THE COMPANYS WORKING FOR 2016 17 AND LOOKS AHEAD
"OUR CULTURE OF PASSION HELPED US OUTPERFORM AND REPORT RECORD RESULTS IN 201617"
Q: WAS THE MANAGEMENT PLEASED WITH THE WORKING OF THE COMPANY DURING THE YEAR UNDERREVIEW?
A: The management was delighted to present excellent financials during the year underreview. The Company reported the highest revenues at H1041 cr and the largest net profitafter tax at H70.23 cr in a challenging 2016-17. The highlight of our achievement was notjust a record performance across both parameters. What was creditable was that we reportedprofitable growth during the year revenues increased by 17.83% while profit aftertax strengthened by 294%.
Q: WHAT REASONS ACCOUNTED FOR PROFITABLE GROWTH?
A: In a business where our realisations are controlled largely by the market average(for writing & printing and duplex board) we believe that much of the growth isactually derived from our ability to generate surpluses from within. Over the last fewyears the Company strengthened this inward-outward focus through a more visiblemanifestation of that one corporate strength that we deeply pride upon: our culture ofpassion. At N R Agarwal we brought an unusual passion to our workplace every single day.We continued to believe that this is the only insurance in a sector where realisations arelargely beyond our control and the only realities that we can truly control are ourproduct mix product quality and operating efficiency.
There is a good reason why passion has a critical role to play in our Company. We are amulti-decade Company where 45% of our manufacturing assets are ten years old or more. Inour business we believe that anyone can generate a high productivity from new papermanufacturing machines. The true achievement for any paper company lies in the ability togenerate a high productivity from multi-year machines instead.
Q: HOW DID THIS PASSION PLAY OUT IN YOUR COMPANY IN 2016-17?
A: I am proud to state that this is the area in which N R Agarwal distinguished itself.Over the years the Company had invested in the continuous upgradation of itsmanufacturing machines through the infusion of the latest technologies. The result is thateven though the machines may be multi-year in age they were benchmarked with the bestproductivity standards of the day translating into a high operating efficiency and outputquality. This was evident during the year under review when we generated a higherproductivity from new and old assets; we fought to derive every small improvement; wequestioned every process and practice with the objective to improve; we trained our peopleto look for under-performance with the singular passion to remove blockers and enhanceefficiency; we continued to believe that whatever was good could be made better; weencouraged the mindset that behind every challenge lies attractive opportunity.
Q: HOW DID THESE INITIATIVES TRANSLATE INTO IMPROVEMENTS? A: I am pleased to reportthat the byproduct of our passion was the ability to address the emerging requirements ofcustomers. We manufactured superior paper grades. We manufactured a consistently highpaper quality. We delivered products around a superior price-value proposition. Wedelivered products just when customers needed them. For instance during the year underreview the Company manufactured the highest paper volume in its existence 283483tonnes which was 10% higher than in the previous financial year. This record output wasachieved on the back of capacity utilisation of our duplex board manufacturing unitsrising from 92% in the previous year to 97% in 2016-17; the capacity utilisation of ourwriting & printing units strengthened from 73% in 2015-16 to 91% during the year underreview.
Q: WHAT WERE SOME OF THE
REASONS THAT CONTRIBUTED TO THIS IMPROVEMENT?
A: This improvement was not the result of merely pressing a button; this was the resultof taking a differentiated approach towards the issue of planned shutdowns examiningvirtually equipment component during this brief period and thereby enhancing systemicpredictability. In a process industry like paper which involves the concurrent managementof a number of diverse variables we believe that capacity utilisation in excess of 95%represents an index of our stringent control on processes and practices. The increase incapacity utilisation helped us amortise our fixed costs more effectively. Besides theCompany strengthened its operational control to report attractive gains arising out ofmoderated consumption and costs of fibre energy chemicals and overheads. The combinationof the two realities gains out of enhanced capacity utilisation and reduction inconsumables maximised the yields that we generated from one tonne of waste paperleading to enhanced margins and competitiveness.
Q: WHAT WAS THE OTHER
IMPROVEMENT REPORTED BY THE COMPANY IN 2016-17? A: It was enhanced product quality. AtN R Agarwal we believe that while one of the yardsticks by which our success can bejudged is capacity utilisation the other is quality. At our Company the highest outputquality has been a consistent priority. We believe that our respect as an organisation ismost visibly appraised around the quality of what we manufacture and market. We have acreditable reality to report in this respect: we achieved an excellent quality of writing& printing paper manufactured at our Sarigam (Unit V) Unit generating realisationshigher than the prevailing market average generating repeat customer loyalty and sellingfaster than the rest of the market average. The result was that during the year underreview the Company generated attractive net realisations from its duplex board productbased on the reputation that we deliver one of the best duplex board qualities in theindustry addressing a demanding clientele. The last financial year was also the secondfull year of production of our Unit V addressing writing & printing products (sinceinception in July 2014) and generating superior returns compared with the prevailingmarket average. The management of N R Agarwal was so enthused by the response to thesuperior grades we manufactured and marketed that we plan to convert Unit II(manufacturing newsprint) to writing & printing grade riding the premiumness of thequality of paper manufactured at Unit V. The product quality was also respected across theglobal markets: the Company marketed its products through a comprehensive network ofdealers across India and abroad. The Company exported 10% of its production to Sri LankaMiddle East Bangladesh and Africa making it possible to de-risk its revenues through abroad-based sales approach and marketing our products across the widest number ofcustomers.
Q: WHAT INITIATIVES DID THE
COMPANY TAKE WITH REGARD TO ITS PRODUCT MIX? A: At N R Agarwal we believe that it isalso possible to beat the prevailing sectoral realisations average through onesevolving product mix. This is what we successfully demonstrated in the last few years: inthe duplex boards segment we produced the White Back and Grey Back varieties acrossdiverse GSMs making it possible to address the widest requirements of a growing marketsegment.
In the writing & printing segment we produced all GSMs of the SS and NSS maplithovarieties generally used in printing text books and the publishing segment. The time hascome to make a leap even in this segment. The Company plans to introduce copier paper andvirgin maplitho paper variety within a year making it possible to provide the widestcomplement of writing and printing products. This we believe will make it possible forus to capture every market upturn through our broad presence; we expect to generateattractive value-addition that strengthens our revenues and profits.
Q: THE BIG QUESTION THAT SHAREHOLDERS ARE ASKING IS HOW THE COMPANY INTENDS TOSTRENGTHEN BUSINESS SUSTAINABILITY AFTER THIS RECORD PERFORMANCE.
A: At N R Agarwal we recognise that the bigger challenge lies in extending the gainsthat we reported in 2016-17 towards multi-year sustainability. We are attractively placedto make this happen. The Company intends to build on its 95% capacity utilisation achievedin the last financial year with a targeted 100% utilisation across the foreseeable future.We also believe that the cost moderation derived through energy conservation and adoptionof cutting-edge technologies represents a foundation which should translate intosustainable improvements. The sustainability in our improvement will also be derived fromprudent capital expenditure. The Company intends to embark on a H100 cr capex programmelikely to be commissioned by December 2018; most of the back-end preparation for thisexercise was completed during the first quarter of the current financial year. The Companyis also engaged in the switchover of its newsprint capacity (Unit II) to writing &printing which should be commissioned by the first week of August 2017. We expect togenerate a topline increment of around 15% while maintaining overall margins.
Q: HOW ELSE IS THE MANAGEMENT REINFORCING BUSINESS SUSTAINABILITY? A: One of the mostimportant initiatives in enhancing our business sustainability was derived from thedecision to engage Ernst & Young LLP leading global consultants to assist theCompany in the area of new product development efficiency improvement energy audit costreduction and future-proofing the overall business model. The engagement commenced for ayear from November 2016; I am pleased to report that the Company has already reportedrelated improvements which should strengthen business sustainability.
Q: WHAT IS THE BIG MESSAGE THAT YOU WISH TO LEAVE WITH SHAREHOLDERS? A: In view of thevarious initiatives taken we believe that the Company should generate sustainable annualrevenue growth of 15%. The Company intends to generate profitable growth as wellstrengthening value in the hands of our shareholders and our position as one of the mostrespected paper companies of India.