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JK Paper Ltd.

BSE: 532162 Sector: Industrials
NSE: JKPAPER ISIN Code: INE789E01012
BSE 00:00 | 18 Oct 123.50 2.40
(1.98%)
OPEN

121.25

HIGH

124.50

LOW

120.35

NSE 00:00 | 18 Oct 123.60 2.60
(2.15%)
OPEN

121.00

HIGH

124.65

LOW

120.10

OPEN 121.25
PREVIOUS CLOSE 121.10
VOLUME 107408
52-Week high 189.70
52-Week low 93.10
P/E 4.60
Mkt Cap.(Rs cr) 2,201
Buy Price 123.50
Buy Qty 665.00
Sell Price 123.50
Sell Qty 300.00
OPEN 121.25
CLOSE 121.10
VOLUME 107408
52-Week high 189.70
52-Week low 93.10
P/E 4.60
Mkt Cap.(Rs cr) 2,201
Buy Price 123.50
Buy Qty 665.00
Sell Price 123.50
Sell Qty 300.00

JK Paper Ltd. (JKPAPER) - Director Report

Company director report

To the Members

The Directors have pleasure in presenting the 58th Annual Report along with AuditedFinancial Statements of the Company for the financial year ended 31st March 2019.

FINANCIAL RESULTS

Gross Sales 2018-19 2017-18
3469.19 3069.68
Profit Before Finance Costs and 926.05 639.10
Depreciation (PBIDT)
Profit before Depreciation and Tax (PBDT) 803.65 496.08
Profit After Tax (PAT) 437.20 260.14

DIVIDEND

In view of better financial results the Directors are pleased to recommend an enhancedDividend of B3.50 per share (B2.50 previous year) on the expanded Equity Share Capital.The Dividend outgo would amount to B75.21 crore (inclusive of Dividend Distribution Tax ofB 12.82 crore).

RESERVES AND APPROPRIATIONS

The amount available for appropriation including surplus from the year stood at B1009.14 crore. The Directors propose this to be appropriated as under:

(B crore)

General Reserve 200.00
Debenture Redemption Reserve 4.74
Dividend (2017-18) 44.56
Corporate Dividend Tax 9.16
Surplus carried to Balance Sheet 750.68

An amount of B12.72 crore has been transferred to Securities Premium Reserve onconversion of FCCB.

PERFORMANCE REVIEW

Your Company recorded its best ever financial performance with Gross Sales of B3469.19crore (up 13% over the previous year) and

Profit After Tax (PAT) of B437.20 crore (up 68%). Sales volume also increased to522815 MT.

This was possible due to enhanced realisations on account of improved marketconditions enriched product mix higher capacity utilization (108.7%) better control onraw material prices and improved operating efficiencies. JK Paper continued its thrust onexpanding geographical reach and availability of its products by strengthening thedistribution network and responding to market needs by introducing new products. TheCompany's efforts at promoting plantation activity in the vicinity of its manufacturingunits resulted in a greater proportion of raw material requirement being met out ofmaterial sourced from shorter distances. This has sharply cut down the total deliveredcost of wood at our units. Both the Units continued to improve their operatingefficiencies to optimize utilization of most inputs. As a consequence EBIDTA went up by45% to B926.05 crore translating in a margin of 28.6% of net sales compared to 22.6%during last year.

The Company's improved performance and reduced leveraging enabled it to get a ratingupgrade to A + (stable) for long term debt from CRISIL and India Ratings and A1+ (shortterm) from India Rating. Lower debt and more efficient working capital management enabledthe company to reduce its finance costs by 14.4%. With these the Profit Before Tax stoodat B678.35 crore compared to B375.19 crore last year.

The Industry scenario both domestic and overseas the market and demand supply balanceand other operating conditions are elaborated in the Management Discussions and Analysissection.

ACQUISITION BY JK PAPER

During the year your Company together with its Subsidiary acquired The Sirpur PaperMills Limited (SPML). SPML products used to enjoy reputation and customer confidence overseveral decades. However beginning 2008-09 SPML started incurring losses and the entirenet worth was eroded by March 312014.

The Company had suspended its operations and some operational creditors made anapplication under the Insolvency and Bankruptcy Code (IBC) 2016. The said application wasadmitted by the Hon'ble National Company Law Tribunal (NCLT) Hyderabad.

With a view to protect over 2000 direct jobs and provide livelihood to more than tenthousand farmer families through plantation activities over a period of time theTelangana State Government had announced tailor made benefits for revival of SPML. On19-072018 the Resolution Plan submitted by JKPL and its Subsidiary was approved by theNCLT. The Company settled all the dues as per the Resolution plan and the management wastaken over on 01-082018 on making it one of the earliest successful resolutions in thecountry under the IBC Process.

Revival/reconditioning activities commenced at SPML which was shut for over 4 years onAugust 1 2018. SPML had 8 machines which produced a maximum of around 99000 TPA as itshighest production before the shut down during 2014-15. It was decided to revamp andmodernize four paper machines along with the pulp mill and phase out four smallermachines. With the modification SPML's capacity will be 136000 TPA. The paper machineswill be re-started in stages and the Mill is expected to be operational in the second halfof Financial Year 2019-20. The Company has invested B371 crore in the takeover of SPML.The Mill is also being reconditioned and revived at an additional cost of about B400crore.

This integrated pulp & paper unit has an advantageous geographic location in closeproximity of Peddavagu River raw material sources and Singareni Collieries the SirpurKaghaznagar railway station and is well connected to national highway No. NH-7 whichfacilitates cost effective transportation of raw material and finished goods to customers.With the location advantage modernised machines and the incentives offered by theGovernment of Telangana it is hoped that the Mill will become profitable in near future.

This acquisition will provide synergistic advantage to JK Paper both in terms of astrategically located manufacturing facility as well as access to raw material. It willmore than double JK Paper's uncoated printing & writing (white wood free) papercapacity and also supplement its product portfolio including some specialty products. Theacquisition will take the combined capacity for the Company to 591000 MT.

EXPANSION PROJECT

The Company commenced virgin fibre boards (VFB) production in the year 2005-06 with aninitial capacity of 60000 TPA at unit CPM which was enhanced to 90000 TPA and currentproduction is about 100000 TPA. This segment is growing at an annual compounded rate of12% and is amongst the fastest growing paper and board segments. This segment is expectedto maintain healthy growth rates in the coming years due to changes in organised retailand the quest for more eco-friendly aesthetic packaging.

Looking at this growing demand particularly in the high end VFB and to participate inthe market growth the Company had decided to set up a new Packaging Board facility alongwith an integrated chemical pulp mill at Unit CPM. Orders for critical equipments and someother areas have been finalised. The Packaging Board Project is likely to cost about B1900crore (net of GST). Once completed the capacity for VFB will increase to 270000 TPA alongwith a pulping capacity of 160000 TPA. The new project is likely to take 24 months fromzero date to commence production. Post completion of this project JK Paper will be thesecond largest producer of VFB in the country.

The Company also made several de-bottlenecking and cost optimising investments incritical areas like head box steam and power systems finishing equipment refinerschemical processing effluent discharge etc. in its existing facilities during the yeartotalling over B94 crore.

CAPITAL STRUCTURE

During the year under review remaining FCCBs of Euro 2.4 million were convertedresulting in increase in paid up Equity Capital of the Company from B 175.50 crore toB178.24 crore. The Company has issued 33500 rated unlisted secured redeemablenon-convertible debentures aggregating to B335 crore on private placement basis.

COMPLIANCE WITH SECRETARIAL STANDARDS

The applicable Secretarial Standards issued under Section 118 of the Companies Act 2013have been complied with.

AWARDS AND RECOGNITION

Our commitment towards Safety & Environment Quality & Operational Excellenceand HR practices continue to garner appreciation from various industry chambers and socialbodies. Some of the accolades and awards received during the year are as follows:

a. Awarded IPMA Paper Mill of the year 2017-18 by the Indian Paper ManufacturersAssociation (IPMA).

b. CII Energy Efficient Unit & Innovative Project at 19th National Award forExcellence in Energy Management.

c. Certificate of Appreciation at the National Energy Conservation Award 2018 in Pulpand Paper Sector by BEE Govt. of India.

d. Certificate of Appreciation for good practices in Quality system' at 6th FICCIQuality System Excellence Award for Industry 2018.

e. Certificate of Appreciation for Commitment in Learning & Development to achieveBusiness Excellence at 13th Edition Annual BML Munjal Awards-2018 by Hero CorporateService Private Ltd.

f. Winner of 12th TPM Circle competition in Jishu Hozen activity by CII TPM Club ofIndia.

g. Certificate of Appreciation along with 3-star rating in safety at SHE ExcellenceAward -2018 by CII Eastern Region Kolkata.

h. 17th Annual Greentech Safety Gold Award 2018.

i. Winner of CII Jishu Hozen Champion's Trophy 2018.

INDUSTRIAL RELATIONS

Industrial Relations at both units continued to remain peaceful and cordial throughoutthe year barring some minor incidents which were amicably resolved by continuous dialoguesand support by our existing unions worker's representatives local stakeholders anddistrict administration. We value the long association of our contractors and theirworkmen to sustain industrial harmony and create a positive work environment. Byintroducing various new work practices along with automation we have succeeded inenhancing manpower productivity & attendance to the optimum. We encourage continuousinteraction dialogues and participation of local villagers stakeholders in collaboratingvarious social intervention through our various CSR programs.

EXTRACT OF ANNUAL RETURN

An extract of the Annual Return as on 31st March 2019 in the prescribed form MGT -9 isattached as Annexure-1 to this Report and forms part of it.

PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS

The particulars of loans guarantees or securities and investments covered under theprovisions of Section 186 of the Companies Act 2013 are given in the financialstatements.

The Company has not made any provision during the financial year 2018-19 for thepurchase of or subscription for shares in the Company by trustees of JK Paper Employees'Welfare Trust for the welfare of the employees of the Company for the shares to be heldby or for the benefit of the employees of the company.

RELATED PARTY TRANSACTIONS

During the financial year ended 31st March 2019 all the contracts or arrangements ortransactions entered into by the Company with the Related Parties were in the ordinarycourse of business and on arm's length basis and were in compliance with the applicableprovisions of the Companies Act 2013 and SEBI (Listing Obligations & DisclosureRequirements) Regulations 2015.

Further the Company has not entered into any contract or arrangement or transactionwith the Related Parties which could be considered material in accordance with the Policyof the Company on materiality of Related Party Transactions. In view of the abovedisclosure in FORM AOC-2 is not applicable.

The Related Party Transaction Policy as approved by the Board is available on thewebsite of the Company.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Smt. Vinita Singhania retires by rotation and being eligible offers herself forre-appointment at the ensuing Annual General Meeting (AGM).

During the year under review Shri A.S. Mehta was appointed as "President& Director" of the Company w.e.f. 01.10.2018 till 31.3.2022 pursuant to theSpecial Resolution passed by Shareholders of the Company through Postal Ballot on28.09.2018. He has also been appointed w.e.f. 01.10.2018 (i) as whole time KeyManagerial Personnel and (ii) as an Additional Director of the Company by the Board ofDirectors to hold office as Director upto the date of the ensuing AGM of the Company.

Shri S.K. Roongta was appointed as an Additional Director of the Company w.e.f12.2.2019 to hold office as Director upto the date of the ensuing AGM of the Company.

Shri O. P. Goyal has ceased to be a Whole Time Director of the Company w.e.f.30.09.2018 upon completion of his existing term. He has also ceased w.e.f.30.09.2018 tobe a (i) Director and (ii) whole time Key Managerial Personnel of the Company. The Boardwishes to acknowledge the services rendered and valuable contribution made by Shri O.PGoyal during his tenure in office as Whole Time Director and in various other capacitiesfor over 3 decades.

Shri Wilhelmus Johannes Maria Wienk was nominated as a Nominee Director on theBoard of the Company pursuant to the Subscription Agreements for Foreign CurrencyConvertible Bonds (FCCBs) between the Company and three European DevelopmentInstitutions. Since these FCCBs have now been redeemed/ converted into Equity Shares ofthe Company and the said FCCB Holders are

not holding any equity shares of the Company he has resigned as a Director of theCompany w.e.f. 12.11.2018. The Board wishes to place on record its sincere appreciationfor valuable support and suggestions received from Mr Wienk during his tenure.

All the six Independent Directors of the Company namely Shri Arun Bharat Ram ShriM.H. Dalmia Shri R.V. Kanoria Shri Shailendra Swarup Shri Udayan Bose and Shri SandipSomany who were appointed by the members at the AGM held on 27th September 2014 underSection 149 of the Act for a term of five consecutive years are proposed to bereappointed by the Shareholders at the ensuing AGM of the Company by SpecialResolution(s) as Independent Directors of the Company to hold office for another term of(a) three consecutive years for Shri Arun Bharat Ram & Shri M.H.Dalmia (b) fourconsecutive years for Shri Shailendra Swarup and (c) five consecutive years for ShriR.V.Kanoria Shri Sandip Somany & Shri Udayan Bose w.e.f 23rd August 2019.

All the Independent Directors of the Company have given requisite declarations thatthey meet the criteria of independence as provided in Section 149(6) of the Companies Act2013 and also Regulation 16(1)(b) of SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 and that they are not aware of any circumstances orsituation which exist or may be reasonably anticipated that could impair or impact theirability to discharge their duties with an objective independent judgment and without anyexternal influence.

There was no change in Managing Director Chief Finance Officer and Company Secretaryduring the year under review. Shri Harsh Pati Singhania Vice Chairman & ManagingDirector of the Company received an honorarium of B4.60 lac for the period from 13thNovember 2018 to 31st March 2019 as an Advisor from The Sirpur Paper Mills Ltd. a stepdown subsidiary and a related party of the Company.

INTERNAL CONTROL SYSTEM

The Company follows a robust internal control mechanism across all offices plants andkey functions. There is a Corporate Internal Audit team consisting of qualifiedprofessionals and system experts. In addition services of external Audit firms and otherspecialized agencies are also availed as and when needed to further strengthen itseffectiveness. Regular internal audits are conducted to review the internal controlsystems and compliance thereof as per the annual audit plan approved by Audit Committee ofthe Board. The findings of the Audit team are periodically reviewed by the Audit Committeeand corrective actions are initiated. In addition the Company also follows a Compliancemonitoring software tool to capture status of all applicable statutory compliances online.

The Company has also developed a set of documented Risk Control Matrices for all majorfunctions and no material reportable weakness was observed during the year.

The Company also has a comprehensive budgetary control system in sync with itsStrategic Business Plan. Key performance targets are set for each Plant and product lines.The actual performance against these targets is periodically monitored and correctiveactions as needed are initiated.

CORPORATE SOCIAL RESPONSIBILITY

Your Company considers the community as its key stakeholder and is one of the foremostproponents of inclusive growth and has continued to undertake projects for overalldevelopment and welfare of the society in the fields of environment conservation ofnatural resources health education rural development and livelihood interventions etc.

The Company has a Corporate Social Responsibility (CSR) Policy in accordance with theprovisions of the Companies Act 2013 and rules made there under. The contents of the CSRPolicy are disclosed on the website of the Company.

Annual Report on the CSR activities undertaken by the Company during the financial yearunder review in the prescribed format is annexed to this Report as Annexure-2.

AUDITORS

(a) Statutory Auditors and their Report

M/s Lodha & Co. Chartered Accountants have been appointed as Auditors of theCompany to hold office from the conclusion of the 56th Annual General Meeting (AGM) heldin the year 2017 till the conclusion of 61st AGM of the Company to be held in the 2022subject to ratification of the appointment by the members at the respective AGMs. Howeverthe provision relating to ratification of such appointment by Members at every AnnualGeneral Meeting stands deleted w.e.f. 7th May 2018 by the Companies (Amendment) Act 2017and accordingly the said ratification is henceforth not required. The observations of theAuditors in their report on Accounts and the Financial Statements read with the relevantnotes are self explanatory.

(b) Secretarial Auditor and Secretarial Audit Report

The Board of Directors appointed Shri Namo Narain Agarwal Company Secretary inPractice as Secretarial Auditor to carry out Secretarial Audit of the Company for thefinancial year 2018-19. The

Report given by him for the said financial year in the prescribed format pursuant tothe provisions of Section 204 of the Companies Act 2013 and Rule 24A of SEBI (ListingObligations and Disclosure Requirements) Regulations 2015 is annexed to this Report asAnnexure-3. The Secretarial Audit Report does not contain any qualification reservationor adverse remark.

(c) Cost Auditor and Cost Audit Report

The Cost Audit for the financial year ended 31st March 2018 was conducted by M/s R.J.Goel & Co. Cost Accountants Delhi and as required Cost Audit Report was duly filedwith the Ministry of Corporate Affairs Government of India. The Audit of the Cost Recordsfor the financial year ended 31st March 2019 is being conducted by the said firm and theReport will also be filed with the Ministry of Corporate Affairs Government of India.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS

During the financial year under review the Company as Resolution Applicant along withits Subsidiary had acquired The Sirpur Paper Mills Ltd on 1st August 2018 pursuant tothe Order of the Hon'ble Hyderabad Bench of National Company Law Tribunal dated 19thJuly 2018 under the Insolvency and Bankruptcy Code 2016 which became a subsidiary ofthe Company.

MATERIAL CHANGES AND COMMITMENTS

The Company has finalized capital purchase orders for its proposed project at Unit CPM.The details of expenditure are given in the para on Expansion Project.

CONSERVATION OF ENERGY ETC.

The details as required under Section 134(3)(m) read with the Companies (Accounts)Rules 2014 is annexed to this Report as Annexure-4 and forms part of it.

PARTICULARS OF REMUNERATION

Disclosure of the ratio of the remuneration of each Director to the median employee'sremuneration and other requisite details pursuant to Section 197(12) of the Companies Act2013 read with Rule 5 (1) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 is annexed to this Report as Annexure-5. Further Particulars ofEmployees pursuant to Rule 5(2) & (3) of the above Rules form part of this Report.However in terms of provisions of Section 136 of the said Act the Report and Accountsare being sent to all the members of the Company and

others entitled thereto excluding the said particulars of employees. Any memberinterested in obtaining such particulars may write to the Company Secretary. The saidinformation is also available for inspection at the Registered Office of the Companyduring working hours.

CORPORATE GOVERNANCE

Your Company reaffirms its commitment to the highest standards of corporate governancepractices. Pursuant to Regulation 34 read with Schedule V of SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 Management Discussion and Analysis CorporateGovernance Report and Auditors Certificate regarding compliance of conditions of CorporateGovernance are made part of this Annual Report.

The Corporate Governance Report which forms part of this Annual Report also covers thefollowing:

a. Particulars of five Board Meetings held during the financial year under review.

b. Policy on Nomination and Remuneration of Directors Key Managerial Personnel andSenior Management including inter alia the criteria for performance evaluation ofDirectors.

c. The manner in which formal annual evaluation has been made by the Board of its ownperformance and that of its Committees and individual Directors.

d. The details with respect to composition of Audit Committee and establishment ofVigil Mechanism.

e. Details regarding Risk Management.

f. Dividend Distribution Policy.

g. Details relating to the constitution of Internal Complaints Committee under theSexual Harassment of Women at Workplace (Prevention Prohibition and Redressal) Act 2013.

SUSTAINABILITY AND BUSINESS RESPONSIBILITY REPORT

Pursuant to Regulation 34(2)(f) of the SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 the Sustainability and Business Responsibility Report ofthe Company for the year ended 31st March 2019 is given in a separate section and formspart of this report.

CONSOLIDATED FINANCIAL STATEMENTS

During the financial year under review The Sirpur Paper Mills Limited became yourCompany's subsidiary.

The consolidated financial statements have been prepared by the Company in accordancewith the applicable Accounting Standards. The Audited consolidated financial statementstogether with Auditors' Report form part of the Annual Report.

A report on the performance and financial position of each of the subsidiaries &joint ventures included in the Consolidated Financial Statements is presented in aseparate section in this Annual Report. Please refer to AOC-1 annexed to the FinancialStatements in the Annual Report.

Pursuant to the provisions of Section 136 of the Act the financial statements of theCompany Consolidated Financial Statements along with relevant documents and separateaudited accounts in respect of subsidiaries are available on the website of the Company.

DEPOSITS

Pursuant to the approval of members by means of a Special Resolution at the AGM held on27th September 2014 the Company is accepting deposits from the public in accordance withthe provisions of the Companies Act 2013 and rules thereunder.

The particulars in respect of the deposits covered under Chapter V of the said Act forthe financial year ended 31st March 2019 is annexed to this Report as Annexure-6.

DIRECTORS' RESPONSIBILITY STATEMENT

As required under Section 134(3)(c) of the Companies Act 2013 your Directors statethat:

a. in the preparation of the annual accounts the applicable accounting standards havebeen followed along with proper explanation relating to material departures if any;

b. the accounting policies have been selected and applied consistently and judgmentsand estimates made are reasonable

and prudent so as to give a true and fair view of the state of affairs of the Companyat the end of the financial year and of the profit of the Company for that period;

c. proper and sufficient care has been taken for the maintenance of adequate accountingrecords in accordance with the provisions of the said Act for safeguarding the assets ofthe Company and for preventing and detecting fraud and other irregularities;

d. the annual accounts have been prepared on a going concern basis;

e. the proper internal financial controls to be followed by the Company have been laiddown and that such internal financial controls are adequate and were operatingeffectively; and

f. the proper systems have been devised to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating effectively.

ACKNOWLEDGEMENT

Your Directors acknowledge the unstinted support and cooperation received from theCentral Government State Governments Shareholders participating Financial Institutionsand Banks Customers Dealers and Suppliers.

The Board wishes to record its highest appreciation of the total commitment dedicationand hard work put in by every employee and member of the Team JK Paper.

On behalf of the Board of Directors
New Delhi Bharat Hari Singhania
Date : 8th May 2019 Chairman