it aims to achieve and economic growth of 10 per cent over the future. This scenario is expected to accelerate the production and consumption of paper and paperboard. 

* The presence of a large number of modern retail formats; convenience stores and exclusive outlets is prompting FMCG players and consumer durables and non-durables manufacturers to provide innovative packaging solutions. The growing popularity, of ready-to-eat products and perishable foods is expected to grow the demand of packaging paper. 

Product portfolio analysis 

Star manufactures cultural and industrial paper, the portfolio highlighted in the table below: 

Cultural paper: Cultural paper comprises writing and Printing paper and business communication paper. This variety is used for a number of diverse applications in diaries, calendars, books, maps, computer stationery, book/ notebook covers, wedding and invitation cards, photo-copying paper, ledger paper and account book paper among others. 

Industrial paper: Industrial paper constitutes absorbent kraft, padding paper, base paper, kraft paper, poster paper, poster ARSR and ribbed kraft paper. The various applications of industrial paper comprises laminates, clay/ colour coating, corrugated box paper, foil lamination, wrapper/ pouches, files, identity card, soap wrapper, fire crackers, water-proofing, tobacco packing and metallization among others. 

Outlook 

Despite being the second-most populous country in the world (population of over one billion), India's per capita paper consumption is among the lowest in the world at 6 kgs (as indicated in the table). This represents tremendous latent potential for the growth in paper demand and consumption in India. 

Country/region Paper consumption 

(kg per capita)  

USA 334Japan 302South East Asia 40China 30World average 53India 6 

Moreover within Asia, India is expected to report the sharpest demand growth on account of increasing literacy levels, rising corporate profitability, growing population and increasing spending. Estimates made by ICRA and IPMA highlight the fact that by 2012 India could be consuming more than 10 million tonnes of paper and paper board. 

As per website

Profile

Star Paper Mills Limited established in 1938,  is an integrated Pulp and Paper Mill. Starting with 6000 MT/annum, it has come a long way and produced of 67875 MT in 2005-06. It produces a wide range of Industrial, Packaging and Cultural Papers catering to almost all segments of the Consumers. Star has a distribution network throughout the Country. 

The company is a part of Duncan Goenka Group.

The Mill located at Saharanpur, U.P., has 4 Paper Machines producing a wide Range of Products catering to different segments and meeting varied requirements of the customers.

Star Paper is an ISO 9001:2000 & ISO 14001:2004 Company.

Company has In-House R&D Unit recognised by Ministry of Science & Technology - Govt. of India.

Star has won several awards in the fields of Energy conservation, Safety and Environment Management.

CMT REPORT (Corruption, Money Laundering & Terrorism]

The Public Notice information has been collected from various sources including but not limited to: The Courts, India Prisons Service, Interpol, etc.

1] INFORMATION ON DESIGNATED PARTY

No records exist designating subject or any of its beneficial owners, controlling shareholders or senior officers as terrorist or terrorist organization or whom notice had been received that all financial transactions involving their assets have been blocked or convicted, found guilty or against whom a judgement or order had been entered in a proceedings for violating money-laundering, anti-corruption or bribery or international economic or anti-terrorism sanction laws or whose assets were seized, blocked, frozen or ordered forfeited for violation of money laundering or international anti-terrorism laws.

2] Court Declaration :

No records exist to suggest that subject is or was the subject of any formal or informal allegations, prosecutions or other official proceeding for making any prohibited payments or other improper payments to government officials for engaging in prohibited transactions or with designated parties.

3] Asset Declaration :

No records exist to suggest that the property or assets of the subject are derived from criminal conduct or a prohibited transaction.

4] Record on Financial Crime :

Charges or conviction registered against subject: None

5] Records on Violation of Anti-Corruption Laws :

Charges or investigation registered against subject: None

6] Records on Int’l Anti-Money Laundering Laws/Standards :

Charges or investigation registered against subject: None

7] Criminal Records

No available information exist that suggest that subject or any of its principals have been formally charged or convicted by a competent governmental authority for any financial crime or under any formal investigation by a competent government authority for any violation of anti-corruption laws or international anti-money laundering laws or standard.

8] Affiliation with Government :

No record exists to suggest that any director or indirect owners, controlling shareholders, director, officer or employee of the company is a government official or a family member or close business associate of a Government official.

9] Compensation Package :

Our market survey revealed that the amount of compensation sought by the subject is fair and reasonable and comparable to compensation paid to others for similar services.

10] Press Report :

No press reports / filings exists on the subject.

CORPORATE GOVERNANCE

MIRA INFORM as part of its Due Diligence do provide comments on Corporate Governance to identify management and governance. These factors often have been predictive and in some cases have created vulnerabilities to credit deterioration.

Our Governance Assessment focuses principally on the interactions between a company’s management, its Board of Directors, Shareholders and other financial stakeholders.

CONTRAVENTION

Subject is not known to have contravened any existing local laws, regulations or policies that prohibit, restrict or otherwise affect the terms and conditions that could be included in the agreement with the subject.

FOREIGN EXCHANGE RATES

Currency	Unit	Indian Rupees
US Dollar	1	Rs.39.57
UK Pound	1	Rs.78.93
Euro	1	Rs.56.85

SCORE & RATING EXPLANATIONS

SCORE FACTORS	RANGE	POINTS
HISTORY	1~10	9
PAID-UP CAPITAL	1~10	5
OPERATING SCALE	1~10	5
FINANCIAL CONDITION
--BUSINESS SCALE	1~10	8
--PROFITABILIRY	1~10	4
--LIQUIDITY	1~10	7
--LEVERAGE	1~10	7
--RESERVES	1~10	5
--CREDIT LINES	1~10	5
--MARGINS	-5~5	-
DEMERIT POINTS
--BANK CHARGES	YES/NO	YES
--LITIGATION	YES/NO	NO
--OTHER ADVERSE INFORMATION	YES/NO	NO
MERIT POINTS
--SOLE DISTRIBUTORSHIP	YES/NO	NO
--EXPORT ACTIVITIES	YES/NO	YES
--AFFILIATION	YES/NO	YES
--LISTED	YES/NO	YES
--OTHER MERIT FACTORS	YES/NO	YES
TOTAL		55

This score serves as a reference to assess SC’s credit risk and to set the amount of credit to be extended. It is calculated from a composite of weighted scores obtained from each of the major sections of this report. The assessed factors and their relative weights (as indicated through %) are as follows:

Financial condition (40%) Ownership background (20%) Payment record (10%)

Credit history (10%) Market trend (10%) Operational size (10%)

RATING EXPLANATIONS

RATING		STATUS	PROPOSED CREDIT LINE
>86	Aaa	Possesses an extremely sound financial base with the strongest capability for timely payment of interest and principal sums	Unlimited
71-85	Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums	Large
56-70	A	Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums	Fairly Large
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory
26-40	B	Unfavourable & favourable factors carry similar weight in credit consideration. Capability to overcome financial difficulties seems comparatively below average.	Small
11-25	Ca	Adverse factors are apparent. Repayment of interest and principal sums in default or expected to be in default upon maturity	Limited with full security
<10	C	Absolute credit risk exists. Caution needed to be exercised	Credit not recommended
NR		In view of the lack of information, we have no basis upon which to recommend credit dealings	No Rating

PRIVATE & CONFIDENTIAL : This information is provided to you at your request, you having employed MIPL for such purpose. You will use the information as aid only in determining the propriety of giving credit and generally as an aid to your business and for no other purpose. You will hold the information in strict confidence, and shall not reveal it or make it known to the subject persons, firms or corporations or to any other. MIPL does not warrant the correctness of the information as you hold it free of any liability whatsoever. You will be liable to and indemnify MIPL for any loss, damage or expense, occasioned by your breach or non observance of any one, or more of these conditions