India is expected to be the fifth largest economy by year 2025 Indian economy growing at around 8% Consistently, driven by strong industrial and

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2 India is expected to be the fifth largest economy by year 2025 Indian economy growing at around 8% Consistently, driven by strong industrial and agricultural growth. As against 6% CAGR in GDP growth during , the estimated CAGR for the next 20 years is about 7.3%. Average growth for next 5 years estimated at 7.9% (CMIE) Strong GDP growth expected to result in higher demand growth for paper and paperboards Inflation under control, despite increase in fuel prices Rupee appreciation over dollar Exports becoming uncompetitive, partly offset by cheaper imports Infrastructure development speeding up Significant change in rural economy Greater access to international technology and services. Increased Quality and cost consciousness Changing demographic profiles Higher young population having large disposable income Services sector growth Increased demand for industrial and consumer goods

3 Predominant Domestic consumption. Large market 1.1 billion and growing. Literacy rate is moving up to touch 75% by Printing and packaging industry growing at 14% CAGR. 7.5 kgs Per capita consumption expected to touch 10kgs by paper mills Mil MT paper consumption. The total paper industry size will be around 38 million tpa by year 2025, out of which about 7 million tpa will be paperboards Growing at an avg of 10% across segments. Tissue usage expected to increase current growth 20% PA. Quality Packaging - Opportunity for value added boards

4 Growing size of Indian paper industry may attract international players to invest in India GDP Growth Indian economy expected to scale new heights in the long term India Paper industry also expected to grow faster (replicate china paper industry growth story) Growth of Economic Potential By 2050 China USA India Japan Brazil Russia UK Germany France Italy Economic power in terms of GDP (USD tril.) (Source: Goldman Sachs)

5 Domestic Paper Industry- Forecast Growth in Indian Paper industry is expected to accelerate CRISINFAC estimates the growth at 7.6% in the next 5 years Branded copier, coated paper and duplex board segments will grow at a faster pace

6 An increase in consum ption by one kg per capita will lead to an increase in demand of 1 million tons. Composition & Structure Paper, Paperboard & Newsprint Agroresidue Based 31% Waste Paper/Se condary Fibre Based 30% Wood Based 39% Per capita consumptio n 8.3 Kg Operating Capacity Production Consumption 8.50 Million Ton 7.30 Million Ton 8.30 Million Ton

7 Demand Based Market Segmentation Demand Growth for Paper among Fastest in the World Share of Coated Woodfree in Printing/Writing increasing rapidly Packaging Board demand growth is led by High-end Bleached Boards 4% 20% 30% 46% W&P Industrial Paper Specialty Newsprint

8 Arena Growth Drivers - Paper Economic growth Targeted growth of 12% for manufacturing sector Increasing literacy rate - 90% literacy level by Increasing government spending on education Population growth Changing demographics Higher urbanization (2.5% growth); higher proportion of young adults Increasing living standards Lifestyle changes & media growth Demand for high-quality magazines Increase in advertising and direct mailers Increasing multi-color printing Printing publishing outsourcing

9 Fine Papers Current Status Outlook Market size of 28 lactpa (2.8mil ) Broadly categorized into: Segment Demand tpa Growth % Creamwove % maplitho/ Hi Bright 7.0 6% Copier % Coated Papers % Major usage segments Segment GSM Key parameters Publishg - higher edn Availability Publishg - primary edn Smoothness, Colour ptg Diaries Whiteness, Bulk Stationeries/Notebooks Shade, Opacity Cont stationery Reel quality Comml Printers Whiteness, Smoothness, Opacity, Color ptg Envelopes Strength, Whiteness Bal Sheets Whiteness, Opacity

10 Growth of Paper Supply/Demand in India Total demand growth in is expected to be 6.8 million tons. Supply is estimated to increase by about 6 million tons during the same period (depends on investments) Printing and writing papers and containerboard are expected to grow most. There are less than 1.5 million tons of projects in the pipe line. The planning gap during the next 15 years would be well about 4. 5 million tons. Source: JP Consulting

11 Arena Growth Drivers - Paperboard Overall economic growth High growth industries Pharma Apparels Food FMCG Organized retail Communication: Mobile, Phone cards Liquid packaging, Disposable paper cups Boom in Construction industry

12 Arena Challenges: Pressure on the selling prices in the market place Cheaper imports on account of sharp rupee appreciation Lower tariffs International players trying to increase their presence in India China will become net exporters with massive capacity addition, which may further destabilize the prices in the region Increasing input prices Scarcity for wood and wastepaper in the country and consequent price increases Import pulp and wastepaper prices on the rise Chemical as well as fuel prices increasing year by year Responses: Customer engagement, quality, faster delivery Plantations, pulp mill expansions

13 Dynamics of Change Shift in Industry Structure Shift in Market Place Industry size, consolidation Standardization of Industry Availability of raw material Minimum efficient scale of production Asset Quality Quality Benchmarking Environmental considerations and standards Shut down of smaller, inefficient producers Rising customer expectation Imports to set the quality benchmarks Players to offer a wide range of products Product differentiation through Functional Brand Building Service Differentiation through wider reach and Just in Time delivery Response time to crash Modernization of existing assets and capital needs

14 Capacity Addition Paper capacity addition by almost all major players Total capacity announced 2Mil MT tpa, Rs Cr (USD35 billion). Expected actualization 50% in 3 to 5 years Paperboard capacity Addition announced 2 lac tpa, mostly in lower end recycled boards May create excess capacity in the short term Medium term projections demand will continue to be above supplies

15 (Capacity='000TPA) Capacity Addition For Pulp Capacity Expansion (Source IPMA) (Capex=INRBn) APPM BILT CENTURY HPC ITC JKPL OPIL RAMA SPB SIRPUR STAR TNPL WCPM KHANNA Capex Capacity Addition

16 Capacity Addition - Paper Total 20.05

17 Capacity Addition - Paperboard

18 Cost Structure

19 Raw material - Forecast

20 Wood

21 Wood

22 Plantations in India 270,000 Hectors of land under plantations for pulp wood. Main species Eucalyptus. ITC leads the pack with HC and planning to step it up to 150,000 Hc by Avg annual growth Hc. Yield 17.5 MT/PA per Hc. With land availability issues, growth of plantation wood will be a major problem in India. Import of pulp logs/ wood chips is an option mills are considering. By 2020 Pulp mills in India have to consider plantations out side India and import of logs/wood chips on regular basis to meet raw material demand.

23 Pulp

24 To sum up (capacity changes in million tonne) :- Market Pulp Mill Closures -NBSK BHKP Others Total Market Pulp Mill Expansions Net Fibre Deficit BHKP SBSK Others Total Net total Paper Mill Closures - Already happened Already announced Total Expansions announced Asia Europe Latin America North America Australia & NZ Africa & Middle East Total Net total

25 India Fiber Balancing Mil MT/PA Paper Consumption Pulp Production Waste paper Dom Waste Paper imp Imported Pulp Raw material Base: Wood & Bamboo 28%,Agri Residue 30%, Recycled Fiber 33%, Imp Pulp 9%

26 Wastepaper

27 Wastepaper

28 WOW Wealth out of Waste ITC-PSPD have set up domestic waste paper collection: - To reduce dependence on imports - To provide cost competitive raw marital - To reduce landfill & increase recycling - To help protect the environment POTENTIAL 8.3 Million MT paper/board consumption P.A. Domestic Recovery only 1.3 Million MT- Imports 3 mil MT PA Therefore over 7 Million MT can be further recovered Huge Potential!!! HOUSE HOLD WASTE 6128 Cr PA potential!! - Survey by Cyber Media Group Nov 19 Used paper is not waste-let us reuse & recycle every bit of it

29 WOW Future Challenge & Absolute Need!! Paper consumption expected to touch 16 Million MT by 2015 in India. Capacity likely to double and more. Where is the Raw Material????. By 2020 The paper demand in India would touch 22 mil MT PA!!!. How will India provide raw material??. Recovered paper is the only answer to ever increasing raw material requirements of paper industry. ITC Requests Global Paper and Pulp Fraternity to support the WOW Initiative to protect Environment and Improve recycling. Used paper is not waste-let us reuse & recycle every bit of it

30 Performance of Major Domestic Players Ballarpur Industries Sabah Forest Industries, Malaysia (SFI) was acquired on 16th March 2007 Capacity of 1.44 lac tpa, with pulp mill and forest concessions Investment of USD 260 million Restructuring plan under implementation 3 units (Bhigwan, Ballarpur & Kamalapuram units will be transferred to a foreign subsidiary company for Rs 1950 Cr, which will be used to pay off the high cost loans and future expansion plans Expansion plans 3 lac tpa paper capacity at Rs 1800 Cr No mention about pulp mill modernisation/ expansion Paper segment - Dec 07 quarter Top line dropped by 4% and bottom line dropped by 13% sequentially Top line flat and bottom line dropped by 6%, against previous year

31 Performance of Major Domestic Players JK paper Commercial production in the new paperboard plant (60000 tpa) was started in Oct 07 Currently operating at about 2000 tpm During the Dec 07 quarter, top line grew by 3% and the bottom line (PBT) dropped by 47%, when compared to the corresponding quarter of the previous year TNPL The pulp mill modernisation and expansion plan implementation is delayed by 6 months (revised to Mar 08) During the Dec 07 quarter, top line growth was 8% and bottom line growth about 19%, against the previous year, before exceptional items. But sequentially, top line dropped 3% and bottom line dropped 15%

32 ITC LIMITED ITC is the Number 1 paper company in India Paper and Packaging segment revenue has crossed BILT s revenue, the industry leader so far ITC has entered the elite group of top 100 companies globally, as per PPI survey 2007 Only Indian company among top th rank globally 18 th rank among Asian companies 10 th rank among Asian companies excluding Japan

33 ITC Part of a large multi product and services conglomerate ITC Limited with USD6 Billion turn over. Current Capacity 510,000MT. Target to Touch over a million MT by Product Segments: Paperboards, WF Paper, Cig Tissue and Specialties. Future Products: Tissue and Coated Papers. Integrated operations with 250,000TPA pulping capacity, which will go up by TPA by 2010 taking the cap to 550,000TPA.

34 Total plantation through social and farm forestry, so far covered more than ha Vision of 1 lac ha will be achieved in the next 2 years Self sufficiency even with doubling pulp mill capacity Focus on core area to reduce costs Growth Plantation Growth Ha

35 R & D Plantations Leveraging R&D to ensure availability of quality wood to PSPD and enhance value to farmers In house development of Clonal saplings improved quality, yield, production cycle ITC R&D Centre, Hyderabad New species, nursery management, hybridisation, Agronomy Specific targets - Reduction in nursery time (from 6 to 3 months), Enhanced Yield by 20%, Pulp yield = 54% and Lignin = 18%

36 Mega Project Government of AP has agreed land allotment At Nellipakka, very close to Bhadrachalam AP Govt. is acquiring 2700 acres for industrial estate, out of which 1500 acres is for ITC Expected possession of land in first quarter of Capacity being scaled up to 3 lac tpa, with pulp capacity Project Funding Cleared and Technical Discussions ON. Raw material availability is being restudied in view of the expansion plan of competition

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