STAR PAPER MILLS LIMITED ANNUAL REPORT 2005-2006 CHAIRMAN'S REPORT There is no question that 2005-6 was an eventful year at Star Paper. While we remained committed to enhancing operational efficiencies and improving our financial performance, we clearly had our share of challenges during the financial year under review. A runaway increase in raw material prices on account of the rising demand for wood, strengthening crude prices, which in turn spiked fuel oil prices and the shut of PM 2 our - largest paper machine - for retrofit, were the main contributors to a downturn in our fortunes. Star Paper succeeded in increasing average product realisation by 7.5 per cent and was able to increase gross turnover despite the handicaps mentioned above. However, these efforts were not enough to offset the impact of adverse factors and the net result was a decline in the bottomline. But for the stringent cost control efforts, the situation could have been a lot worse. Although in the current year, I do not foresee any respite from both raw material and fuel oil prices, I will take this opportunity to tell you why, despite these challenges, I remain optimistic about our future. Our Rs. 85 cr modernisation and expansion programme, to be completed in 2006-7, will result in improved performance down the years. This programme envisages investments that will not only strengthen our efficiencies in managing costs but also reinforce our environmental commitment. At Star Paper, we are optimistic that the demand for the Company's products is expected to increase in line with the country's economic growth, resulting in ample Opportunities for growth. I seek your continued support in facing the odds and scripting a success story over the coming years. Sincerely, G.P. Goenka Chairman and Wholetime Director