MIRA INFORM REPORT

Report Date :

06.12.2008

IDENTIFICATION DETAILS

Name :	SHREE BHAWANI PAPER MILLS LIMITED

Registered Office :	33, Dayanand Marg, Allahabad – 211 002, Uttar Pradesh

Country :	India

Financials (as on) :	31.03.2008

Date of Incorporation :	06.07.1979

Com. Reg. No.:	004783

CIN No.: [Company Identification No.]	L21015UP1979PLC004783

TAN No.: [Tax Deduction & Collection Account No.]	ALDS00596B

Legal Form :	Public Limited Liability company. The company’s shares are listed on the Stock Exchanges.

Line of Business :	Manufacturer of Uncoated Paper and Paper Board used for Writing and Printing purposes and Newsprint in Rolls or Sheets

RATING & COMMENTS

MIRA’s Rating :

RATING		STATUS	PROPOSED CREDIT LINE
26-40	B	Unfavourable & favourable factors carry similar weight in credit consideration. Capability to overcome financial difficulties seems comparatively below average.	Small

Maximum Credit Limit :	USD 1186000

Status :	Moderate

Payment Behaviour :	No complaints

Litigation :	Clear

Comments :	Subject is an old and established company having moderate track. Company’s profitability is under severe pressure. Trade relations are fair. No complaints have been heard. The company can be considered for small to mediocre business dealings.

LOCATIONS

Registered Office :	33, Dayanand Marg, Allahabad – 211 002, Uttar Pradesh, India
Tel. No.:	91-532-2607958,59,60
E-Mail :	4 Company Secretary: babitajain@shbhawani.com 4 Managing Director: girishtandon@shbhawani.com 4 Executive Director: alankar.tandon@shbhawani.com 4 Finance: kamal@shbhawani.com 4 Sales: ajaygupta@shbhawani.com 4 Production: spadmanabhan@shbhawani.com
Website :	www.shbhawani.com

Factory :	The Paper Plant of the Company is situated at Industrial Area I, Sultanpur Road, Rae Bareli – 229 010, Uttar Pradesh, India
Tel. No.:	91-535-2702155, 2702156

Registrar and Share Transfer Agent :	Skyline Financial Services Private Limited 246, Sant Nagar, East of Kailash, ISKON Temple Road, New Delhi 110 065, India

DIRECTORS

Name :	Mr. Sudhir Tandon
Designation :	Managing Director

Name :	Mr. Girish Tandon
Designation :	Joint Managing Director

Name :	Mr. Badri Vishal Tandon
Designation :	Director

Name :	Mr. C.M. Krishna
Designation :	Director

Name :	Mr. Murari Lal Jalan
Designation :	Director

Name :	Mr. K. A. Pai
Designation :	Director

Name :	Brig. (Retd.) R.L. Singh, SC
Designation :	Director

Name :	Mr. Alankar Tandon
Designation :	Executive Director

Name :	Prof. Sushil Khanna
Designation :	Director

KEY EXECUTIVES

Name :	Mrs. Babita Jain
Designation :	Company Secretary
Address :	33, Dayanand Marg, Allahabad - 211 002, Uttar Pradesh, India
Tel. No.:	91-532 - 2607959 / 2607960
Fax No.:	91-532 - 2607957
E-Mail :	babitajain@shbhawani.com

MAJOR SHAREHOLDERS / SHAREHOLDING PATTERN

Names of Shareholders	No. of Shares	Percentage of Holding
Promoters’ Holding (Including person acting in concert)	9403524	57.25
Institutional Investors	1400	0.01
Private Corporate Bodies	825579	5.04
NRIs	25409	0.15
Indian Public	6168088	37.55
Total	16424000	100.00

DEMATERIALISATION OF SHARES

As on 31.3.2008, 97.63% ie., 16034801 Equity Shares of Company's share capital are dematerialised and balance of 389199 shares are held in physical form. In order to facilitate the investors to have an easy access to demat system, the Company has joined with both Depositories viz National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited, (CDSL) through the Company's Registrar and Share Transfer Agent, Skyline Financial Services Private Limited, New Delhi.

BUSINESS DETAILS

Line of Business :

Manufacturer of Uncoated Paper and Paper Board used for Writing and Printing purposes and Newsprint in Rolls or Sheets

Products :

Product Description

Item Code No. (ITC Code)

Uncoated Paper and Paper Board used for Writing and Printing purposes

48020000

Newsprint in Rolls or Sheets

48010090

PRODUCTION STATUS As on 31.03.2008

Particulars

Unit

Licensed Capacity (per annum)

Installed Capacity

(per annum)

Actual Production

Printing, Writing and Newsprint Papers

54000

12404

(*As certified by the Management and accepted by Auditors)

GENERAL INFORMATION

Bankers :

Bank of Baroda
Indian Bank

Facilities :

Secured Loans :

	As on 31.03.2008 Rs. in Millions
I. TERM LOANS The IFCI Limited	--
Indian Bank	242.370
Bank of Baroda	242.258
i) The Loans are secured by a ‘Pari Passu’ Joint Equitable Mortgage over the Company’s immovable properties and a charge by way of hypothecation of movable assets of the Company both present and future subject to prior charges created on specified movable assets in favour of Company’s Bankers for Working Capital. (ii) Installments of Principal loan falling due within one year NIL (Previous Year Rs.20.500 millions).

II. OTHER LOANS AND ADVANCES (a) From Banks Secured by hypothecation of Stock of Raw Materials, Stores, Stock in process, finished goods, book debts, both present and future and further secured by second mortgage and charge on immovable properties of the Company as by way of Collateral Security. All the above loans are guaranteed by the Managing Director and Joint Managing Director of the Company.	234.209
(b) From Others : Hire Purchase Finance Secured by hypothecation of specific asset.	0.363
Total	719.200

Unsecured Loans :

	As on 31.03.2008 Rs. in Millions
Fixed Deposits	42.607
Security Deposits * Includes Rs.1.950 millions from Directors (Previous Year Rs.0.200 million)	42.813
Total	85.420


Banking Relations :	---

Auditors :
Name :	P.L. Gupta and Company Chartered Accountants

CAPITAL STRUCTURE

Authorised Capital :

No. of Shares	Type	Value	Amount
35000000	Equity Shares	Rs.10/- each	Rs.350.000 millions
250000	Preference Shares	Rs.10/- each	Rs.2.500 millions
	Total		Rs.352.500 millions

Issued, Subscribed & Paid-up Capital :

No. of Shares	Type	Value	Amount
16424000	Equity Shares	Rs.10/- each	Rs.164.240 millions
	Less : Calls in Arrears from others		Rs.0.195 million
	Total		Rs.164.045 millions

Fully paid-up (including 326000 Equity Shares of Rs. 10/- each fully paid issued to Financial Institutions on conversion of part loan)

FINANCIAL DATA

[all figures are in Rupees Millions]

ABRIDGED BALANCE SHEET

SOURCES OF FUNDS		31.03.2008	31.03.2007	31.03.2006
SHAREHOLDERS FUNDS
1] Share Capital		164.045	162.641	71.100
2] Share Application Money		0.000	0.000	0.000
3] Reserves & Surplus		73.208	130.118	86.500
4] (Accumulated Losses)		0.000	0.000	0.000
NETWORTH		237.253	292.759	157.600
LOAN FUNDS
1] Secured Loans		719.200	434.055	119.700
2] Unsecured Loans		85.420	49.157	49.400
TOTAL BORROWING		804.620	483.212	169.100
DEFERRED TAX LIABILITIES		46.191	44.171	0.000

TOTAL		1088.064	820.142	326.700

APPLICATION OF FUNDS

FIXED ASSETS [Net Block]		924.767	295.243	188.100
Capital work-in-progress		0.506	381.183	66.700

INVESTMENT		0.295	0.295	0.000
DEFERREX TAX ASSETS		0.000	0.000	0.000

CURRENT ASSETS, LOANS & ADVANCES
	Inventories	115.351	101.816	88.200
	Sundry Debtors	64.030	59.730	37.400
	Cash & Bank Balances	9.507	5.638	20.700
	Other Current Assets	0.000	0.000	0.000
	Loans & Advances	47.463	39.200	23.600
Total Current Assets		236.351	206.384	169.900
Less : CURRENT LIABILITIES & PROVISIONS
	Current Liabilities	70.458	43.760	89.300
	Provisions	3.397	19.203	8.700
Total Current Liabilities		73.855	62.963	98.000
Net Current Assets		162.496	143.421	71.900

MISCELLANEOUS EXPENSES		0.000	0.000	0.000

TOTAL		1088.064	820.142	326.700

PROFIT & LOSS ACCOUNT

PARTICULARS		31.03.2008	31.03.2007	31.03.2006
Sales Turnover		342.534	495.252	568.200
Other Income		22.627	48.947	0.400
Total Income		365.161	544.199	568.600

Profit/(Loss) Before Tax		(54.544)	47.564	26.100
Provision for Taxation		2.716	18.925	(0.600)
Profit/(Loss) After Tax		(57.260)	28.639	26.700

Earnings in Foreign Currency :
	Certified Emission Reductions	20.135	52.000	NA
	On Export of Goods (FOB Basis)	2.689	3.467	NA
Total Earnings		22.824	55.467	NA

Imports :
	Raw Materials	200.201	5.152	NA
	Stores & Spares	1.529	0.526	NA
	Capital Goods	6.074	62.882	NA
Total Imports		207.804	68.560	NA

Expenditures :
	Cost of Borrowings	21.813	11.635	NA
	Raw Material Consumed	241.082	316.420	105.400
	Power & Fuel	66.219	67.058	49.500
	Depreciation & Amortization	26.810	18.024	17.500
	Employees Cost	43.258	59.167	60.200
	Other Expenditure	20.523	24.331	309.900
Total Expenditure		419.705	496.635	542.500

QUARTERLY RESULTS

PARTICULARS	30.06.2008	30.09.2008
Type	1^st Quarter	2^nd Quarter
Sales Turnover	319.800	257.400
Other Income	0.100	0.500
Total Income	319.900	257.900
Total Expenditure	295.100	231.300
Operating Profit	24.800	26.600
Interest	22.700	23.900
Gross Profit	2.100	2.700
Depreciation	13.700	13.800
Tax	0.100	0.200
Reported PAT	(11.700)	(11.300)

KEY RATIOS

PARTICULARS		31.03.2008	31.03.2007	31.03.2006
PAT / Total Income	(%)	(15.68)	5.26	4.70

Net Profit Margin (PBT/Sales)	(%)	(15.92)	9.60	4.59

Return on Total Assets (PBT/Total Assets}	(%)	(4.69)	5.39	6.15

Return on Investment (ROI) (PBT/Networth)		(0.23)	0.16	0.17

Debt Equity Ratio (Total Liability/Networth)		3.70	1.87	1.69

Current Ratio (Current Asset/Current Liability)		3.20	3.28	1.73

LOCAL AGENCY FURTHER INFORMATION

HISTORY:

Subject was promoted by Sudhir Tandon and Girish Tandon in association with UPSIDC and PICUP, manufactures writing and printing papers and wrapping paper. Commercial production commenced in Apr.'83. Its mill is situated at Rae Bareli in Uttar Pradesh.

The company's performance was fluctuating as a result of labour unrest, unsatisfactory power supply and a recession that prevailed in the paper industry. In 1988-89, it undertook further modifications in the MF paper machine. A fluidised-bed combustion-type boiler was installed and commissioned in Mar.'88 to reduce the overall coal consumption and improve the quality and availability of coal. Power consumption was economised with suitable replacements of higher rating motors by lower rating ones.

The company operates at the installed capacity of 21000 MT of printing, writing and wrapping papers. The company exports paper to Nepal and is exploring the possibility of exporting to other countries.

During 1999-2000, the company has embarked on a co-generation project of 3 MW of electricity and it commenced its operations in August, 2001. This project was financed by IFCI,Indian Bank and Bank of Baroda.

The performance of the Company for the year ended March, 2008 has been very unsatisfactory due to various factors.
Some of them are:

1. Inability to run the existing old machines to their full capacity.

2. Inadequate trained personnel for running the expanded production line, especially waste paper street.

3. Shortage of power connection against power requirement of 8 MW. Only a Turbine of 3 MW was set up, making a total availability of 6 MW.

4. Spiraling cost of imported waste paper from average U.S.$ 225 per ton to more than U.S.$ 300 per ton.

5. Over extended trial run due to poor quality of finished paper produced with lower pulp yield, leading to severe losses in trial run.

6. Shortage of Working Capital due to trial run cost and additional capital expenditure not originally envisaged in the project cost.

7. Lack of essential spares for the expansion project, leading to frequent break downs and maintenance. There was inadequate provision of spares in the project cost originally envisaged.

All the above factors along with several more, lead to very serious complications with deep financial implications for the Company.

There was also a change in the top management and Shri Sudhir Tandon, who was Managing Director of the Company and under whose guidance and control the expansion project was implemented, resigned as Managing Director of the Company on 28th April, 2008. Shri Girish Tandon, Joint Managing Director, was re-designated as Managing Director of the Company by the Board on 28th April, 2008. The share holders will be to know, that, during the first quarter of 2008-09, the Company has achieved a production of 10871 tonnes and a turn over of Rs.319.800 millions with cash profit of Rs.2.100 millions.

In order to analyze and rectify the short comings of the implementation of DIP line and in the new paper machines, M/s Adya Pulp and Paper Consultants, Kolkata, were appointed as Consultants. They have submitted their detailed report and have suggested remedial measures and investment proposal for planning the equipment, which is being implemented.

CAPITAL EXPENDITURE SCHEME:

The new Paper Machine and Waste Paper De-inking Plant was commissioned during the year. Though the power plant was commissioned in time, there was delay in commissioning of paper machine and DIP line. During trial runs, the Company faced serious problems in the pulp mill and new paper machine section. This resulted in very high trial run expenses and the trial run period extended up to 29th February, 2008. The total project cost came to Rs.790 millions against Rs.650 millions excluding margin money originally envisaged. The increase was mainly due to trial run expenses, installation of QCS, provision of power connection of 2,500 KVA from 33 KV line which had to be brought for 5 km.

The commercial production of the new paper machine III commenced on 1st March, 2008.

MEASURES TO IMPROVE THE PERFORMANCE OF THE COMPANY:

The Company has three paper machines with a combined capacity of nearly 200 TPD. It also has a De-inking line of 170 TPD along with an agro pulping street of 40 TPD. It is the management's endeavor to run all three paper machines along with the waste paper and agro pulping street. For this, following measures have been taken, based on the technical appraisal report of M/s Adya Pulp and Paper Consultants:

1. Provision of essential spares for new paper machines and DIP line.

2. Upgradation of under capacity pumps and pipe lines in the DIP section.

3. Installation of sun dry board mill to use the reject of pulp mill and paper machines.

4. Setting up of LRP and obtaining permission for the same from Pollution Control Board.

5. Appointment and training of key technical personnel to operate the DIP line efficiently.

6. Upgradation of Slitter Rewinder and installation of Dandy Roll on Paper Machine No. III.

7. Change of Polypick Vacuum drainage elements on Paper Machine III to Ceramic drainage elements to achieve designed speed of machine of 600 mpm.

8. Augmentation of power availability with capacity to run any equipment on either Turbine or grid power.
9. Installation of thermo compressor based steam and condensate system on old machines to reduce steam consumption and improve the drying capacity.

10. Upgrading old machines with slotted basket for pressure screen, AC drive system for MG Machine etc.

11. Renovation of Boiler of Turbine No.1 for better fuel efficiency and steam availability.

Benefits:
The new plant has stabilized only in March 2008 and hence the benefits will accrue in the coming period.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

INDUSTRY STRUCTURE and DEVELOPMENT:

India has pegged economic growth in the last fiscal year at a higher rate than expected nine percent. It is the third successive year that the economy has grown at this pace. Significant growth in infrastructure like Roads, Airports, Ports, Power Generation and distribution, SEZ etc. continues at a fast pace. Other construction activities in the housing, industrial and commercial have also been increasing. Simultaneously, the manufacturing segment has registered double digit growth. The Indian Economy has, therefore, been enjoying high and relatively stable rates of growth for almost a quarter century now. However, there is battle against two emerging concerns, high global crude oil prices and rising inflation. Record high crude oil prices are hurting India significantly because it imports about 70 percent of its needs.

India has witnessed phenomenal development in the field of education both in quantitative and qualitative terms, since independence. However, the national goals of universal elementary education and total eradication of illiteracy still remain elusive. The Government is committed to achieve these national goals and has been steadily increasing the budgetary allocation for education. The Government of India considers the paper industry as one of the 35 high priority industries of the Country.

Consumption of paper and paperboard has also risen steadily over the years. The growth in consumption was at an average rate of 5.1% a year and at a higher rate in recent years. It is also worth noting that not only consumption has exceeded the production every year but the gap between consumption and production has also widened over time. The gap is likely to widen even further in near future. An inference from India's low per capita consumption is that enormous scope exists for the consumption to rise in India in the years to come.

There are, at present, about 594 units engaged in the manufacturing of paper, paperboards and newsprint in India producing nearly 5.5 million tons annually against the capacity of around 7.4 million tons. Paper consumption in India is expected to reach 9.0 million tons by the year 2010 and 13 million tons by 2015.

The new millennium is going to be the millennium of the knowledge. So demand for paper would go on increasing in times to come. In view of paper industry's strategic role for the society and also for the overall industrial growth, it is necessary that the paper industry performs well.

COMPANY'S PERFORMANCE and OUTLOOK:

The total production during the year including trial runs was only 22864MT as against capacity of 54000MT, including that of new paper machine. The performance of the Company for the year ended March, 2008 has been very unsatisfactory due to various factors. Some of them are:

Inability to run the existing old machines to their full capacity.

2. Inadequate trained personnel for running the expanded production line, especially waste paper street.
3. Shortage of power connection against power requirement of 8 MW. Only a Turbine of 3 MW was set up, making a total availability of 6 MW.

4. Spiraling cost of imported waste paper from average U.S.$ 225 per ton to more than U.S.$ 300 per ton.
5. Over extended trial run due to poor quality of finished paper produced with lower pulp yield, leading to severe losses in trial run.

6. Shortage of Working Capital due to trial run cost and additional capital expenditure not originally envisaged in the project cost.

7. Lack of essential spares for the expansion project, leading to frequent break downs and maintenance. There was inadequate provision of spares in the project cost originally envisaged.

All the above factors along with several more, lead to very serious complications with deep financial implications for the Company.

The Commercial Production of the new paper machine commenced on 1st March, 2008. Since March, 2008, quality of paper manufactured is quite satisfactory and well accepted in market.

Domestic demand for paper particularly Newsprint is expected to continue and selling prices are moving upwards. The New paper machine is capable of producing Newsprint apart from Creamwove and other varieties. The Company has received the license to manufacture Newsprint in February, 2008. Now, the Company is manufacturing mainly Newsprint on new MF Machine and has been able to liquidate inventory of finished goods manufactured during trial run. The Newsprint prices have increased from US$ 650/- per ton in October 2007, to US$ 850/- per ton in April, 2008 and expected to maintain the trend, thereby pushing up the domestic prices as well.

CAPITAL EXPENDITURE SCHEME:

The total project cost came to Rs.790 millions against Rs.650 millions excluding margin money originally envisaged. The increase was mainly due to trial run expenses, installation of QCS, provision of power connection of 2,500 KVA from 33 KV line which had to be brought for 5 km.

The commercial production of the new Paper Machine III commenced on 1st March, 2008.

MEASURES TO IMPROVE THE PERFORMANCE OF THE COMPANY:

The Company has three paper machines with a combined capacity of nearly 200 TPD. It also has a De-inking line of 170 TPD along with an agro pulping street of 40 TPD. It is the management's endeavor to run all three paper machines along with the waste paper and agro pulping street. For this, following measures have been taken based on the technical appraisal report of M/s Adya Pulp and Paper Consultants: