t h e p o w e r o f f o c u s

Yash Papers LimitedAnnual Report

2004

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ContentsContents

Forward looking statement

In this Annual Report we have disclosed for-ward-looking information to enable investorsto comprehend our prospects and takeinformed investment decisions. This reportand other statements - written and oral - thatwe periodically make contain forward-lookingstatements that set out anticipated resultsbased on the management's plans andassumptions. We have tried wherever possi-

ble to identify such statements by usingwords such as 'anticipate', 'estimate', 'expects','projects', 'intends', 'plans', 'believes', andwords of similar substance in connection withany discussion of future performance.

We cannot guarantee that these forward-looking statements will be realised, althoughwe believe we have been prudent in assump-tions. The achievement of results is subject torisks, uncertainties and even inaccurate

assumptions. Should known or unknown risksor uncertainties materialise, or should under-lying assumptions prove inaccurate, actualresults could vary materially from those antici-pated, estimated or projected. Readersshould bear this in mind.

We undertake no obligation to publicly updateany forward-looking statement, whether as aresult of new information, future events orotherwise.

Strategy focus 00 Product focus 00 Service focus 00 Transparency focus 00 Reliability

focus 00 Performance focus 00 Executive vice-chairman's message 00 Managing Director's

review 00 Management's discussion and analysis 00 Directors' Report 00 Annexure to

Directors' Report 00 Report on Corporate Governance 00

1Yash PapersWhat makes

*Incorporated in 1981, located in Faizabad (East Uttar Pradesh)

different

Yash Papers Limited* is notjust another paper

manufacturing company; it isone of the largest modernagro residue-based paper

brands in India.Yash Papers hasdemonstrated that its niche

is profitable; in 2004, itreported a revenue of

Rs 2584 lacs and a post taxprofit of Rs 158.62 lacs.

Yash Papers is not just anyconventional paper

manufacturer that usesplantation wood as raw

material; it uses agriculturally-derived bagasse and wheat

straw as its inputs.

Yash Papers' may be anarrow product focus but

is thinking big; it isplanning an ambitious

Rs 8500 lacs greenfieldproject to manufacture

23100 TPA of MG gradeposter paper.

Yash Papers has adopted a strategy opposite

to the usual large volumeapproach; it has selected to

specialize annually in themanufacture of 16,000 tonnes of a

value-added kraft range thatcomprises the hard tissue, wrapping and packaging/

stationery grades.

Yash Papers does not make a product and expect the market to buy it; on the

contrary, its principal strength isa niche product focus that

leverages ongoing Research andDevelopment into how kraftpaper can be customised for

specific applicationrequirements.

Yash Papers is notmarketing its products onlywithin India; its growinginternational footprintextends to the ASEAN,Australia and Africa.

Yash Papers is aprogressive manufacturer;

it possesses a captivepower generation facility,

an effluent treatment plantand a well-equipped

quality control laboratory.

Yash Papers

32

Over the last few pages,

you read how

Yash Papershas protected consumer

and customer interests in

the marketplace. In the

next few pages, read how

the Company's niche focus

made this possible.

Ved Krishna, MD.

Instead of becoming

a small and

insignificant player

in a large

commodity paper

segment, we prefer

to emerge as a large

player in a small

niche.

KraftThe dull brown paper we

only used in wrapping our

schoolbooks when we were

young.

No longer.

Because over the last few years, kraft

paper has been reinvented in a stylish,

understated and cost-effective kind of

way.

And is being increasingly used as a

complement with a number of upmarket

everyday brands.

At Yash Papers, we are proud to have had the

foresight to specialise in the manufacture of various

kraft grades.

And make this reinvention possible.

Kraft

pizza packagingEnvironment-friendly

A WIN-WIN FOR CONSUMER,

CORPORATE AND COMMUNITY FROM

YASH PAPERS

The next time you order a burger or a pizza

across a KFC or Pizza Hut counter, check the

brown of the packaging when the loaded tray

comes to you.

It is kraft and it comes from Yash Papers.

Over the last few years, a number of product

managers in India’s FMPG (fast moving perishable

goods) industry have turned to kraft for their packaging

requirements.

For a number of reasons.

It is aesthetic. It is durable. It is cost-effective. More

importantly, when made from bagasse-based material, it

is environment friendly.

Helping reconcile the interest of the consumer and the

corporate with that of the community.

pizza packaging

Effective

STABILITY AND RESPONSIBILITY FROM YASH

PAPERS

Over the last few decades, subjects have changed,

curricula have evolved and teaching styles have

improved.

But kraft continues to be the preferred wrapping for text

and exercise books for most students across India.

This longstanding preference for kraft among school

managements and students has been based on a responsible

understanding of the following priorities:

• The need to reconcile differences in the economic

backgrounds of students with standardised packaging.

• The need to select a paper variety that evokes a sense of

stability and responsibility in the educational sector.

At Yash Papers, this market for kraft appears optimistic in view

of the increasing national literacy from 52.21 per cent in 1992 to

65.38 per cent in 2001 and the projected coverage of every

Indian with at least eight years of education by 2010 (Source:

Department of Education, Government of India).

Ensuring the integration of kraft into student lives well into the

long-term.

school bookpackagingschool bookpackaging

In-movie

USUAL MATERIAL FOR POPCORN

PACKAGING FROM YASH PAPERS

There was a time when one walked into a film

theatre with a ticket and a pretty young lady for

company.

Times have changed.

Over the last few years, a packet of popcorn has

emerged as the third accompanist.

Across more than 12000 movie halls in India,

popcorn now comes inevitably in kraft paper

bags. Unlike plastic, kraft is environment-friendly

and helps retain the flavour of popcorn for

longer.

Ensuring that as movie watching increases, the

enhanced offtake of kraft will continue.

entertainmententertainment

freshnessRetaining

Roses are grown on fondness,

fertiliser and fresh air, and

protected by Yash Papers

When a rose is carefully

plucked in New Zealand, the

best growers depend on

wrappers from Yash Papers to

preserve the fruits of their hard

work.

For two important reasons.

Yash Papers' specialised wrapper quality

does two things: it aerates the petals with

adequate oxygen and prevents the moisture in

the flower from extending to sogginess.

This enables the rose to retain much of its

freshness not just up to the point of being delivered

but for days in the vase thereafter.

Enhancing value for the grower and the consumer.

freshnessRetaining

ROSES ARE GROWN ON

FONDNESS, FERTILISER

AND FRESH AIR, AND

PROTECTED BY YASH

PAPERS

When a rose is carefully plucked

in New Zealand, the best growers

depend on wrappers from Yash

Papers to preserve the fruit of their

hard work.

For two important reasons.

Yash Papers’ specialised wrapper quality

does two things: it aerates the petals with

adequate oxygen and prevents the moisture in

the flower from extending to sogginess.

This enables the rose to retain much of its

freshness not just up to the point of being delivered

but for days in the vase thereafter.

Enhancing value for the grower and the consumer.

freshness

Protecting

LIC’S POLICIES ARE PROTECTED IN

PACKAGING BY YASH PAPERS

When the Life Insurance Corporation of India

needed a packaging solution for its insurance

policies, it eventually zeroed in on material made

by Yash Papers.

For a specific reason.

The executives at India’s largest personal

insurance company recognised the strength

behind the back-to-back pasting of two paper

sheets with cross-cords between them.

Repeated use demonstrated that these paper

varieties resisted wear and tear even when

subjected to heat and pressure.

As a result, Yash Paper’s material has emerged

as the preferred packaging across more than 5.8

million policies.

Protecting the interests of policyholders.

the protectorthe protector

Fighting

THE RIGHT COLOUR AND THE RIGHT GRAMMAGE

FROM YASH PAPERS

Some years ago, when bidi manufacturers in rural India

began to be hit by a wave of counterfeit brands, they

responded by enlisting the help of Yash Papers.

In a specific kind of way.

They worked with Yash Papers to customise a limited

edition of different wrapper shades that could not be

replicated in a hurry. As a result, while counterfeiters

mastered the fine art of replicating the brand name and

logo, they found the replication of the wrapper colour

far more challenging.

What transpired was this: the consumer conducted a

careful examination of the wrapper’s colour and

grammage, even a slight variation in which was enough

for the brand to be pronounced as fake.

As a result, the successful initiative of Yash Papers’

Research and Development team translated into a

competitive difference in the marketplace.

Protecting the wellbeing of its customers and their

consumers.

counterfeitscounterfeits

54 Strategyfocus

Stabilityfocus

Specialisationfocus

Cost-competitiveness

focus

Substitutionfocus

In a narrow

margin

business, most

manufacturers

reduced costs to

stay

competitive;

Yash Papers

focused on

value-for-

money solutions

to take its

business ahead.

Stability focus

In a cyclical business dependant on a

high capacity utilisation, most companies

invested in waste paper raw material as

their insurance; Yash Papers invested in

the agriculturally-derived bagasse.

The Company reinforced this

sustainability-enhancing decision by

selecting to locate its manufacturing

facility in Faizabad, amidst more than 20

sugar mills within a radius of 200 kms.

This abundant availability of raw material

helped the Company achieve a high

utilisation and make periodic increments

in its installed capacity in exchange for

better economies of scale.

Yash Papers reinforced its raw material

proximity with a 2.5 MW cogeneration

investment when power was still easily

available in UP in 1996. Eight years

later, while competitors suffered from

outages, Yash Papers enjoyed

uninterrupted power availability as well

as a power cost that continues to be one

of the lowest in the industry.

Specialisation focus

In a volume-driven business, most

companies prefer to make standard

grades; Yash Papers singularly focused

on the manufacture of grades

customised around specific applications.

The result: the Company commanded

more than 50 per cent share of the low

grammage unbleached kraft paper

category, edging out its larger wood-

based competitors.

Substitution focus

In a resource-intensive business, much

of the business growth was derived from

an investment in structural capital; Yash

Papers preferred to invest in intellectual

capital and enter new products. For

instance, when the Company perceived

that kraft was being imported due to the

absence of a cost-effective wet-strength

paper variety, it addressed the

opportunity with product development.

The result: a cost-effective customer

solution and a first-mover advantage in a

growing market.

Cost-competitiveness focus

In a narrow margin business, most

manufacturers reduced costs to stay

competitive; Yash Papers focused on

value-for-money solutions to take its

business ahead. This is reflected in its

core strategy: the Company selected low

cost and abundantly available bagasse

as its principal raw material, integrated

backwards into the captive generation of

power and invested in multi-feed

capability to circumvent unexpected raw

material price increases. The result:

protected profitability in cyclical

markets.

76Product

focus

Over time, the

Company

provided an

alternative to

imported

wood-based

paper,

imparting

need-based

properties and

exporting to

new markets.

AT YASH PAPERS, A TOP-DOWN

APPROACH ENABLED IT TO DIRECT

ITS RESOURCES TO A FOCUSED

INDUSTRY SEGMENT, UNDERSTAND

CUSTOMER NEEDS CLOSELY AND

DEVELOP SOLUTIONS AROUND

THEM.

Take for instance the persistent staining

of car windows and windscreens during

spray painting. Yash Papers developed a

special quality of paper that, when

applied, stayed impervious and retained

its strength while wet. As a result, the

application of the Company's products in

Australia has helped it capture a growing

share in the paints industry in that

country.

Single product segment focus

A number of paper companies focused

on the kraft segment as one of the many

that they are present in; Yash Papers

focused singularly on it, emerging as a

specialist in the process. A number of

companies delivered products; Yash

Papers customised industrial and

packaging solutions. More specifically,

Yash Papers chose to specialise in the

unbleached kraft paper segment, where

the larger players found it uneconomical

to be present.

Application-based manufacturing

focus

A number of manufacturers preferred to

make generic grades within their

segments of presence; Yash Papers

consciously concentrated on creating

products around specific applications. To

do so consistently, the Company

collaborated closely with its end users to

develop products based on their ongoing

and emerging requirements. Over time,

the Company graduated to the

manufacture of hard tissues (18-30

GSM), wrapping grades (30-60 GSM)

and packaging /stationery grades (60-80

GSM), which not only delivered relevant

consumer solutions but also delivered a

stronger profitability over the commodity

varieties.

Specialised product focus

A number of manufacturers simply fed

existing demand; Yash Papers redefined

product applications and created new

markets. Over time, the Company

provided an alternative to imported

wood-based paper, imparting need-

based properties and exporting to new

markets. As a result, Yash Papers

became India's leading manufacturer of

low grammage unbleached kraft paper,

enjoying a market share of 50 per cent.

Single product segment focus

Application-based manufacturing focus

Specialised product focus

Servicefocus

The Company

focuses not

just on the

creation of

superior

products, but

their

marketing and

onward

servicing.

AT YASH PAPERS, WHAT THE

COMPANY DELIVERS IS DERIVED

THROUGH MANUFACTURE; HOW IT

RETAINS CUSTOMERS IS ACHIEVED

THROUGH BETTER SERVICE.

The Company focuses not just on the

creation of superior products, but their

marketing and onward servicing,

reinforced through the following:

• A willingness to customise products

in line with evolving customer

requirements - and not vice versa - in a

commoditised business.

• An on-time delivery dovetailed with

the production schedule of the customer.

• An ongoing liaison with dealers and

customers - compulsory feedback sought

within two weeks of all despatches - to

act upon their concerns.

• An understanding of dealer

knowledge leading to superior customer

service.

• A marketing exposure to employees

from various organisational functions.

As a result, repeat business increased

from 13088 MT in 2002 to 14548 MT in

2004; besides, not less than 13 per cent

of the Company's income was derived

from any single Indian geographical zone,

indicating a broad national presence.

98

Transparencyfocus

A two-layered

management

hierarchy

encourages

direct problem

solving and the

elimination of

unproductive

delays and

communication

gaps.

AT YASH PAPERS, TRANSPARENCY

IS REFLECTED NOT JUST IN THE

WAY THE COMPANY SHARES

PROFITS WITH THOSE WHO HELP

GENERATE IT, BUT ALSO IN AN

ADHERENCE TO LAWS IN A

BUSINESS WHERE MOST

UNORGANISED PLAYERS ESCAPE IT.

The Company's practices are designed

to promote integrity and transparency

through the following initiatives:

• A flat organisational structure that

facilitates an unfettered information flow

across all organizational tiers, resulting

in a greater ownership of responsibility

and accountability.

• A two-layered management hierarchy

comprising operators and managers,

which encourages direct problem solving

and the elimination of unproductive

delays and communication gaps.

• A participatory approach to decision-

making at all organizational levels,

resulting in the rapid development of in-

house managers.

• A fair appraisal system, which takes

into account relevant information and

allows every employee to recognize the

parameters on which he or she has been

evaluated.

• A commitment to adhere to the

applicable laws of the land.

• A blemishless debt servicing record,

resulting in a sound relationship with

financial institutions.

• The sharing of the production and

sales data for the preceding day,

incentivising enhanced performance.

This commitment to conduct business

the right way has translated into a fair

credit assessment with banks leading to

the sourcing of low cost Rs 5667 lacs of

debt from financial institutions for its

proposed expansion.

1110 1110

1312 Reliabilityfocus

Even as

Yash Papers

concentrates

on enhanced

volumes, its

primary source of

competitiveness

remains product

quality, which

translates into a

price premium

and repeat

business.

AT YASH PAPERS, WE DEVELOP

PAPER GRADES IN THE KNOWLEDGE

THAT NOT JUST OUR BUSINESS,

BUT THAT OF OUR CUSTOMERS

DEPENDS ON THE QUALITY BEING

DELIVERED BY US.

This is being amply demonstrated by the

trend in the business of decorative

laminates. To ensure that the

transported sunmica sheets reach the

user's end unscratched, a protective

kraft sheet is inserted between. The

stronger this sheet, the cleaner the

laminate. Over the years, an increasing

number of sunmica manufacturers have

turned to Yash Papers' kraft products for

reaching products to their customers just

the way they had been manufactured.

Strengthening reliability through

quality

Yash Papers does not see itself as a

volume-led player, but a quality-directed

one. So even as it concentrates on

enhanced volumes, its primary source of

competitiveness remains product quality,

which translates into a price premium

and repeat business.

Improving reliability through

providing solutionsYash Papers does not see itself as a

vendor for its customers, but a partner.

Customers can trust Yash Papers to

create solutions around their precise

requirements, derived from its deep

understanding of the product structure

and customer requirements.

Cost effectivenessYash Papers' R&D initiative is not only

focused on product quality but a lower

delivered cost. This 'double play' has

helped it emerge as the partner of first

recall among a growing community of

customers.

Strengthening reliability through quality

Improving reliability through providing solutions

Cost effectiveness

1514Performancefocus

YASH PAPERS WENT INTO THE

MANUFACTURE OF KRAFT PAPER

WITH AN ANNUAL INSTALLED

CAPACITY OF 1,940 TONS IN 1983.

SUPERIOR OPERATIONAL

PERFORMANCE HELPED GENERATE

A SURPLUS THAT WAS INVESTED IN

SUCCESSIVE MODERNISATION AND

EXPANSION. THIS GREW THE

COMPANY'S CAPACITY TO 16,000

TPA (WITH AN EXPANSION PLAN

EXPECTED TO TAKE IT TO 39100

TPA).

This performance orientation is the

culmination of a number of initiatives - a

specialised product focus, the drive to

serve dealers and customers and a

motivation to provide superior customer

solutions. These initiatives enabled the

Company to carve out a niche for itself

in a fiercely competitive segment.

Incentivised performance

Yash Papers created an incentive

scheme to inspire every employee to

deliver his best. The Company's

production and sales figures form the

basis of the performance against a pre-

agreed target, ensuring that incentives

are based on joint and not individual

performance.

Improving employee competence

At Yash Papers, innovative training

programs - guru-shishya - facilitate a

cross-breeding of competencies, helping

to create a multi-skilled organisation.

The Company also provides financial

training for members in non-financial

functions, creating a cost consciousness.

This intellectual investment is helping

create a motivated workforce, catalyzing

performance and arresting attrition.

Cost control

Yash Papers was faced with two options

when bagasse prices increased due to a

poor sugarcane crop in 2003: restrict its

production or change its raw material

mix. The Company selected the latter; it

reinforced bagasse with wheat straw,

achieving a better quality at lower

prices. Besides, it leveraged its

cogeneration facility to reduce its

dependence on the state electricity grid.

Both initiatives translated into a better

operating margin at a time when margins

within the paper industry remained

relatively flat.

Controlling wastages and rejects

Yash Papers has progressively

implemented quality control

mechanisms, reflected in an automated

on-line quality control system (QCS) on

one of its paper machines. This quality

control mechanism encompasses every

manufacturing stage from raw material

procurement and storage to the paper

production and dispatch. This

comprehensive coverage has helped

minimize internal and external rejections,

enhancing performance.

Better dealer management

Yash Papers has leveraged robust dealer

relationships leading to regular and

predictable offtake, timely payments and

reduced bad debts.

Fiscal discipline

Yash Papers has demonstrated a tight

financial control in a competitive

business. For instance, it renegotiated

the cost of its term loans and has

reduced interest outflow from 3.6 per

cent of turnover to 2.8 per cent (2004).

Besides, it negotiated stronger trade

terms and reduced expenses to

efficiently manage its working capital.

This performance focus translated into a

sales CAGR of 6.68 per cent across five

years and profits by 6.90 per cent over

the same period.

As a result, in 2004, even as sales

increased only 8.1 per cent, pre-tax

profit jumped 122 per cent.

At Yash Papers,

innovative

training

programs -

guru-shishya -

facilitate a

cross-breeding

of competencies,

helping to

create a multi-

skilled

organisation.

Yash Papers went into the manufacture of

kraft paper with an annual installed capacity

of 1,940 tons in 1983. Superior operational

performance generated a surplus that was

invested in successive modernisation and

expansion.

16 17

More than two decades ago, Yash

Papers went into business with

limited capital, modest machinery,

handful of people - and a dream.

A dream to be recognised as a value

player in a volume-based business.

Consider the odds: automation was

predominant, capital was scarce and

there was an absence of adequate scale

to influence success.

However, Yash Papers graduated to

become one of the largest players in its

segment within India and overcame the

overhang of an unconventional and

erratically available raw material

through a commitment to the following

priorities:

• Service mindset in a manufacturing

environment

• Niche product focus

• Improving product development

• Aggressive people empowerment

People management should probably

have figured at the head of the list.

Because by training people,

empowering them to fix targets, sharing

knowledge and creating a challenging

environment, the Company has grown

faster than the industry average.

In doing so, I am confident that we have

laid the foundation for sustainable

growth.

K.K. Jhunjhunwala

Executive Vice-chairman

We have laid thefoundation forsustainable growth

K.K. Jhunjhunwala explains how Yash Papers ispositioned to grow despite the odds

Executive vice-chairman's message

19

I am particularly delighted with the

improved performance of Yash

Papers in an otherwise flat 2004 for

the following reasons:

• A 8.1 per cent growth in revenues

despite a marginal decline in volumes

and domestic realisations.

• An increase in EBIDTA margin from

14.6 per cent to 18.6 per cent

following raw material switch, energy

cost savings, lower interest outflow

and increased exports.

• A prising of the market share from

established wood-based paper mills

who enjoyed domination for long.

• A growing goodwill as a speciality

products Company in India and

abroad.

Not surprisingly, these improvements

translated into superior business

numbers: an improvement in the return

on employed capital from 7.38 per cent

in 2003 to 9.36 per cent in 2004 and a

growth in the market capitalisation by

101.98 per cent (from Rs 529.19 lacs on

31st December 2003 to Rs 1068.81 lacs

as on 31st December, 2004).

I have no hesitation in saying that this

improvement provides a perfect launch

for the most ambitious expansion in our

history, leading to a stronger Company.

• Yash Papers is investing Rs 8,500

lacs in the daily manufacture of 70

tons of MG Poster Grade paper,

which will treble our topline across

three years.

• The Company is installing a soda

recovery unit, which will help recycle

almost 88 per cent of all the

chemicals used.

• The Company is setting up a 5 MW

power plant to protect its self-

sufficiency in power requirements.

• The Company is upgrading its

environment management system to

meet progressively stringent norms.

Besides, the overall expansion will

strengthen our economies of scale,

bargaining power and risk management

capabilities, helping us emerge as a

model agro residue-based paper plant in

India.

What gives me hope? Simply our

excellent track record:

• Yash Papers has never suffered a

cash loss in its history.

• The Company has continuously

expanded from 1940 tonnes to the

prevailing 16,000 tonnes across two

decades.

• The Company has acquired a 50 per

cent share in its chosen segments of

presence.

• The Company has graduated from

being paper sellers to solutions

providers.

Looking ahead, the Company will extend

its industry presence: trade in grades it

does not presently manufacture, supply

converted packaging to customers and

possibly even sell its surplus power with

the objective to maximise corporate

value.

In a business where nothing remains

constant, Yash Papers will bring to it an

opportunity-capitalising dynamism.

Should you need any clarification, I will

be happy to provide it. Simply write to

me at ved@yash-papers.com.

Ved Krishna

Managing Director

Excellent track recordgives me the optimism ofaccelerating growth

Ved Krishna reviews the performance ofYash Papers in 2004 and looks ahead

Dear stakeholders,

18

Managing Director’s review

20

The Indian

paper,

paperboard

and newsprint

industry

(installed

capacity

almost 7.8

TPA) operated

at an

estimated 75

per cent

utilisation in

2003-4.

21

MMaannaaggeemmeenntt’’ss ddiissccuussssiioonn aanndd aannaallyyssiiss

Indian economic overview

The offtake of paper is directly proportionate to a nation's - even the world's - economic

growth. To this extent, Yash Papers capitalised on India's economic growth during 2004.

For instance, the Economic Survey 2003-04 estimated GDP growth for that fiscal year

at 8.2 per cent (4 per cent in 2002-03) on account of a strong recovery in the

agriculture, industry and service sectors. Industrial sector growth continued to be

healthy (as per the Index of Industrial Production) at 6.9 per cent in 2003-04 (5.7 per

cent in 2002-03). Since growth is expected to be around 6 per cent-plus on the

conservative side over the medium-term, India is expected to emerge as one of the

fastest growing global economies and a safe proxy for the paper industry.

Global paper industryThe world paper and paperboard demand

is expected to grow to 402 million tonnes

by 2010, riding a CAGR of 2 per cent.

Asian nations are expected outperform

this growth with a 7 to 10 per cent

annual growth (Source: Jaako Poyry

estimates). Paper capacity shortage in

Asia is expected to strengthen prices,

based on which capacity additions are

being planned.

The Indian paper industry

The country's paper industry is

fragmented across more than 500

producers who possess capacities from

less than 1000 TPA to more than

100,000 TPA. The Indian paper,

paperboard and newsprint industry

(installed capacity almost 7.8 TPA)

operated at an estimated 75 per cent

utilisation in 2003-04

The Indian paper industry in 2003-04 (in million tones)

Capacity Production Consumption

Paper 6.70 5.26 5.22

Newsprint 1.12 0.59 1.10

Status: India's paper industry is the fifteenth largest in the world.

Segmentation: The wood-based segment accounts for 35 per cent while the non wood-based segment

accounts for 55 per cent.

Growth: India's paper industry has reported volume growth of 5.47 per cent CAGR over the last three years.

Opportunity: The industry has created employment for 1.3 million individuals and contributed Rs 25 billion to

the Indian exchequer.

Indian paperindustry:

A snapshot

Paper & Paperboard

Writing & Printing

Maplitho

Creamwove

Art Paper

Poster paper

Light Weight CoatedPaper (LWC)

Coated Duplex Wallpaper

Tissue Paper

ElectricalGrade PaperFood GradePaperMICR

UncoatedDuplex

Chromo

Triplex Boards

Kraft

Speciality Standard GlazedIndustrial

Newsprint

There is a

huge

opportunity

for India given

its low per

capita

consumption

at 6 kgs.

Industry challenges

Rising raw material prices: Paper

manufacturers are broadly classified into

wood based, agri residue-based and

wastepaper-based categories based on

the nature of the raw material used.

Wood-based units accounted for 35 per

cent of the production, agri residue-

based and wastepaper-based units

accounted for 30 per cent and 35 per

cent respectively. The large paper

manufacturing units in India mostly use

bamboo, hardwood and wood pulp while

the medium and small units consume

agri residues (bagasse, jute and straw)

and waste paper.

The industry has recently been plagued

with cost increases due to a growing

shortage of forest-based raw material

(wood). Following the rise in paper

demand, global wood prices increased

considerably. In India, due to the

absence of a plantations policy,

pulpwood prices were generally higher

than elsewhere: US$ 40-60 per tonne

compared with US$ 20-25 a tonne in

Indonesia. The lack of a foreseeable

increase in hardwood availability and the

absence of a policy on industrial forestry

indicate that hardwood prices may

increase at a CAGR of around 5 per

cent.

Bagasse, a sugar cane by-product, did

not escape the general input inflation.

Prices strengthened in 2004 due to a

bad crop and the increasing diversion of

bagasse for power generation by the

sugar companies. Following the rise in

wood pulp and bagasse prices, waste

paper also became more expensive.

Compliance with the new pollution

control norms: By December 2008, the

Indian paper industry will be required to

comply with stringent pollution control

norms laid down by the Pollution Control

Board under the CREP charter. This

compliance will require significant

investments that could affect smaller

companies at a time when returns are

modest, leading to their probable closure

and creating customer acquisition

opportunities.

Imports: India is an attractive market for

global manufacturers on account of a

low customs duty (presently 20 per

cent).

Industry prospects

In 2003-04, India's paper industry grew

almost 6 per cent and according to

IPMA, the industry's apex body, this

growth could sustain for three more

years. There is a huge opportunity for

India given its low per capita

consumption at 6 kgs (South Asia at 11

kgs and global average at 53 kgs

respectively) where even a one kg

increase in consumption could translate

into a nationwide demand increase of a

million tons of paper.

• Economic growth, mirrored in the GDP, is the

primary industry driver.

• Domestic demand is expected to rise at a CAGR

of 6.1 per cent upto 2008-09 while capacity

expansion is estimated at only 3.1 per cent over

the period (Source: CrisInfac).

• India's education sector is expected to grow at

four per cent on account of a rise in literacy levels.

The Indian Government has committed six per cent

of the GDP towards education.

• India's writing and printing sector is expected to

grow at 5.5 per cent compounded upto 2008-09

(Source: CrisInfac).

• An increasing use of industrial paper for the

packaging of consumer goods and FMCG is

expected to drive Duplex Board growth at 7.2 per

cent and kraft at 8.0 per cent CAGR up to 2008-09

Driversof growth

India's per capita consumption of corrugated

boxes is a mere 1.5 kgs even as the global

average is around 15 kgs and US average 80 kgs.

About 95 per cent of all products are packed in

corrugated boxes in the US, an indication of the

vast potential that lies in this business.

The industrial paper segment is expected to ride

India's export growth. For instance, India's

Agricultural and Processed Food Export

Development Authority's product-specific strategy

envisages annual agricultural exports of more than

Rs 10,00,000 lacs across six agro commodities.

The heartening point is that presently the

consumption of corrugated boxes is less than 20

per cent of all packaging material used by India's

food sector (corresponding global average is more

than 35 per cent), which points to an attractive

latent potential.

There is another area of optimism: the Jute

Packaging Material Act 1987, which

recommended the mandatory use of jute

packaging across 90 per cent of all food grain and

sugar as well as 15 per cent of all urea produced

in India, is being relaxed, which is expected to

increase the use of industrial paper as a preferred

packaging medium.

In view of buoyant industrial and agricultural

production as well as exports, this segment of

industrial paper is expected to grow at around 7

per cent CAGR in India. Besides, with FMCG

companies looking at more innovative packaging,

the offtake of industrial paper is likely to surpass

growth in the printing and writing paper segments.

Theindustrial

papersegment

22 23

24

The decline

in power and

fuel costs was

on account of

a good rice

crop, which

increased the

availability

of rice husk

and reduced

its price by

30 per cent.

Parameters 2004 2003

Production (MT) 14762 14795

Sales (MT) 14548 14878

Net Sales (Rs in lacs) 2584.31 2390.38

25

2004 vs 2003

2004 was a favourable year for the

Company. Although volumes declined

marginally, revenue increased by 8.11

per cent. The Company posted an 81 per

cent increase in net profit from Rs 87.49

lacs in 2003 to Rs 158.62 lacs in 2004;

its highest in eight years.

Production

The Company's kraft production declined

from 14795 tonnes in 2003 to 14762

tonnes in 2004, representing a capacity

utilisation of 92 per cent (of its installed

capacity of 16000 TPA).

Raw material management

Yash Papers is an agri-residue based

paper manufacturer. Bagasse, its

principal raw material, accounted for

around 12 per cent of its operating cost,

any change in which can impact its

profitability.

As a de-risking initiative, the Company

selected to be strategically located in

the Gangetic belt of eastern Uttar

Pradesh (traditionally a sugarcane

cultivating area) in proximity to 20 sugar

mills within a radius of 200 kms. This

location translated into a logistical

convenience and the availability of

bagasse at a competitive cost.

In 2004, bagasse availability was lower

due to the cyclical nature of the cane

crop. The Company countered this

shortage through the introduction of

wheat straw in its raw material mix, a

low cost alternative abundantly available.

As a result, it was able to cap raw

material cost increase to only 15 per

cent to Rs 705.80 lacs in 2004 and the

increase in the proportion of raw

material in net sales from 26 per cent in

2003 to 27 per cent in 2004.

Power and fuel

As a resource-respecting organisation,

the Company made valuable savings in

power and fuel costs in 2004, which

strengthened operating margins. For

instance, power and fuel expenses in

quantum terms declined from Rs 488.72

lacs in 2003 to Rs 353.99 lacs in 2004,

or from 20 per cent of net sales in 2003

to 14 per cent in 2004. When seen

against the production, the decline was

significant: from Rs 3303.28 per tonne

of the final product in 2003 to Rs

2397.98 in 2004.

The decline in power and fuel costs was

on account of a good rice crop, which

increased the availability of rice husk

and reduced its price by 30 per cent.

The Company also made an attractive

saving following the installation of a

variable frequency drive to arrest

wasteful energy consumption.

Other manufacturing expenses

The other miscellaneous manufacturing

expenses incurred by the Company were

generally around the previous level: 17.8

per cent of net sales in 2003 and 17.1

per cent in 2004, despite an increase in

the price of consumable chemicals.

Improvement initiatives

The various improvements initiated by

Yash Papers to enhance product quality

in 2004 were:

Raw material checks: Stringent quality

checks minimised raw material wastage

at the storage and production levels. As

a precaution, the combustible bagasse

was stocked safely but in open spaces

to enable excess moisture evaporation.

To protect the material from combusting,

water pipes were installed around the

stackyards.

Power, fuel & water consumption:

During 2004, the Company introduced

variable frequency drives which

maximised machine efficiency and

resulted in a 30 per cent energy saving.

A new water tank was installed to re-use

water, which reduced fresh inflow by 20

per cent. Following an energy audit,

driving belts were changed, leading to

efficient use.

Installation, repairs and asset

maintenance: In 2004, the Company

conducted a 20 day preventive

maintenance to prevent sudden

breakdowns; it modified the MDC to

reduce in-plant air pollution; it modified

the boiler furnace, leading to lower

downtime and increased fuel efficiency.

This shutdown notwithstanding, the

Company produced almost as much as in

the previous year: 14,762 MT in 2004

compared to 14,795 MT in 2003.

Among other initiatives, the installation

of a scanner automatically identified

deviations from the required quality,

stalled production and corrected the

output; more importantly, the scanner

enabled the Company to database its

production, leading to efficient problem

resolution. The installation of the

variable frequency scanner resulted in a

faster grade changeover and better

speed control.

Research and Development

Research and Development represents

the cornerstone of the Company's

success, enabling it to customise

varieties and manufacture specialised

grades in line with emerging customer

requirements.

Towards its serious research intent, the

Company invested in an adequately

equipped laboratory, capable of captive

multi-grade development, and an

efficient team specialising in

development and quality control based

on customer requirements. In 2004, the

key achievements of the R&D function

comprised:

• Development of wet strength kraft

paper.

The average

price during

the year was

Rs. 17.76 per

kg compared

to Rs. 16.06

per kg in 2003.

• Development of coloured kraft paper

for the packaging/ stationery segment.

• Development of light shade kraft

paper for a tobacco company despite the

absence of a bleaching facility at the

plant.

Human resources

The Company embarked on a number of

initiatives to make it an invigorating

workplace for its 150 employees. For

one, the Company retained its flat

management structure, with a number of

responsibilities delegated to the shop

floor, facilitated by a trusting and

transparent communication process. To

enhance a sense of ownership, the

Company graduated employees into

shareholders and provided

accommodation/ recreational facilities.

Besides, the Company introduced the

following forward-looking work practices:

Self-management teams: Employees

worked in self-managing teams called

Sanghs, which met periodically to

discuss and resolve issues relevant to

them, involving each worker in the

decision-making process. These

knowledge-exchanging Sanghs were

headed by a representative called

Pradhan who represented his

department's concerns at a higher level

called the Pradhan Sangh, wherein all

team heads met once a month to discuss

a broader agenda. The top management

- Sangrakshak Sangh - discussed broad

organizational issues and to which

Pradhan Sangh representatives were

invited by rotation.

Training and development: At the

Company, the principal focus of people

development and growth people was

achieved through an intensive and

innovative training. Trainers, both within

the Company and outside it, trained

employees regularly. The faculty also

comprised machinery suppliers who

trained employees on the correct

machine use. Training in quality and cost

consciousness was conducted by in-

house faculty and over time, the training

extended to social and personal

development.

Employee appraisal: Employee

progress was monitored through a

At Yash Papers, the guru-shishya programme promoted employee multi-skilling in an

interesting way. An employee voluntarily chose a person from any department as his

guru (teacher) while the guru was responsible to train the shishya (student). The

effectiveness of this cross-functional training was linked to employee remuneration,

making it integral to organisational development.

Yash'sguru-shishya

programme

26 27

comprehensive appraisal system,

revolving largely around self-appraisal

and covering the performance in the

designed job profile in addition to cross-

functional learning as well as attitude

and motivational levels.

Each worker set his own annual target,

monitored quarterly. Appraisal was done

at two levels, first by the Pradhan of the

respective Sangh and then by an

executive from the senior

Marketing review

Yash Papers markets products through

two channels: a strong network of 35

nationwide dealers and 10 global dealers

for its standardised grades, and its

corporate plus existing network for the

specialised grades.

In 2004, the Company sold 14548 MT of

paper, a 2.2 per cent decline over the

previous year attributed to a

maintenance shutdown and a temporary

decline in realisations serving as a

disincentive. This flexible approach and

increased exports - nearly 14 per cent of

the total sales, the highest in the

Company's history - translated into a

revenue increase by 8.1 per cent.

Company's product grades and

applications

The Company's products are used

across a number of important

applications, given in the table on the

next page.

Prices and realisations

In a competitive environment, the

Company did not just manage to retain

its realisations but actually grew them.

The average price during the year was

Rs. 17.76 per kg compared to Rs. 16.06

per kg in 2003. This rise of 10.58 per

cent contributed significantly to the rise

in revenue. The company's realisations

grew from Rs. 2403.29 lacs in 2003 to

Rs. 2599.54 lacs in 2004 and receivables

declined from Rs 22.55 lacs to Rs 21.03

lacs, due to a tightening debtors policy

and a strong collection discipline.

Key marketing practices

The Company's marketing objective is to

sell with speed and at a premium over

the competing brands. Over the years,

The Company

strengthened its

international

brand through

the introduction

of multi-colour

options in kraft

and specialty

grades like wet

strength kraft

paper.

2928

The Company's major offtake was derived from the 43-64 GSM segment, accounting for nearly 51 of its revenues.

Company's regionwise sales

Regions Total sales (in Rs Lacs) Per cent of total sales

North India 879.10 34.07

West India 641.58 24.86

East India 396.87 15.38

South India 372.24 14.42

Export 290.80 11.27

2580.59 100

the Company strengthened its position

as a specialised manufacturer within its

niche and leveraged its credibility to

protect it from the impact of short-term

price troughs.

As a stable initiative, the Company

marketed products via dealers in diverse

national and international locations

through a relationship-driven approach.

This was done by servicing dealer

requirements on schedule and faithfully

meeting their demanding requirements.

As a relationship-strengthening initiative,

the Company was engaged in an

ongoing dialogue with its dealers to

understand ground realities with clarity,

leading to proactive initiatives. As a

knowledge-enhancing initiative, dealers

were regularly trained in the Company's

products and applications. Besides, the

Company's marketing representatives

accompanied dealers to customer

locations and derived an insight into

evolving preferences.

As a forward-looking initiative, the

Company's marketing team studied how

existing paper uses could be substituted

cheaper with kraft. Over the last few

years, this initiative translated into the

successful introduction of aluminium-

coated kraft, replacing conventional

aluminium foil packaging. The Company

now expects to drive growth through the

introduction of newer kraft uses in gift-

wrapping, face tissues and stationery.

Exports

The Company maintained its exports at

12 per cent of total sales, despite fierce

competition. As an encouraging trend,

the Company bagged export orders for

some specialised products from

reputable customers with large

requirements. The Company

strengthened its international brand

through the introduction of multi-colour

options in kraft and specialty grades like

wet strength kraft paper.

Over the last four years, the Company's

exported volumes evolved as per the

table below.

Encouragingly, there was a consistent

increase in the export of value-added

grades, a trend that the Company

expects to sustain through a change in

the product mix towards these varieties

Product Production/

grade Sales (in MT) Uses Consumer industry Industry outlook

32-42 GSM 4077 (P) Laminating sheets/ paper Lamination industry/ Increase in construction and

3976 (S) bag/ interleafing in sun mica packaging industry/ Sunmica home improvement activity,

sheets packaging/FMCG industry/ together with rising

Food industry/ plywood industry consumer demand are

driving growth.

43-64 GSM 7674 (P) Bidi wrapping/ Tobacco Tobacco industry/ Adhesives/ Economy growth of the

7518 (S) pouch/ Gum tape/ paper FMCG industry/ Bangle economy together with an

bags/ note-book covering industry/ Education sector impetus on education

paper/ Bangle-wrapping ensure rising demand for

paper this segment.

65 GSM and 3013 (P) PE Coating in mattress/ Mattress industry/ packaging Increased focus on housing

above 3060 (S) stationary/ tube light industry/ Real estate industry and a growing importance of

packaging/ Printing industry/ Education sector packaging are key drivers. Year Quantity of paper (Tons) Per cent of total sales

2001 633 5

2002 947 7

2003 1820 12

2004 1735 12

The

Company

will position

itself more

distinctively

in the

international

market

leading to a

stronger

brand recall

and better

realisations.

following the proposed expansion. The

Company's R&D initiative is engaged in

the creation of application-based

products based on customer enquiries,

hoping launch a number of these

products during 2005.

Outlook

The outlook for a value-added

manufacturer like Yash Papers is

encouraging for a number of reasons: an

increased focus on better packaging

standards and the predominance of kraft

for this purpose at the customer end.

The Company is not only engaged in the

creation and customisation of a number

of specialised grades but is also

evaluating the possibility of extending its

service focus in two distinctive ways:

starting a trading wing to provide wider

customer solutions and tying up with

converters to provide turnkey packaging

solutions, which will accelerate the

Company's evolution into an end-to-end

solutions provider. Concurrently, the

Company will position itself more

distinctively in the international market

leading to a stronger brand recall and

better realisations that will enable it to

counter the price wars of a competitive

market place.

Financial review

2003 vs 2004

A marginal production decline

notwithstanding, Yash Papers reported

an 8.1 per cent increase in net sales at

Rs 2584 lacs in 2004 (Rs 2390 lacs in

2003) while operating profit increased

46.4 per cent to Rs 451 lacs in 2004.

The Company's operating margin of 13

per cent in 2003 increased to an

impressive 17.5 per cent in 2004, due to

robust domestic realizations, higher

exports and substantial power/fuel cost

savings. A lower interest outflow

ensured that pre tax profit rose 122

percent to Rs 266.18 lacs in 2004 and

net profit by more than 80 per cent to

Rs 158.62 lacs. Based on this

improvement and optimistic outlook, the

Board recommended a dividend of 12.5

per cent for 2004 (10 per cent in 2003).

Cash flow management

The Company generated a 75 per cent

increase in its operating cash flow to Rs

314.02 lacs in 2004. In a capital-

intensive business, Yash Papers was

required to pay for raw material and

overheads while awaiting reimbursement

for the material sold by it. The Company

strengthened its resource management

through an ongoing monitor of cash

movements, facilitated by daily reports.

These reports detailed receipts,

payments, LC limits used, bank

guarantees utilised and unavailed

finance facilities. Based on this, the

3130

Company outlined a cash management

strategy to put available cash to the

most efficient use.

Revenue

The Company reported an 8 per cent

growth in net sales to Rs 2584 lacs in

2004, a marginal decline in volumes

notwithstanding, derived through

stronger realizations from its various

specialised products. Other income was

Rs 30.92 lacs (Rs 40.94 lacs in 2003),

generated largely from interest inflow on

invested fixed deposits and export

benefit (DEPB).

Margins

In a difficult business environment, the

Company strengthened its operating

margins from 17.5 per cent in 2003 to

13 per cent in 2004 and net margins

from 3.20 per cent in 2003 to 6.20 per

cent in 2004. This transpired as a result

of a number of reasons: an altered raw

material mix to counter a price increase

in bagasse, a lower price of rice husk

and a 16.8 per cent reduction in interest

costs over the previous year.

Capital employed

In a capital-intensive paper industry, the

Company earned a 9.36 per cent return

on its employed in 2004, which was

better than 7.28 per cent in 2003 mainly

on three counts:

• Lower energy costs.

Parameters 2004 2003 Per cent change over 2003

Net sales (Rs lacs) 2584.31 2390.38 8.11

Operating profit (Rs lacs) 451.19 308.57 46.2

Operating margin (per cent) 17.5 13 34.6

Pre tax profit (Rs lacs) 266.18 119.97 121.8

Post tax profit (Rs lacs) 158.62 87.49 81.3

Dividend (per cent) 12.5 10 25

Key financial highlights

Excellent track

record gives

me the

optimism of

accelerating

growth.

• Improved realisations.

• Better cash flow management.

Reserves

At the Company, reserves largely

comprised accumulated profits earned

over the years, the lowest cost of funds

at its disposal. The Company's reserves

stood at Rs 1029 lacs as on 31st

December 2004. As reserves increased

from Rs 925 lacs to Rs 1029 lacs in

2004, net worth grew to Rs 1868 lacs

(Rs 1753 lacs in 2003). The Company

did not have any revaluation reserves on

its books during the year under review.

Loans and interest

In a capital-intensive business, the

management of the quantum and cost of

borrowed funds influences profitability.

Over the years, the Company has

mobilised requisite funds at the right

time at competitive rates and liquidated

debt. Total loan funds declined from Rs

655.5 lacs in 2003 to Rs 607.4 lacs in

2004 and interest outgo declined from

Rs 87.90 lacs to Rs 73.09 lacs, following

the prepayment of an expensive term

loan, renegotiation of interest rates and

the swap of high cost advances with low

cost foreign currency loans. As a result,

debt-equity ratio improved from 0.37 in

2003 to 0.33 in 2004, average interest

cost dropped from 13.4 per cent in

2002-3 to 12 per cent in 2004 and

interest cover strengthened from 2.36

times to 4.64 times over the period.

Inventory

At Yash Papers, inventory management

is a critical driver of working capital

outlay for a number of reasons:

• The Company's principal raw material

is available only for three months and

has to be stored for the rest of the year.

• The finished goods are largely

manufactured on order but certain

generic grades also have to be

manufactured in anticipation of demand

(export and domestic).

The Company's prudent inventorymanagement optimises the allocation offunds in raw material inventory, even asit maintains an optimum stock ofconsumables so that the productionprocess is never affected.

At the end of 2004, the Company's rawmaterial inventory was Rs 133.85 lacs,reflecting 69 days of sales, while finishedgoods inventory was Rs 143.93 lacs,higher than in the previous year onaccount of the increasing shortage ofbagasse.

DebtorsGenerally, receivables managementrepresents the last leg of the Company'stransaction. A quicker recovery enablesthe Company to transact a larger volumeof business with the same quantum offunds, strengthening fiscal efficiency. Adelay, on the other hand, could inflateworking capital requirements, raising

interest outflow. As a result of a strongproduct, excellent dealer relations andan incentivised early remittance, theCompany negotiated a quick paymentcycle. As a result, total debtors were Rs225.50 lacs in 2003 and Rs 210.27 lacsin 2004 as receivables declined from 34days of turnover in 2003 to 30 days ofturnover in 2004.

CreditorsFor Yash Papers, creditors' managementwas critical as principal raw materials(bagasse and wheat straw for paper andrice husk for cogeneration) needed to bepurchased against cash. Chemicals andconsumables were purchased on credit.On the overall, the Company's creditors'position was comfortable.

Working capitalAt Yash Papers, working capital was

used to fund the purchase of rawmaterial, stores, consumables, fundoverheads, administrative expenses andmaintain stock. Its managementassumes significance when primary rawmaterial suppliers must be paidimmediately (inspite of raw materialhaving to be stocked months in advance)and material must be sold on credit.

Over the years, the Companystrengthened its inventory, debtor-creditor management and product mix,which enabled it to improve its workingcapital outlay. As a result, the Companydid not require its working capital limitsfrom banks to be revised at any timeduring the preceding five years.

ExportsThe quality of the Company's papercontinued to be internationally

acclaimed, as a result of which exportsincreased considerably during the yearunder review.

Tax

The company provided Rs 95.75 lacs as

provision for current tax and Rs 11.80

lacs as deferred tax for 2004, higher

than Rs 39.55 lacs in current tax and a

deferred tax credit of Rs. 7.07 lacs in

2003. This increase in tax provision was

largely due to the fact that until last

year, the company utilized its MAT credit

available and set this off from the tax

liability of the company. The increase in

deferred tax provisions was on account

of the increase in the net block over the

written down value of fixed assets as per

the provisions of the Income Tax Act,

1961.

3332

Export growth

Year Quantity of paper (Tons) Per cent of total sales

2001 633 5

2002 947 7

2003 1820 12

2004 1735 12

Forex

management

was

strengthened

by the availing

of packing

credit in

foreign

currency and

onward

liquidation

through

realisations.

Forex management

At Yash Papers, forex management

revolved around the timely receipt of

payments and adequate protection from

exchange rate fluctuations. Its

management was strengthened by the

availing of packing credit in foreign

currency and onward liquidation through

realisations, reducing the Company's

exposure to foreign currency

fluctuations.

Looking ahead

The Company's operations are set to go

grow significantly following its proposed

extension into the production of a kraft

variety called MG Poster grade, which

will extend the Company's consolidated

capacity from 16000 MT to 39000 MT.

Concurrently, the Company will control

energy, raw material and direct costs,

maximising profitability. In the

specialised segment, the Company aims

to emerge as a market leader in the

niche specialised segment across the

medium term.

34 35

The Company's operations are set to go grow

significantly following its proposed extension

into the production of a kraft variety called

MG Poster grade,

which will extend the Company's

consolidated capacity from

16000 MT to 39000 MT.

3736

At Yash Papers, we believe that the

successful conduct of business is as

much about enhancing profitability as

it is about minimizing the

environmental impact.

As a responsible manufacturer, Yash

Papers embarked on the following

initiatives:

Environment management practices:

In an environmentally sensitive business,

Yash Papers minimised its environment

impact through the selection of an

environment-friendly raw material like

bagasse. This agricultural by-product,

derived from sugarcane, is more easily

renewable than wood; besides, the

Company produces unbleached kraft

paper, which does not require the use of

chlorine, a hazardous substance.

As a significant step forward, the

Company's expansion programme will be

completely aligned to the norms of the

Corporate Responsibility for

Environment Protection (CREP) charter.

Going ahead, the Company will sensitise

all employees towards the need for

environment protection and implement

an efficient waste segregation and

disposable system (compost pits for

biodegradable waste), ensuring a green

factory.

Effluent treatment plant: The effluents

from the Company's plant could be

potentially hazardous, if untreated. In

line with the Corporate Responsibility for

Environment Protection (CREP) inspired

by the Central Pollution Control Board

and Ministry of Environment and

Forests, all paper mills 'must install a

chemical recovery system or utilize the

black liquor generated with no discharge

from pulp mill within three years or

switch over to waste paper'.

Yash Papers has already commissioned

an effluent treatment plant to treat and

minimise the generation of effluents and

now expects to upgrade it during the

forthcoming modernisation programme.

Solid waste management: At Yash

Papers, much of the solid waste that is

generated during manufacture is either

reused or processed into downstream

products. Solid waste or sludge is used

to produce sun-dried boards while the

other solid waste is landfilled. Going

ahead, the Company is planning to set

up a soda-recovery plant that will

recover chemicals, reduce the

environmental impact and save costs.

Air pollution: The Company's preventive

maintenance initiative included the

modification of its existing Mechanical

Dust Collector to minimize gaseous

emissions. Going ahead, the Company

expects to install an additional

mechanical dust collector attached to

the proposed husk-fired boiler and an

electro-static precipitator.

Noise pollution: To mitigate the impact

of noise in a paper mill from the

operation of vacuum pumps, the

Company commissioned special

silencers.

HHooww YYaasshh PPaappeerrssiiss mmaakkiinngg iittssooppeerraattiioonnss ttrruullyyssuussttaaiinnaabbllee

At Yash

Papers, we

believe that

successful

business is as

much about

enhancing

profitability as

it is about

minimising the

environmental

impact.

3938

Yash Papers is not just operating

within its community, it is adding

value to it.

Over the years, the Company has been

a fair employer, supporter of families,

responsible taxpayer and a protector of

community interests.

Employee responsibilities: With time,

Yash Papers has multi-skilled,

empowered and enriched its employees

through training, a flat management

structure and personality development

opportunities.

Family responsibilities: Yash Papers

provides accommodation to employees

and their families in a dedicated colony

in addition to recreational facilities and

to education.

Community concern: Yash Papersimparts meaningful education through anumber of educational institutions thatare run by various sponsored Trustsunder the guidance of ManjulaJhunjhunwala, Director, andeducationist. These include a CBSE-affiliated senior secondary school inFaizabad, acclaimed as one of the bestinstitutions in the region, where thechildren of employees are given apreference in admissions and where theireducation is subsidised. The Company isalso involved with a vernacular mediumschool in the vicinity of its operationsthat is accessible to the children of

employees. Students at these schools

get the benefit of internship programmes

at the Company to gain a functional

knowledge of a working environment.

The Company is sponsoring a vocational

training institute to train and increase

employability. It has also sponsored a

training institute, where eminent

educationists use modern methods to

enhance teaching skills; it expects to

convert this into a full-fledged college. A

rural education programme imparts

education to children from neighbouring

villages.

National commitment: Yash Papers is a

law abiding corporate citizen, paying

taxes and statutory dues on schedule.

HHooww YYaasshh PPaappeerrssiiss llooookkiinngg aafftteerr iittssccoommmmuunniittyy

Over the years,

the Company

has been a fair

employer,

supporter of

families,

responsible

taxpayer and a

protector of

community

interests.

4140

For the benefit of readers, Yash Papers has analysed the risks facing its business on the lines of a study conducted by the

prominent management guru Michael E. Porter in his book Competitive Advantage.

Michael Porter's risk management grid

In any industry, competition is influenced

by five competitive forces: threat from

new entrants, the bargaining power of

existing buyers, the bargaining power of

existing suppliers, the threat of

substitute products and the rivalry that

exists among the existing players.

It is only a collective pull of these

competitive forces that determines the

ability of the Company to earn a return

on its investment that is higher than the

cost of its capital.

Intensity of rivalry

Industry growth: The demand for paper

in India will continue to grow at an

attractive pace given its low penetration

compared to the rest of the world. While

this might seem an attractive entry

prospect, the capital intensity of the

industry will serve as a barrier for new

entrants, protecting the interest of Yash

Papers.

Brand identity: In a largely

commoditised business, branding is not

yet critical to success, even though

quality and service do influence

customer loyalty. In the case of Yash

Papers, which deals with specialised

HHoowwYYaasshh PPaappeerrss iissmmaannaaggiinngg iittss

rriisskkssaanndd ccrreeaattiinngg aa

ssttrroonnggeerroorrggaanniissaattiioonn

4342

paper industry faces little risk of product

substitution by buyers. The threat of

plastics substituting paper packaging is

also not serious because of

environmental and aesthetic

considerations.

Buyers' power (bargaining leverage

and price sensitivity) Buyer

concentration: In an industry like paper,

where the customer base is diverse and

uses multiple, there is negligible risk of a

buyer concentration / cartelisation.

Brand identity: A well-protected brand

identity ensures that the Company

continues to earn a premium over

average prevailing realisations.

Product differences: An application-

based manufacturing discipline ensures

effective product differentiation,

resulting in a growing market share and

profitability.

Economy risk

Any economic downturn could affect the

industry and Company in a negative

way.

Risk mitigation

The Indian economy has demonstrated a

sound recovery in 2004, with the GDP

growing at 8.2 per cent. This trend is

expected to sustain over the coming

years. However, even a slight decline in

economic performance may not affect

the paper industry materially due to a

sufficient latent demand.

Industry risk

The Indian paper industry may not

remain an attractive due to a high capital

cost and long payback.

Risk mitigation

The growing industrialization, the low per

capita consumption, increasing literacy

and progressive unviability of imports

indicate a fair profitability for existing

manufacturers. Yash Papers has

demonstrated an ability to be cost

competitive, an effective hedge.

Strategy risk

In an environment where realities change

rapidly and competition is intense,

strategic errors could result in a loss of

market share.

Risk mitigation

The Company has always made products

that are differentiated, value-added and

customised for specific applications.

While it has manufactured a limited

product range, it has expanded the

market through newer uses and the

replacement of wood-based paper in

specific segments. It has periodically

expanded capacity, invested in the best

available technology and adhered to

environmental norms, strengthening a

case for sustainability. Its proposed

expansion will only strengthen this

competitiveness and enhance value.

Globalisation risk

Due to an over-capacity in the West,

there is a possibility that India may

become a dumping destination.

Risk mitigation

India possesses a strong anti-dumping

mechanism that protects domestic

manufacturers. The Company caters to

the niche low grammage segment, with

high freight sensitivity, deterring

imports.

Raw material risk

In an agri residue-based paper-

manufacturing unit, raw material

availability could be excessively

dependant on monsoons or the decision

of sugar mills to use it for cogeneration

purposes.

products, the brand is visibly

established, serving as a hedge against

competitors.

Exit barriers: Given the high asset

investment and the resale value of

assets, corporate exit is possible but

capacity exit is not yet a reality due to

the possibility of acquisition.

Product differentiation: In the paper

industry, product differentiation is not

evident in generic grades, marked by

timely delivery and cost competitiveness.

Yash Papers thrives on specialisation,

product differentiation, Research and

Development, an effective hedge.

Entry barriers

Economies of scale: As the minimum

capacity required to break-even has

gradually risen over the years, so has

the entry barrier for new entrants,

protecting long-term players like Yash

Papers. The latter has succeeded with a

relatively low capacity only due to a high

level of specialisation.

Capital requirement: In the capital-

intensive paper industry, greenfield cost

is approximately Rs 80,000 per tonne

across a high installed capacity, calling

for a large capital outlay. Additionally,

the industry is working capital-intensive

with a long gestation period. IPMA

estimates that average ROCE has been

11 per cent as against an average

capital cost of around 15.5 per cent,

protecting existing manufacturers like

Yash Papers.

Proprietary product difference:

Though there is little differentiation in

the basic product, specific applications

influence offtake. Yash Papers enjoys a

reputation for innovation around its

applications, protecting itself from this

threat.

Access to distribution: Established

manufacturers like Yash Papers possess

a wide and deep distribution network,

which helps their products being

delivered just when the customer wants

them, an effective entry barrier against

intending industry entrants.

Expected realisations: The paper

industry is fiercely competitive with a

number of players in the unorganised

sector who evade taxes, enjoy an unfair

advantage and can trigger a price war.

This is a deterrent for new entrants and

is also one of the reasons why the

interest of companies like Yash Papers

has been relatively protected.

Suppliers' bargaining power

Substitutes: There are few substitutes

for the raw material used in the

manufacture of paper. However, a

diverse vendor base insulates the

Company against an excessive

dependence on a single supplier. Also,

the raw material is essentially a process

waste for the suppliers who have no

option but to dispose it at the available

price.

Product price: A rise in material prices

is always a threat, given the fact that it

depends on the vagaries of weather.

However, Yash Papers possesses a

multi-feed capability with the option of

altering the raw material mix to counter

any unreasonable hike in prices.

Threat of forward integration by

suppliers: A forward integration by

suppliers would require a considerably

large investment. This is unlikely as they

are already in one manufacturing

business (sugar manufacturing in case of

bagasse manufactures) and would rather

stick to their core competence, given the

different market dynamics of the two

industries.

Substitutes

Buyers' propensity to substitute: The

4544

Risk mitigation

Uttar Pradesh annually generates nearly

18 million tons of bagasse. Since the

Company is located in this state, it is

well placed for raw material

requirements. The Company has

mitigated the cyclicality risk through the

use of other fibrous materials to

compensate for the bagasse shortage,

whenever it happens.

Besides, the cogeneration option is

costly for small sugar mills. As a prudent

de-risking, the Company is not

dependant on any single mill for its

bagasse supplies and is surrounded by a

number of small manufacturers willing to

supply bagasse to it. In addition, the

expected power reforms era and private

power projects promise power at a

cheaper rate, discouraging even the

larger mills from setting up such

facilities.

Energy consumption risk

The Company's captive power

generation facility is dependent on

agricultural residues (rice/paddy husk)

that are dependent on the monsoons

and hence open to supply fluctuations.

Risk mitigation

The Gangetic belt in which the Company

operates is climatically stable. However,

in the event that husk prices rise

sharply, the Company will be able to

shift to coal to fire its boilers without a

significant capital outlay. The Company

is also exploring the possibility of

producing energy from gas. With large

power plants being installed in the state,

the energy crises will not affect it in the

long run.

Technology risk

In a dynamic industrial environment, the

Company faces the risk of its technology

becoming obsolete.

Risk mitigation

The Company is consistently extending

its technology expertise, which, post

expansion, will only strengthen

mitigating any latent risk of

obsolescence.

Productivity risk

In a capital-intensive business,

productivity is critical to payback and

profitability, a shortfall in which, however

temporary, could affect margins.

Risk mitigation

The Company has invested in worker

training to improve asset utilization,

preventive maintenance and asset

upgradation. This enabled the Company

to achieve a capacity utilization of more

than 90 per cent for three successive

years.

Human capital risk

Attrition at the senior management

levels could erode the Company's

knowledge base.

Risk mitigation

The Company's workplace environment

and employee compensation compare

favourably with the best in the industry.

However, to counter any risk that

attrition may pose, the Company is

continuously training its second

management tier to assume leadership

positions.

Margins risk

In a competitive industry, margins could

thin, threatening the profitability of Yash

Papers.

Risk mitigation

The Company has prudently increased

its exposure to specialised grades,

where competition is limited and margins

are better. The Company also enjoys

cost advantages due its economies of

scale compared to smaller unorganised

manufacturers. Besides, strategic

investments in power co-generation have

translated into significant savings. As a

result, the Company is competing in

markets traditionally dominated by

wood-based manufacturers.

Customer concentration risk

An excessive dependence on a few large

customers could pose a serious risk to

the business in the event of customer

attrition.

Risk mitigation

The Company enjoys a diversified

customer base spread across the

country in addition to a strong dealer

base that empowers it to add new

customers.

Distribution risk

In a standardised segment, poor product

visibility could impact product dispersal

and distribution.

Risk mitigation

With a dedicated force of 35 dealers in

India and 10 abroad, Yash Papers has

gained a sizeable market presence.

Frequent new product training,

alternative uses and periodic dealer

meets have strengthened the Company's

dealer relationships leading to an

extensive geographic presence and

penetration.

Geography risk

The Company is located near its raw

material sources but relatively far from

its consumption markets, driving logistic

costs.

Risk mitigation

Being one of the lowest cost producers

of value-added kraft paper, the

Company has the capability to absorb

additional logistic costs that could arise

from the transportation incurred to reach

products across distant markets.

Foreign exchange risk

Currency fluctuations could adversely

affect the Company's business.

Risk mitigation

The Company exports almost 15 per

cent of its annual production and this is

expected to go up to 40 per cent

following the proposed expansion.

Prudent forex management practices

and access to foreign currency packing

credit will protect the Company from

undue currency risks.

Finance risk

The Company may not be able to put

together resources to finance its growth.

The high cost of finance may affect

profitability. It may not be able to

compete in the marketplace with

companies that have sourced cheaper

funds. It may suffer from a liquidity

squeeze.

Risk mitigation

Yash Papers has consistently improved

its working capital and fund management

practices. The Company strengthened

its liquidity through various initiatives

like accelerating receivables and

shrinking inventory. It has liquidated

expensive debt in favour of low cost

foreign currency, arriving at a

comfortable debt-equity ratio of 0.33. As

a result, the Company's average cost of

finance was 12 per cent in 2004 (13.4

per cent in 2003). A prudent fund

management strategy will enable the

Company to meet its financial

obligations and fund its expansion

(through borrowing of Rs 56 cr) at a

competitive cost over the coming

months.

4746

33 YYeeaarr FFiinnaanncciiaall SSuummmmaarryy

Particulars as on 31 December 2004 2003 2002

Sources of FundsEquity share capital 386.55 386.55 386.55

Reserves & surplus 1028.98 925.11 914.44

Shareholders’ funds 1415.53 1311.66 1300.99

Long term loans 240.39 317.41 373.61

Short term loans 367.05 338.14 232.93

Total loans 607.44 655.55 606.54

Deferred tax asset/(liability) 453.19 441.39 448.46

Total liabilities 2476.16 2408.6 2355.99

Application of FundsGross block 3052.73 2946.44 2876.75

Depreciation 1215.47 1089.17 986.18

Net block 1837.26 1857.27 1890.57

Capital WIP 69.60 40.94 53.89

Net block+Capital WIP 1906.86 1898.21 1944.46

Investment 0.06 0.26 1.76

Current AssetsInventories 504.75 449.63 222.26

Debtors 210.27 225.50 238.41

Cash & bank balance 36.20 36.13 78.99

Loans & advances 53.98 46.98 78.21

Total current assets 805.2 758.24 617.87

Current LiabilitiesCreditors 140.97 169.23 109.00

Other current liabilities – – –

Provisions 94.99 78.88 100.28

Total current liabilities 235.96 248.11 209.28

Net current assets 569.24 510.13 408.59

Miscellaneous expenditure – – 1.18

Total assets 2476.16 2408.6 2355.99

Balance Sheet

Particulars 2004 2003 2002

Net sales 2584.31 2390.38 2238.25

Other income 30.92 40.94 40.93

Increase/(Decrease) in stock 32.59 4.46 49.48

Total income 2647.82 2435.78 2328.66

Cost of sales 1591.07 1589.83 1226.1

Overheads 574.64 496.44 553.82

Deferred revenue expenditure – – –

Total cost 2165.71 2086.27 1779.92

PBDIT 482.11 349.51 548.74

Interest 73.09 87.9 107.43

PBDT 409.02 261.61 441.31

Depreciation 142.84 141.64 138.8

PBT 266.18 119.97 302.51

Tax 107.56 32.48 138.77

Deferred tax 11.8 -7.07 113.65

PAT 170.42 80.42 277.39

Dividend tax on proposed dividend 6.31 4.83 –

Equity dividend 48.32 38.66 38.66

Year-end price (Rs) 27.65 13.69 8.1

Market capitalisation 1068.81 529.19 313.11

Profit & Loss AccountRs/lacs Rs/lacs

Note: The relevant figures for 2002 have been annualised.

Particulars 2004 2003 2002

Other income/sales 0.01 0.02 0.02

Cost of sales/net sales 0.62 0.67 0.55

Overheads/net sales 0.22 0.21 0.25

Interest/net sales 0.03 0.04 0.05

PBDIT/net sales 0.19 0.15 0.25

PBDT/net sales 0.16 0.11 0.20

Depreciation/net sales 0.06 0.06 0.06

Tax/PBT 0.40 0.27 0.46

PAT/net sales 0.07 0.03 0.12

RONW (PAT/net worth) 0.09 0.05 0.16

ROCE (PBDIT/capital employed) 0.19 0.15 0.23

Capital output ratio 1.04 0.99 0.95

(Net sales/capital employed)

Net sales to gross block 0.85 0.81 0.78

Net sales to working capital 4.54 4.69 5.48

Financial performance ratios

Particulars 2004 2003 2002

Debt-equity ratio 0.13 0.18 0.21

Debtor’s turnover (days) 30 34 39

Inventory turnover (days) 116 103 66

Current ratio 2.48 1.89 1.56

Asset turnover (Total income/Total assets) 1.07 1.01 0.99

Growth ratios (%)

Growth in total income 8.71 4.60 3.66

Growth in net sales 8.11 6.80 12.17

Growth in PBDIT 37.94 (36.31) 39.89

Growth in PAT 111.91 (71.00) 112.64

Balance Sheet Ratios

Particulars 2004 2003 2002

Dividend per share(%) 12.50 10.00 10.00

Dividend payout ratio (%) 30.47 44.18 13.93

Price/Earnings (times) 6.74 6.06 1.13

Growth in market capitalisation (%) 101.98 69.00 86.21

Earnings per share 4.10 2.26 7.18

Shareholder-related statistics

4948

FFiinnaanncciiaall RRaattiiooss

Dividend

The Directors are pleased to recommend

the dividend of Rs 1.25 per equity share

or 12.5 per cent on an equity share with

a face value of Rs 10 each. As a result,

the Company's dividend payout for the

year under review is Rs 48.32 lacs and

tax payable on the aforesaid dividend is

Rs 6.31 lacs. However, the dividend will

be free of tax in the hands of

shareholders.

Operations

The Company achieved a production of

14,762 MT and sales of 14,548 MT

during 2004 against a production of

14,795 MT and sales of 14,878 MT

respectively in 2003. The Company

achieved a gross turnover of Rs 2868.91

lacs in 2004 as against Rs 2679.86 lacs

in 2003, an increase of 7.05 per cent.

Exports

The Company exported 1735 MT of

paper during 2004 as against 1820 MT

in 2003. During the year under review,

exports accounted for 11.93 per cent of

the total tonnage of paper sold.

Insurance

Your Company's properties including

buildings, plant and machineries and

stocks were adequately insured against

various risks.

Expansion

Your Directors plan invest Rs 8500 lacs

in more than doubling the manufacturing

capacity from 16000 MT per annum by

setting up an additional pulp and paper

line along with a power plant and soda

recovery unit. The commissioning of this

proposed unit will enable your Company

to produce quality speciality and poster

paper grades, enhancing profits. The

project will be financed by way of term

loans (tied up in principle), issue of

equity shares and internal cash accruals.

Fixed deposits

The Company was holding an aggregate

sum of Rs 137.74 lacs on account of

deposits from the public, employees and

shareholders as on 31st December,

2004. The heirs of depositors did not

claim their deposits amounting to Rs

0.08 lacs, which had matured during the

previous years.

Directors

Shri G. N. Gupta and Dr. P. Banerjee,

Directors, retire by rotation and, being

eligible, offer themselves for re-

appointment.

Shri R. N. Chakraborty had resigned

during the year. The Board places on

record its appreciation for Shri R. N.

Chakraborty for the valuable services

rendered during his tenure.

Directors' Responsibility Statement

Pursuant to Section 217 (2AA) of the

Companies Act, 1956, the directors

hereby confirm:

1. That in the preparation of annual

accounts, the applicable Accounting

Standards have been followed;

2. That the Directors have selected

such accounting policies and applied

them consistently and made judgments

and estimates that were reasonable and

prudent so as to give a true and fair

view of the state of affairs of the

Company as at 31st December, 2004

and of the profit of the Company for the

year ended on that date;

3. That the Directors have taken proper

and sufficient care for the maintenance

of adequate accounting records in

accordance with the provisions of this

Act for safeguarding the assets of the

Company and for preventing and

To the members,

Your Directors have pleasure in presenting the 24th Annual Report together with the

Audited Accounts for the year ended 31st December, 2004.

5150DDiirreeccttoorrss''

RReeppoorrttFinancial Results

(Rs in lacs)

Year ended on Year ended on31st Dec., 2004 31st Dec., 2003

Profit before depreciation and taxation 409.02 261.61

Less : Provisions for :

Depreciation 142.84 141.64

Current Tax 95.75 39.55

Deferred Tax 11.81 (7.07)

Profit after tax 158.62 87.49

Prior Year Adjustments (0.12) (4.74)

Balance of Profit 158.50 82.75

Balance in Profit and Loss Account 205.49 191.22

Balance available for appropriation 363.99 273.97

Less: Appropriations:

General Reserve 50.00 25.00

Proposed dividend 48.32 38.65

Tax on dividend 6.31 4.83

Balance carried over to Balance sheet 259.36 205.4

5352

detecting fraud and other irregularities;

4. That the directors have prepared the

annual accounts on a going concern

basis.

Statement pursuant to listing

The equity shares of the Company are

listed with Kanpur, Ahmedabad and

Mumbai Stock Exchanges and the listing

fees have been paid. The equity shares

are still listed at Ahmedabad Stock

Exchange. However, the Company has

applied to the Ahmedabad Stock

Exchange for de-listing of equity shares

and the confirmation is awaited.

The cash flow statement for the

accounting year ended on 31st

December, 2004 is also being sent with

the annual accounts.

Corporate Governance

A separate report on Corporate

Governance pursuant to Clause 49 of

the Listing Agreement is furnished as a

part of the Directors' Report and the

certificate from the Company's Auditors

regarding compliance with the said code

is annexed to the said report.

Management's Discussion and

Analysis

Industry structure and developments

This has already been provided under

Industry Review on page 21.

SWOT analysis

Strengths:

• Market leader in the segment of low

grammage unbleached kraft paper.

• Locational advantage in procuring

raw materials and fuel (rice husk) at

competitive prices.

• Uses bagasse as main raw material,

which is cheaper than wood.

• Self-sufficiency in power.

• Amongst the lowest cost producers

in the industry.

• Successful record in implementing

expansion and modernization drives.

• Specialised product focus.

• Strong dealer network.

• Flat organisational structure.

Weakness:

• Still small in terms of operations

when compared to bigger mills, and is

thus unable to extract maximum

economies from scale.

• Uses agri-based raw materials, thus

heavily dependent on good crop season

and monsoon.

• Though proximate to the raw

material source, it is far from consuming

markets, resulting in increased logistic

costs.

Opportunities:

• Potentially large export market for

existing standard and specialised grades.

• Expansion will lead to tapping new

exports markets.

• Growing environmental concern

against use of plastics as packing

materials.

• Due to implementation of mandatory

pollution control norms, many of the

small and medium enterprises will be

forced to shut down.

• Expanding demand in the packaging/

lamination industry.

Threats:

• The Company produces specialised

grades that are need-specific thus have

no ready market.

• Being a cost-sensitive industry, a

price war by small players remains a

threat.

Risks & concerns

Has been covered in the Risk review on

page 41.

Segment-wise or product wise

performance

The Company is a single product

company and hence segment-wise or

product wise performance is not given.

Internal control systems and their

adequacy

In the views of the Director, the

Company has adequate internal control

systems that commensurate with the

structure and operations of the

Company.

The Company has an Audit Committee

that regularly reviews the Internal Audit

Report to ascertain their observations on

financial reports and control concerns.

The Management acts upon the Audit

Committee's observations.

The Company is also in the midst of

developing and implementing ERP

system to further strengthen internal

controls as well as external by

connecting its Dealer Management

system through the internet.

Discussion on Financial performance

Has been covered under financial review

on page 30.

Discussion on operational

performance

Has been covered under operational

review on page 24.

Material developments in human

resources/ industrial relations

Has been covered under operational

review on page 26.

Other Information

The particulars under Section 217(1) (e)

of the Companies Act, 1956 read with

Companies (Disclosure of particulars in

the report of Board of Directors) Rules,

1988 are given in Annexure and form

part of this report.

None of the employees are covered

under Section 217 (2A) of the

Companies Act, 1956 having gross

receipt of Rs 24 lacs per annum or Rs 2

lacs per month.

Auditors' observations

The observations in the Auditor's Report

are based on Note no. B-1 (b) of

Schedule-17. The comments of the

Board are as below:

The Company is confident of favourable

disposals of pending appeals, hence no

provision is required at this stage.

Auditors

M/s Kapoor Tandon & Co., Chartered

Accountants, Kanpur, retire at this

Annual General Meeting and are eligible

for re-appointment as Auditors.

Personnel

The relations with the employees

continued to remain cordial.

Outlook

Yash Papers expects to benefit from the

paper industry's annual growth of 6-7

per cent. The Company is well-placed:

its 'YASH' brand is recognised for its

quality in the low grammage paper

segment and the proposed expansion

will only strengthen the Company's

industry position, leading to better

margins and faster growth.

There was a significant increase in the

Company's profitability during 2004 due

to a rationalization in fuel costs and

stronger realizations, a trend that is

likely to sustain.

Acknowledgements

Your Directors acknowledge with

gratitude the overwhelming cooperation

and assistance received from the

government, financial institutions, banks,

investors and esteemed customers for

their continued support to the Company.

Your Directors also wish to place on

record their appreciation for whole-

hearted commitment and contribution

made by the entire 'Yash' family in

attainment of consistent growth.

For and on Behalf

of the Board

K. K. JhunjhunwalaExecutive Vice-Chairman

Place: New Delhi Ved KrishnaDate: 22.1.2005 Managing Director

INFORMATION PURSUANT TO THE

COMPANIES (DISCLOSURE OF

PARTICULARS IN THE REPORT OF

BOARD OF DIRECTORS) RULES,

1988.

1. CONSERVATION OF ENERGY

A. ENERGY CONSERVATION

MEASURES TAKEN

i. Installation of Capacitors for power

factor improvement

ii. Installations of fluid couplings.

iii. Implementation of the energy audit

proposals.

iv. Optimization of electric motors at

vaccum section.

v. Installation of Variable frequency drive

for part of boiler operation

vi. Installation of few high efficiency

pumps

vii. Installation of water filtration system

for recycling

viii. Installation of energy monitoring

devices.

B. ADDITIONAL INVESTMENT AND

PROPOSALS, IF ANY, BEING

IMPLEMENTED FOR REDUCTION OF

CONSUMPTION OF ENERGY

i. Installations of Variable frequency

drive for paper machine and balance of

boiler operations

ii. Further installation of high efficiency

pumps

C. IMPACT OF THE MEASURES OF

THE ABOVE

The implementation of the above

measures for energy conservation by the

Company will result in power & fuel

saving and improvement in productivity.

DDiirreeccttoorrss’’ RReeppoorrttAAnnnneexxuurree ttoo

5554

D. TOTAL ENERGY CONSUMPTION AND ENERGY CONSUMPTION PER UNIT OF

PRODUCTION AS PER PRESCRIBED FORM A.

i. Power and fuel consumption

Current Year Previous Year

(a) Electricity

(i) Purchased Unit (lakhs) Nil Nil

Total Amount (Rs.in lakhs) Nil Nil

Rate / Unit (Rs.) Nil Nil

(ii) Own generation

Through Diesel Generator

Unit (lakhs) 2.42 2.22

Unit per litre of Diesel Oil 3.54 3.50

Cost / Unit (Rs.) 5.35 5.30

Through Steam Turbine

Unit (lakhs) 168.06 174.03

Unit per MT of fuel (Paddy husk) 889* 800*

Cost / Unit (Rs.) 0.98 1.47

Note: *Steam Turbine is extraction cum condensing type hence

fuel allocation is on estimated basis.

(b) Coal Quantity (MT) Nil Nil

(c) Furnace Oil Quantity (Kilo litre) Nil Nil

(d) Others

(i) Paddy Husk Quantity (MT) 36081 37713

Total Cost (Rs.in lakhs) 315.64 443.14

Average Rate (Rs.) 875 1175

(ii) Bagasse/ Pith Quantity (MT) 2539 5092

Total Cost (Rs.in lakhs) 10.61 16.27

Average Rate (Rs.) 418 320

5756

ii. Consumption per unit of production of paper

UOM Current Year Previous Year

Electricity Units 1133* 1171*

Furnace Oil Litre Nil Nil

Coal MT Nil

Paddy Husk MT 1.25** 1.25**

Bagasse Pith MT 2.50** 2.50**

* Inclusive of consumption for operation of turbine equipments.

** Bagasse pith is used alongwith the paddy husk as fuel for producing steam which is used for paper manufacturing and

power generation hence consumptions are estimated.

2. TECHNOLOGY ABSORPTION

EFFORTS MADE IN TECHNOLOGY ABSORPTION AS PER PRESCRIBED FORM B

A. Specific areas in which R & D carried out by the company R & D centre is doing research in non-wood fibers under guidance

of consultants.

B. Benefits derived as a result of the above R & D Enhancement in quality and reduction in cost.

C. Future plan of action

To strengthen and continue improvement in quality through improvement of process control systems to reduce process time

& wastage. To develop new grades of paper.

D. Expenditure on R & D

(Rs. in lacs)

Current Year Previous Year

i. Capital 1.91l Nil

ii. Recurring 0.74 0.44

iii. Total 2.65 0.44

iv. Total R & D Expenditure as a percentage of total turnover 0.09 0.02

E. Technology absorption, adaptation and innovation

i. Efforts, in brief, made towards technology absorption, adaptation and innovation :-

Site training by consultants.

ii. Benefits derived as a result of the above efforts e.g. Product improvement, cost reduction, product

development, import substitution etc.:-

Improvement in existing process and product quality, performance, productivity and cost reduction.

iii. Imported Technology (Imported during the last five years reckoned from the beginning of the financial year)

None

3. FOREIGN EXCHANGE EARNING AND OUTGO

A. Activities relating to exports; initiatives taken to increase exports; development of new export markets for products and

services; and export plans;

The company has continued thrust on exports.

B. Total foreign exchange used and earned

i. Used Rs.3,07,11,579/-

(Including Rs.2,00,22,999/- for repayment of

FCNRB loan taken from SBI as part of working

capital limits and interest thereon)

ii. Earned Rs.2,01,77,660/-

For and on Behalf of the Board

K. K. Jhunjhunwala

Executive Vice-Chairman

Place : New Delhi Ved Krishna

Date : 22.01.2005 Managing Director

CCoorrppoorraattee GGoovveerrnnaanncceeRReeppoorrtt oonn

5958

Company's Philosophy of Code of

Governance

The Company firmly believes in and

continues to practice good Corporate

Governance. Accordingly, it follows the

business practices which result in

enhanced shareholder value and enables

it to fulfill its obligations to customers,

the government, employees, lenders and

to society in general.

Board of Directors

The Board consists of the Chairman,

Executive Vice-Chairman, Managing

Director, one Whole-Time Director and

four other Non-Executive Directors.

Hence, the composition of the Board is

in conformity with the Listing

Agreement, as not less than fifty percent

of the total strength of the Board (i.e.

Four) consists of Non-Executive

Directors and one-third (i.e. three) of the

Board comprises of independent

directors (as the Chairman is Non-

Executive).

All directors except the Executive Vice-

Chairman & Managing Director are liable

to retire by rotation as per the provisions

of the Companies Act, 1956.

For information of the members there are no pecuniary relationships or transactions of Non-Executive Directors vis-à-vis the

Company.

Board Meetings

During the period, Five Board meetings

were held on 14th February, 2004, 17th

April, 2004, 22nd May, 2004, 24th July,

2004 and 28th October, 2004. The

Annual General Meeting was held on

22nd May, 2004.

Attendance of each Director, at the

Board meetings and at the last Annual

General Meeting is furnished hereunder:

Composition and Category of Directors are as follows

Category Name of Directors

Promoter/ Executive Director Mr. K. K. Jhunjhunwala (Executive Vice-Chairman)

Mr. Ved Krishna (Managing Director)

Promoter/ Non Executive Director Mrs. Manjula Jhunjhunwala

Non Promoter, Independent Executive Director Mr. A. K. Gupta (Director Finance)

Non Promoter, Non Executive, Independent Director Mr. G. Narayana (Chairman)

Mr. G. N. Gupta

Dr. P. Banerjee

Mr. D. S. Gandikota

* Resigned w.e.f. 28th October, 2004

Name of Directors Board Meetings Last Annual General

Held Attended Meeting attended

Mr. G. Narayana 5 4 Yes

Mr. K. K. Jhunjhunwala 5 5 Yes

Mr. Ved Krishna 5 5 Yes

Mrs. Manjula Jhunjhunwala 5 3 Yes

Mr. A. K. Gupta 5 5 Yes

Mr. R. N. Chakraborty* 5 4 Yes

Mr. G. N. Gupta 5 5 Yes

Dr. P. Banerjee 5 4 Yes

Mr. D. S. Gandikota 5 5 Yes

Number of Directorship(s) and Chairmanship(s)/ Committee Membership(s) of each Director in Public

Limited Companies other than in Yash Papers Limited:

Name of Directors No. of other Directorships and Committee Membership/Chairmanship

Other Directorship Committee Membership Committee Chairmanship

Mr. K. K. Jhunjhunwala Nil Nil Nil

Mr. Ved Krishna Nil Nil Nil

Mrs. Manjula Jhunjhunwala 1 Nil Nil

Mr. A. K. Gupta Nil Nil Nil

Mr. G. N. Gupta 6 1 2

Mr. G. Narayana 5

Dr. P. Banerjee Nil Nil Nil

Mr. D. S. Gandikota Nil Nil Nil

Audit Committee

The Company constituted an Audit

Committee on 26th May, 2001. Audit

Committee consists of three

independent Non-Executive Directors

and one Executive Director. The

members of the committee are well

versed in matters relating to finance,

accounts, taxation, company law and

general management practices.

The Audit Committee was constituted in

accordance with the provisions of the

Listing Agreement. The terms of

reference of the Audit Committee were

in accordance with the Listing

Agreement with Stock Exchanges, which

inter-alia includes:

a. Oversight of the Company's financial

reporting process and disclosure of

its financial information to ensure the

financial statement is correct,

sufficient and credible.

b. Recommending the appointment of

Statutory Auditor, Internal Auditor

and fixation of their audit fee.

c. Discussion with internal auditors with

respect to significant findings,

internal control systems and follow

up there on.

d. Review the Company's financial and

risk management policies.

e. Ensure the compliances of the Stock

Exchanges.

6160

Name of Directors Position Audit Committee Meetings

Held Attended

Shri G. N. Gupta Chairman 4 4

Shri Ved Krishna Member 4 4

Shri D. S. Gandikota Member 4 4

Dr. P. Banerjee Member 4 3

The Composition of the Audit Committee and attendance of each member Director, at the Audit Committee Meetings held on 13th

February, 2004, 17th April, 2004, 24th July, 2004 and 28th October, 2004 during the period is as under:

Shareholders/Investors'

Grievance Committee

The Board of the Company has

constituted an Executive Committee,

which, amongst others, also looks after

share transfers. The Committee, inter-

alia, approves issue of duplicate share

certificates and oversees and reviews all

matters connected with the securities

transfers.

The Committee also looks into

redressing of shareholders' complaints

like transfer of shares, non-receipt of

Annual Report, non- receipt of declared

dividends etc. The Committee oversees

the performance of the Registrar and

Transfer Agent and recommends

measures for overall improvement in the

quality of investor services.

Other disclosures relating to

shareholder's aspect has been furnished

in the Shareholder Information Section

of the Annual Report.

Remuneration Committee

The Company has constituted a

Remuneration Committee of the Board

to consider the remuneration of the

Whole Time Directors, which is a part of

non-mandatory requirement of the code.

The Remuneration Committee comprises

of Independent Directors viz. Shri G. N.

Gupta, Shri D. S. Gandikota and Dr. P.

Banerjee.

The Remuneration Committee of the

Board recommends the remuneration of

the Executive Directors. The

remuneration package is governed by

the industry pattern and as per the

provisions of the Companies Act, 1956.

The compensation of Non-Executive

Directors is approved at Board Meeting.

The sitting fee is not paid to the

Executive Directors for the Board

meetings or committee meetings

thereof. The necessary approvals were

obtained from shareholders, wherever

required.

Name of Directors Service Contract/ Remuneration Paid

Notice period (in Rs)

Sitting Salaries and Total

Fees perquisites

Mr. K. K. Jhunjhunwala Not to retire by rotation Nil 10,61,886 10,61,886

Mr. Ved Krishna Not to retire by rotation Nil 6,31,537 6,31,537

Mrs. Manjula Jhunjhunwala Retire by rotation 14,000 - 14,000

Mr. Arvind Kumar Gupta Whole time retire by rotation Nil 3,22,520 3,22,520

Mr. R. N. Chakraborty * Whole time retire by rotation Nil 2,94,213 2,94,213

Mr. G. N. Gupta Retire by rotation 18,000 - 18,000

Mr. G. Narayana Retire by rotation 8,000 - 8,000

Dr. P. Banerjee Retire by rotation 22,000 - 22,000

Mr. D. S. Gandikota Retire by rotation 18,000 - 18,000

Total 80,000 23,10,156 23,90,156

The details of remuneration paid to all the directors during the year ended on December 31, 2004 are as follows:

• Resigned w.e.f. 28th October, 2004

Shri Ved Krishna and Smt. Manjula Jhunjhunwala are relatives of Shri K. K. Jhunjhunwala.

The total number of complaints received during the year ended December 31, 2004 - 15

The number of complaints that were resolved to the satisfaction of the Shareholders during the year ended December 31, 2004 -

15

As on December 31, 2004, the number of pending share transfer was 9 for 1100 shares which was transferred in January, 2004

and 107 requests of 19400 shares were pending for dematerialization due to postal delay and electronic request missing.

None of the resolutions were put through Postal Ballot last year. At the ensuing meeting, there is no resolution proposed to be

passed through postal ballot.

6362

Name of Directors Categor No. of meetings

Held Attended

Dr. P. Banerjee Non Promoter, Non Executive Independent

Director (Chairman) 4 4

Mrs. Manjula Jhunjhunwala Promoter, Non Executive Director 4 4

Mr. Arvind Gupta Non Promoter, Independent Executive Director 4 4

The Constitution of the Shareholders' Grievance Committee is as follows:

Date Meeting Time Location

July 31, 2002 22nd AGM 1:15 P.M. 'ULLHAAS', Rave 3, 6 Parbati Bagla Road, Kanpur-208 002

June 16, 2003 23rd AGM 1.15 P.M. Hotel, The Landmark, The Mall, Kanpur-208 001

May, 22, 2004 24th AGM 1.00 P.M. Hotel, The Landmark, The Mall, Kanpur-208 001

General Body Meetings

The details of the last 3 General Meetings of the shareholders are as under:

Recommendation Compliance

Quarterly Results Published in leading newspapers.

Which newspapers normally published in Amar Ujala (Kanpur edition), Business Standard/ Economic

times (All editions)

Any Website, where displayed www.sebiedifar.nic.in

SEBI's EDIFAR (Electronic Data Information Filing

And Retrieval)

Whether it also displays official news releases

and presentations made to institutional investors/analysts No

Whether management discussion and analysis is a

part of Annual Report Yes

Whether Shareholder information section forms

part of the Annual report Yes

Means of Communication

Disclosures

a. The Company does not have related

party transactions, which may have

potential conflict with the interest of the

Company at large.

The statutory disclosure requirements

relating to related party transactions

have been complied with in the Annual

Accounts (Schedule 18).

b. The Company complied with the

requirements of the Stock Exchanges/

SEBI/ Statutory Authorities on all

matters related to the capital market

during the last 3 years. There were no

penalties or strictures imposed on the

Company by the Stock Exchanges or

SEBI or any statutory authority relating

to the above.

General Shareholder Information

Detailed information in this regard is provided in the shareholder information section of this Annual Report.

SHAREHOLDERS' INFORMATION

1. Annual General Meeting Wednesday, April 20, 2005 at 11.00 A. M.

Date and Time Hotel “The Landmark”, 10, The Mall,

Venue Kanpur-208001.

2. Financial Calendar January, 2005 - Audited results for the last quarter and

(Tentative and subject to change) year ended on December 31, 2004

April, 2005 - Unaudited Financial results for first quarter

July, 2005 - Unaudited Financial results for second quarter

October, 2005 - Unaudited Financial results for third quarter

3. Book Closure Date 09.04.2005 to 20.04.2005 (both days inclusive)

4. Dividend Payment Date Within 30 days from the date of AGM i.e. date of

declaration of dividend

5. Listing of Equity Shares on Stock Exchanges at: 1. The Stock Exchange, Mumbai

2. U.P. Stock Exchange Association Ltd., Kanpur

6. Payment of Annual Listing Fees to the Stock Exchanges Listing Fee has been paid to Both the Stock Exchanges

up to March 31, 2004.

7. Stock Code BSE Code - 516030

8. Market Price Data Separately given

9. Demat ISIN Numbers of Equity Shares in NSDL & CSDL INE 551D01018

10. Registrar and Transfer Agent Skyline Financial Services Pvt. Ltd.

123, Vinoba Puri, Lajpat Nagar - II, New Delhi - 110 024

Tel No.: (011) 29833777, 29847136

Fax No.: (011) 29848352, Email: admin@skylinerta.com

11. Share Transfer System The Share transfers in physical form are presently processed

and the Share Certificates returned within a period of 15

days from the date of receipt, if the documents being valid

and complete in all respects.

6564

12. Distribution of Shareholding as on December 31, 2004. Separately given

13. Shareholding Pattern as on December, 2004

Category Per cent of Share Capital No. of shares

A. Promoter's Holding

1. Promoters 40.523 1566434

2. Persons acting in concert

Sub-Tota l 40.523 1566434

B. Non-Promoter's Holding

3. Institutional Investors

a. Mutual Funds and UTI 0.026 1000

b. Banks, Financial Institutions, Insurance 0.538 20800

Companies (Central/ State Government

Institutions/ Non-Government Institutions)

c. FIIs Nil Nil

Sub-Total 0.564 21800

C. Others

1. Private Corporate Bodies 7.270 196776

2. Indian Public 51.032 1972628

3. NRIs/ OCBs 0.610 23588

Sub-Total 58.913 2277266

GRAND TOTAL 100.00 3865500

14. Dematerialisation of Shares The Company has entered into a tripartite agreement with

NSDL and CDSL. As per SEBI notification, trading in equity

shares of the Company is permitted only in dematerialisation

form. As on December 31, 2004, 16,47,796 equity shares

have been demated, representing 42.62 per cent of the

issued capital.

15. Outstanding GDR/ADR/ Warrants or convertible bonds,

conversion date and likely impact on equity NIL

16. Plant Locations Yash Nagar, P.O. Darshan Nagar,

Faizabad (UP) 224135

17. Addition to Equity Share Capital during the period

ended on December 31, 2004 NIL

18. Address for Correspondence Corporate Office

YASH PAPERS LIMITED

Yash Nagar, P.O. Darshan Nagar

Faizabad -224 135 (U.P.)

Ph. (05278) 258777, 258589; Fax. (05278) 258062

E-mail : info@yash-papers.com

19. Website www.yash-papers.com

Note: The Company has got its shares delisted voluntarily from the Stock Exchange, Ahmedabad w.e.f. 28.01.2005.

6766

No. of equity share held Shareholders Equity share held

Number Per cent to total Number Per cent to total

Upto 250 8587 85.664 973819 25.193

251 - 500 916 9.138 372831 9.645

501 - 1000 295 2.943 249278 6.449

1001 - 2000 116 1.107 161611 4.181

2001 - 3000 31 0.309 76855 1.988

3001 - 4000 4 0.046 15322 0.396

4001 - 5000 21 0.209 102144 2.642

5001 - 10000 20 0.200 148684 3.846

10001 and above 39 0.389 1764956 45.659

TOTAL 10024 100.000 3865500 100.00

Distribution of Shareholding as on December 31, 2004

Month High (Rs.) Low (Rs.)

January 2004 15.80 11.77

February 2004 13.50 11.01

March 2004 12.98 10.25

April 2004 12.70 10.53

May 2004 14.84 10.61

June 2004 11.50 9.53

July 2004 12.73 8.55

August 2004 14.44 12.02

September 2004 14.55 12.20

October 2004 14.45 11.25

November 2004 23.50 13.75

December 2004 25.25 19.20

To the members of

Yash papers Limited

We have examined the compliance of conditions of Corporate

Governance by Yash Papers Limited for the year ended 31st

December 2004 as stipulated in Clause 49 of the Listing

Agreement of the said Company with stock exchange(s).

The compliance of conditions of Corporate Governance is the

responsibility of the management. Our examination was limited

to procedures and implementation thereof, adopted by the

Company for ensuring the compliance of the conditions of the

Corporate Governance. It is neither an audit nor an expression

of opinion on the financial statements of the Company.

In our opinion and to the best of our information and according

to the explanations given to us, we certify that the company has

complied with the conditions of Corporate Governance as

stipulated in the above-mentioned Listing Agreement.

We state that no investor grievances pending for a period of one

months against the Company as per the records maintained by

the Company and presented to the Shareholder's/Investor

Grievance Committee.

We further state that such compliance is neither an assurance as

to the future viability of the Company nor of the efficiency or

effectiveness with which the management has conducted the

affairs of the Company.

For Kapoor Tandon & Co.,

Chartered Accountants

Camp: Rajesh Parasramka

Date: Partner

Membership No. 74192

Stock Prices (at Stock Exchange, Mumbai)

Auditors’ Certificate on Corporate Governance

AAuuddiittoorrss''RReeppoorrtt

6968

To The Members ofYash Papers Limited

We have audited the attached BalanceSheet of Yash Papers Limited as at 31stDecember, 2004 and also the annexedProfit and Loss Account and the Cash FlowStatement for the year ended on that date.These financial statements are theresponsibility of the management of theCompany. Our responsibility is to expressan opinion on these financial statementsbased on our audit.

1. We conducted our audit in accordancewith auditing standards generallyaccepted in India. These Standardsrequire that we plan and perform theaudit to obtain reasonable assuranceabout whether the financial statementsare free of material misstatement. Anaudit includes examining, on a testbasis, evidence supporting the amounts

and disclosures in the financialstatements. An audit also includes,assessing the accounting principlesused and significant estimates made bymanagement, as well as evaluating theoverall presentation of the financialstatements. We believe that our auditprovides a reasonable basis for ouropinion.

2. As required by the Companies (Auditors'Report) Order, 2003 issued by theCentral Government of India in terms ofSection 227(4A) of the Companies Act,1956 (the Act), we annex hereto astatement on the matters specified inparagraphs 4 and 5 of the said Order.

3. Further to our comments in theannexure referred to in paragraph 2above, we report that :

a. We have obtained all the informationand explanations which, to the best

of our knowledge and belief, were necessary for the purposesof our audit;

b. In our opinion, proper books of accounts as required by lawhave been kept by the Company so far as appears from ourexamination of these books;

c. The Balance Sheet, Profit and Loss Account and Cash FlowStatement dealt with by this report are in agreement with thebooks of account;

d. In our opinion, the Balance Sheet, Profit and Loss Accountand Cash Flow Statement dealt with by this report complywith the applicable Accounting Standards referred to inSection 211 (3C) of the Act;

e. As per the representation made by the Company and all itsdirectors, none of the director is disqualified as on 31stDecember, 2004 from being appointed as director underSection 274 (1)(g) of the Act.

f. We draw reference to:Note no. B-1 (b) of Schedule-17 regarding pending litigationin respect of Trade Tax and Excise Duty and non provision ofdemands in respect thereof.

g. In our opinion and to the best of our information andaccording to the explanations given to us, the said accounts,read together with the Notes thereon, give the informationrequired by the Act, in the manner so required and give a trueand fair view in conformity with the accounting principlesgenerally accepted in India:-

i. in the case of the Balance Sheet, of the state of affairs ofthe Company as at 31st December, 2004 ;

ii. in the case of the Profit and Loss Account, of the Profit ofthe Company for the year ended on that date ; and

iii. in the case of the Cash Flow Statement, of the cash flowsfor the year ended on that date.

For Kapoor Tandon & Co.,Chartered Accountants

Camp : New Delhi Rajesh ParasramkaDate : January 22, 2005 Partner

Membership No. 74192

7170

1 (a) The Company has maintained

proper records showing full

particulars, including quantitative

details and situation of its fixed

assets.

(b).There is regular programme of

physical verification, which in our

opinion is reasonable, having

regard to the size of the

Company and the nature of fixed

assets. No material discrepancies

have been noticed in respect of

the assets physically verified

during the year.

(c).The Company has not disposed

off substantial part of fixed

assets during the year.

2 (a) The inventories of the Company

have been physically verified by

the management during the year.

In our opinion, the frequency of

verification is reasonable.

(b).In our opinion and according to

the information and explanations

given to us, the procedures of

physical verification of inventories

followed by the management are

reasonable and adequate in

relation to the size of the

Company and nature of its

business.

(c) The Company is maintaining

proper records of inventories. The

discrepancies noticed on

verification between physical

inventories and book records

were not material in relation to

the operations of the Company.

3 (a) The Company has not granted

any loan, secured or unsecured,

to companies, firms or other

parties listed in the register

maintained under Section 301 of

the Act. Hence sub clauses (b) to

(d) of clause (iii) are not

applicable.

(b) The Company has taken interest

free unsecured loan from

director(s), except this the

Company has not taken any

loans, secured or unsecured,

from companies, firms or other

parties listed in the register

maintained under Section 301 of

the Act. The maximum amount

involved during the year was Rs.

23 Lacs and the year-end balance

of loan taken from director(s)

was Rs. 12 Lacs.

(c) In our opinion, the terms and

conditions on which loans have

been taken from director(s) are,

prima facie, not prejudicial to the

interest of the Company.

(d) The Company is regular in

repaying the principal amount.

4 In our opinion and according to the

information and explanations given to

us, there is adequate internal control

system commensurate with the size

of the Company and nature of its

business for the purchase of

inventory, fixed assets and for the

sale of goods and services. Further,

on the basis of our examination and

according to the information and

explanations given to us, we have

neither come across nor have been

informed of any continuing failure to

correct major weaknesses in the

aforesaid internal control system.

5 (a) In our opinion and according to

the information and explanations

given to us, particulars of

contracts or arrangements

referred in Section 301 of the Act

have been entered in the register

required to be maintained under

that section.

(b) In our opinion and according to

the information and explanations

given to us, the transactions

made in pursuance of such

contracts or arrangements have

been made at prices which are

reasonable having regard to the

prevailing market prices at the

relevant time.

6 In our opinion and according to the

information and explanations given to

us, the Company has complied with

the provisions of Section 58A and

58AA of the Act and the rules

framed there under for the deposits

accepted from the public.

7 In our opinion and according to the

information and explanations given to

us, the Company has an internal

audit system commensurate with the

size of the Company and nature of

its business.

8 We have broadly reviewed the books

of account and records maintained

by the Company pursuant to the

Rules framed by the Central

Government for the maintenance of

cost records under Section 209(1)(d)

of the Act and are of the opinion

that, prima facie, the prescribed

accounts and records have been

made and maintained. We have not,

however, made a detailed

examination of the said accounts and

records with a view to determine

whether they are accurate or

complete.

9 (a) According to the information and

explanations given to us and

books and records produced and

examined by us, in our opinion,

the Company is generally regular

AAuuddiittoorrss’’ RReeppoorrttAAnnnneexxuurree ttoo

Name of Nature of Amount Year(s) to Forum where

the Statute the dues (Rs. in Lacs) which the pending

relates

Central Excise Act, 1944 Penalty 0.17 1995-96 CEGAT, New Delhi

Sales Tax Laws (i) Purchase Tax 14.61 1989-90 High Court, Allahabad

on Paddy Husk to 1995-96

(ii) Exemption 60.05 1982-83 High Court, Allahabad

for New Unit to 1988-89

in depositing undisputed

Statutory dues including

Provident Fund, Investors

Education and Protection Fund,

Income Tax, Sales/Trade Tax,

Wealth Tax, Custom Duty, Excise

Duty, Cess, Service Tax and

other material Statutory dues as

applicable with the appropriate

authorities and no undisputed

statutory dues in respect of

Income Tax, Wealth Tax, Custom

Duty and Excise Duty were

outstanding at the end of the

year for a period of more than six

months from the date they

become payable.

(b) According to the information and

explanations given to us, there

are no dues of Sales Tax, Income

Tax, Custom Duty, Wealth Tax,

Excise Duty, Cess and Service

Tax which have not been

deposited on account of any

dispute given below.

10 The Company does not have

accumulated losses as at the end of

the financial year and it has not

incurred any cash losses in the

current financial year and in the

immediately preceding financial year.

11 Based on our audit procedure and

according to the information and

explanations given to us by the

management, we are of the opinion

that the Company has not defaulted

during the year in repayment of dues

to any financial institutions or banks.

12 According to the information and

explanations given to us, the

Company has not granted any loans

and/or advances on the basis of

security by way of pledge of shares,

debentures and other securities.

13 In our opinion and according to the

information and explanations given to

us, the nature of activities of the

Company does not attract any

special statute applicable to chit fund

and nidhi / mutual benefit fund /

societies.

14 In our opinion and according to the

information and explanations given to

us, the Company is not a dealer or

trader in securities.

15 According to the information and

explanations given to us, the

Company has not given any

guarantees for loans taken by others

from banks or financial institution.

16 During the year, the Company has

not raised any new Term Loan.

17 Based on the information and

explanations given to us and on an

overall examination of the Balance

Sheet of the Company, in our

opinion, there are no funds raised on

a short term basis which have been

used for long term investment.

18 The Company has not made any

preferential allotment of shares

during the year to parties and

companies covered in the register

maintained under Section 301 of the

Act.

19 The Company has not issued any

debentures during the year.

20 The Company has not raised any

money by public issue during the

year.

21 Based on the audit procedures

performed and according to the

information and explanations given to

us, no fraud on or by the Company

has been noticed or reported during

the year.

For Kapoor Tandon & Co.,

Chartered Accountants

(Rajesh Parasramka)

Partner

Membership No. 74192

Camp : New Delhi

Date : January 22, 2005

7372

Profit and Loss Account Amount in RupeesFor the year ended 31st December 2004 2003

Schedule1. INCOME

a. Gross Sales 286,891,389 267,985,682Less: Excise Duty on Sales 28,460,343 28,947,252

258,431,046 239,038,430 b. Other Income 13 3,091,965 4,093,758c. Increase/(Decrease) in Stocks 14 3,258,905 445,502Total 'A' 264,781,916 243,577,690

2. EXPENDITUREa. Raw Material Consumed 15 70,579,524 61,484,295b. Manufacturing, Administrative, Selling and Distribution Expenses 16 153,300,393 155,932,680 c. Depreciation on Fixed Assets 14,284,390 14,163,708Total 'B' 238,164,307 231,580,683

3. PROFIT BEFORE TAX (A-B) 26,617,609 11,997,007Provision for Taxation- Current Tax 9,575,000 3,955,000- Deferred Tax 1,180,533 (707,440)

4. PROFIT AFTER TAX 15,862,076 8,749,447Income Tax relating to earlier year Credit/(Debit) (11,775) (474,464)Balance of Profit 15,850,301 8,274,983Balance brought forward from Previous Year 20,548,625 19,122,330

5. PROFIT AVAILABLE FOR APPROPRIATION 36,398,926 27,397,313AppropriationsTransfer to General Reserve 5,000,000 2,500,000Proposed dividend 4,831,875 3,865,500Tax on proposed dividend 631,466 483,188Balance Carried to Balance Sheet 25,935,585 20,548,625Earning per ShareNet Profit 15,862,076 8,749,447Weighted average no. of equity shares 3,865,500 3,865,500Basic and Diluted Earning per share (Nominal value of Rs.10 per share) 4.10 2.26Significant Accounting Policies and Notes on Accounts 17

The Schedules referred to above form an integral part of the Profit and Loss Account.As per our report of even date attached.For Kapoor Tandon & Co. For and on behalf of the BoardChartered Accountants

K. K. Jhunjhunwala Ved Krishna G . N. GuptaRajesh Parasramka Executive Vice Chairman Managing Director DirectorPartnerMembership No. 74192

D. S. Gandikota A. K. Gupta Deepak NathaniDirector Director Finance Company SecretaryCamp: New Delhi

January 22, 2005

Balance Sheet Amount in RupeesAs at 31st December 2004 2003

ScheduleI. SOURCES OF FUNDS

1. Shareholders' Fundsa. Capital 1 38,655,000 38,655,000 b. Reserves and Surplus 2 102,898,085 141,553,085 92,511,125

2. Loan Fundsa. Secured Loans 3 45,777,465 47,790,753 b. Unsecured Loans 4 14,966,300 60,743,765 17,764,148

3. Deferred Tax Liability (See note no.B-8 of Schedule 17) 45,319,064 44,138,531 Total 247,615,914 240,859,557

II. APPLICATION OF FUNDS1. Fixed Assets 5

a. Gross Block 305,273,309 294,644,485 b. Less: Depreciation 121,546,736 108,916,961

c. Net Block 183,726,573 185,727,524 d. Capital Work in Progress 6,959,552 190,686,125 4,093,723

189,821,247 2. Investments 6 5,935 25,935 3. Current Assets,Loans and Advances

a. Inventories 7 50,475,201 44,963,005 b. Sundry Debtors 8 21,027,232 22,550,376 c. Cash and Bank Balances 9 3,619,546 3,612,700 d. Loans and Advances 10 5,397,728 4,697,888 Total 'A' 80,519,707 75,823,969 Less: Current Liabilities and Provisionsa. Liabilities 11 14,096,902 16,923,143 b. Provisions 12 9,498,951 7,888,451 Total 'B' 23,595,853 24,811,594 Net Current Assets (A-B) 56,923,854 51,012,375 Total 247,615,914 240,859,557

Significant Accounting Policies and Notes on Accounts 17

The Schedules referred to above form an integral part of the Balance Sheet.As per our report of even date attached.For Kapoor Tandon & Co. For and on behalf of the BoardChartered Accountants

K. K. Jhunjhunwala Ved Krishna G . N. GuptaRajesh Parasramka Executive Vice Chairman Managing Director DirectorPartnerMembership No. 74192

D. S. Gandikota A. K. Gupta Deepak NathaniDirector Director Finance Company SecretaryCamp: New Delhi

January 22, 2005

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Schedules forming part of Annual AccountsSchedule-3 SECURED LOANS (Contd.) Amount in Rupees

Note: 1. Term Loans repayable during next 12 months are Rs.60 lacs (Rs.94.50 lacs)2. Working Capital Loan from SBI include FCNR(B) Demand Loan of USD 4,00,000 (USD 4,00,000)

Details of Security given Against LoansA. To Banks

For Working Capital LoansSecured against hypothecation of book debts, stocks of raw materials, finished goods, stock in process, consumable stores & spares and other current assets and Second Charge over entire fixed assets (Present & Future) in consortium ranked pari-passu and personal guarantee of two Directors.

B. To Financial InstitutionsSecured against equitable mortgage of fixed assets and hypothecation of all moveable assets and personal guarantee of two Directors.

Schedule-4 Unsecured LoansAs at 31st December 2004 2003

A. Fixed Deposits 13,766,300 11,564,148[Repayable within one year Rs.29,27,342/- (Rs.40,22,848/-)]

B. Other LoansFrom a Company – 5,000,000From Director(s) 1,200,000 1,200,000

Total 14,966,300 17,764,148

Schedule-5 Fixed AssetsGROSS BLOCK DEPRECIATION NET BLOCK

Sl. Description As at Additions Sales/ As at Upto For the Deduction/ As at As at As atNo. of Assets 31.12.2003 discarded 31.12.2004 31.12.2003 year Adjustment 31.12.2004 31.12.2004 31.12.2003

Tangible1. Land Free Hold 3,912,261 697,248 – 4,609,509 – – – – 4,609,509 3,912,2612. Land Lease Hold 496 – – 496 – – – – 496 4963. Building Factory 27,633,465 1,556,664 – 29,190,129 9,161,561 977,583 – 10,139,144 19,050,985 18,471,9044. Building Non Factory 11,001,984 – – 11,001,984 1,215,605 178,803 – 1,394,408 9,607,576 9,786,3795. Plant and Machinery 216,811,282 10,132,708 3,253,959 223,690,031 82,405,777 10,974,430 896,592 92,483,615 131,206,416 134,405,5056. Electric Installation and Fittings 20,594,981 868,365 128,604 21,334,742 8,612,634 951,453 86,695 9,477,392 11,857,350 11,982,3477. Furniture & Fittings 2,370,056 64,543 53,854 2,380,745 1,357,374 130,800 48,941 1,439,233 941,512 1,012,6828. Office Equipment 4,651,726 424,259 616,728 4,459,257 2,780,365 432,567 580,794 2,632,138 1,827,119 1,871,3619. Vehicles 7,668,234 596,101 57,919 8,206,416 3,383,645 632,179 41,593 3,974,231 4,232,185 4,284,589

Intangible10. Computer Software – 400,000 – 400,000 – 6,575 – 6,575 393,425 –

Total 294,644,485 14,739,888 4,111,064 305,273,309 108,916,961 14,284,390 1,654,615 121,546,736 183,726,573 185,727,524Previous Year 287,674,866 18,960,710 11,991,091 294,644,485 98,618,214 14,163,708 3,864,961 108,916,961 185,727,524 –Capital Work in Progrees (Including Rs. 30.75 lacs (Rs. 30.75 lacs) towards advances for capital expenditure). 6,959,552 4,093,723

Amount in RupeesSchedules forming part of Annual AccountsAs at 31st December 2004 2003

Authorised2,60,00,000 (40,00,000) Equity Shares of Rs.10/- each 260,000,000 40,000,0004,00,000 (3,00,000) Preference Shares of Rs.100/- each 40,000,000 30,000,000Total 300,000,000 70,000,000Issued, Subscribed and Paid up38,65,500 Equity Share of Rs.10/- each fully paid up 38,655,000 38,655,000Of the above :568,000 Equity Shares have been alloted as fully paid up Bonus Shares by capitalisation of reservesTotal 38,655,000 38,655,000

Schedule-2 RESERVES AND SURPLUS

A. Capital ReserveBalance as per last Account 6,087,500 6,087,500

B. Securities PremiumBalance as per last Account 25,875,000 25,875,000

C. General ReserveBalance as per last Account 40,000,000 37,500,000Add: Transferred from Profit and Loss Account 5,000,000 45,000,000 2,500,000 40,000,000

D. Profit and Loss AccountAs per Account annexed 25,935,585 20,548,625

Total 102,898,085 92,511,125

Schedule-3 SECURED LOANS

A. From BanksI. Working Capital Loans

(a) State Bank of India 24,208,874 20,135,206(b) Canara Bank 3,568,591 205,547

II. Term LoansCanara Bank – 1,250,000

B. From Financial InstitutionsTerm LoansIndustrial Development Bank Of India (IDBI Ltd.)(a) Equipment Finance Scheme Loans – 2,200,000(b) Term Loan 18,000,000 24,000,000Total 45,777,465 47,790,753

Schedule-1 SHARE CAPITAL

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Schedules forming part of Annual AccountsAmount in Rupees

As at 31st December 2004 2003

Over six months 881,693 1,347,963 Other debts 20,145,539 21,202,413 Total 21,027,232 22,550,376

Schedule-9 CASH AND BANK BALANCESA. Cash Balances

i. Cash in hand 1,051,119 306,730 ii. Stamps/Cheque in hand 260,361 1,311,480 1,120,716 1,427,446

B. Balance With Scheduled Bank on i. Current Accounts 35,221 27,474 ii. Fixed Deposit Accounts 1,741,084 1,667,057 iii. Unpaid Dividend Accounts [Including amount kept in Fixed Deposit account Rs.1,51,274/- (Rs.1,50,000/-)] 531,761 2,308,066 490,723 2,185,254

Total 3,619,546 3,612,700

Schedule-10 LOANS AND ADVANCES (Unsecured - considered good)

A. Advances recoverable in cash or in kind or for value to be received 5,293,918 4,597,388 B. Security Deposits 103,810 100,500 Total 5,397,728 4,697,888

Schedule-11 LIABILITIES

A. Sundry Creditors 5,751,919 6,377,493[Include amounts payable to capital goods supplier Rs. 6,84,952/- (Rs.15,38,651/-)]

B. Advance from Customers 1,069,639 1,855,196 C. Other Liabilities 5,226,868 6,413,244 D. Interest accrued but not due 1,502,690 1,771,753 E. Investor Education and Protection Fund (No amount is due for transfer)

i. Unclaimed Dividend 533,342 493,013 ii. Unclaimed matured Deposits 8,000 8,000 iii. Interest accrued on unclaimed matured Deposits 4,444 4,444

Total 14,096,902 16,923,143

Schedule-8 SUNDRY DEBTORS (Unsecured - considered good)

Schedules forming part of Annual Accounts

Schedule-6 INVESTMENTS (Non Trade)

As at 31st December 2004 2003

LONG TERM INVESTMENTSQuoted Pudumjee Pulp & Paper Mills Ltd.100 Equity Shares of Rs.10/- each fully paid up 4,400 4,400Rana Mohindra Papers Ltd.100 Equity Shares of Rs.10/- each fully paid up 380 380Mukerian Papers Ltd.100 Equity Shares of Rs.10/- each fully paid up 600 600Rama Newsprint & Papers Ltd.100 Equity Shares of Rs.10/- each fully paid up 555 555Total 'A' 5,935 5,935UnquotedFortune Constructions Pvt. Ltd.Nil (200) Equity Shares of Rs.100/- each fully paid up – 20,000Total 'B' – 20,000Total 'A+B' 5,935 25,935Total cost of quoted investments 5,935 5,935Total cost of unquoted investments – –Aggregate Market value of quoted investments 8,674 5,111Details of Investment written off during the yearFortune Constructions Pvt. Ltd.200 Equity Shares of Rs.100/- each fully paid up 20,000 –

Schedule-7 INVENTORIES (As taken, valued and certified by the management)

A. Stores and Spares (at cost) 21,619,345 26,117,211 B. Loose Tools (at cost) 285,069 266,229 C. Finished Goods (At lower of cost or net realisable value) 14,392,888 11,158,038 D. Raw Material (at cost) 13,385,135 6,765,052 E. Work in Process (at estimated cost) 455,530 431,475 F. Scrap (At estimated realisable value) 250,000 225,000 G. Import Entitlements/licence (DEPB) (At estimated realisable value) 87,234 –Total 50,475,201 44,963,005

Amount in Rupees

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Schedules forming part of Annual AccountsAmount in Rupees

For the year ended 31st December 2004 2003

Salary, Wages and Bonus 16,052,666 15,418,501 Contribution to Provident and Other Funds 1,488,234 1,594,907 Workmen and Staff Welfare 1,238,512 1,027,516 Manufacturing Expenses 44,195,895 42,532,942 Power and Fuel 35,398,786 48,872,483 Consumption of Stores and Spares 8,932,334 6,093,555 Rent 339,335 318,313 Printing and Stationery 590,416 547,533 Rates and Taxes 849,826 182,750 Postage, Telegram and Telephone 963,932 1,096,824 Repairs to :Machinery 4,278,370 2,531,292

Building 682,954 556,114 Others 1,196,575 6,157,899 1,005,340 4,092,746

Insurance 1,130,967 1,067,904 Excise Duty provided on stocks - increase/(decrease) 39,530 (378,279)Legal and Professional Charges 483,989 386,576 Payment to Statutory Auditors :

Audit Fee 59,400 59,400 Consultancy on Taxation matters 38,000 28,630 Other Professional Services 24,504 54,573 Reimbursement of Expenses 170,633 292,537 87,440 230,043

Cost Audit Fee 21,600 18,900 Bank Charges 578,934 731,404 Interest on:

Term Loan and Fixed Deposits 5,780,337 7,467,846 Others 1,528,539 7,308,876 1,321,755 8,789,601

Directors' Remuneration 2,170,714 1,902,791 Travelling and Conveyance 2,797,100 2,746,620 Subscription and Donation 205,500 249,094 Commission on Sale 3,161,989 2,337,697 Rebate and Discount on Sale 1,452,697 773,912 Packing and Forwarding 14,189,772 10,625,581 Advertisement 462,207 385,146 Exchange Fluctuation 458,927 –Miscellaneous Expenses 1,167,454 1,156,383 Loss on Fixed Assets sold/discarded 346,500 2,590,957 Loss on Investment sold/written off 20,000 – ETP Operation Expenses 790,964 376,464 Wealth Tax 12,301 45,796 Share Issue Expenses written off – 118,020 Total 153,300,393 155,932,680

Schedule-16 MANUFACTURING, ADMINISTRATIVE, SELLING AND DISTRIBUTION EXPENSES

Schedules forming part of Annual AccountsAmount in Rupees

As at 31st December 2004 2003

For Income Tax less Advance Income Tax 2,445,610 1,989,293 For Proposed Dividend 4,831,875 3,865,500 For Tax on Proposed Dividend 631,466 483,188 For Excise Duty 1,590,000 1,550,470 Total 9,498,951 7,888,451

A. Miscellaneous Income 1,746,549 1,698,007 B. Interest on Fixed Deposit & Others [Including TDS Rs. 1,31,275/- (Rs. 1,17,098/-)] 759,076 1,347,143 C. Profit on Fixed Assets sold/discarded 45,592 180,177 D. Self Consumed 23,838 25,795 E. Export Incentive (DEPB) 504,810 474,356 F. Exchange fluctuation – 197,180 G. Rent – 34,000 H. Dividend on investment (Non trade) 100 100 I. Bad debts recovered 12,000 137,000

Total 3,091,965 4,093,758

Schedule-14 INCREASE/(DECREASE) IN STOCKS

A. Stock at Commencementi. Finished Goods 11,158,038 10,794,706ii. Work In Process 431,475 349,305

Total 'A' 11,589,513 11,144,011B. Stock at Close

i. Finished Goods 14,392,888 11,158,038 ii. Work In Process 455,530 431,475

Total 'B' 14,848,418 11,589,513 Increase/(Decrease) 'B-A' 3,258,905 445,502

Schedule-15 RAW MATERIAL CONSUMED

Opening Stock 6,765,052 3,955,894Add: Purchases 77,199,607 64,293,453Total 83,964,659 68,249,347Less:Closing Stock 13,385,135 6,765,052Raw Material Consumed 70,579,524 61,484,295

Schedule-12 PROVISIONS

Schedule-13 OTHER INCOME

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Schedules forming part of Annual AccountsSchedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS

A. SIGNIFICANT ACCOUNTING POLICIES

1. System of AccountingThe accounts are prepared on accrual basis under the historical cost convention and to comply in all material aspects with applicable accounting principles in India, theAccounting Standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956.

2. Fixed AssetsFixed Assets are stated at cost of acquisition/construction, as the case may be, including borrowing costs upto the date of commissioning of related assets and all direct andindirect expenses related thereto. (Also refer Para A-8 & A-12 on borrowing costs and CENVAT)

3. Depreciation / Amortisationi. Depreciation on fixed assets is provided on ‘Straight Line Method’ at the rates specified in Schedule XIV to the Companies Act, 1956. Fixed assets costing below

Rs.5,000/- are fully depreciated in the year of addition. Depreciation is provided on pro-rata basis with reference to the date of addition/deletion in respect of additionto/deletion from fixed assets.

ii. Leasehold Land is not amortised.iii. Computer Software being intangible asset is amortised over a period of 5 years on “Straight Line Method”.

4. Capital work in ProgressCapital work in progress comprises cost of fixed assets not yet commissioned, incidental pre-operative expenses, borrowing costs and advances for capital expenditure.

5. InvestmentsInvestments are stated at cost. A provision for diminution is made if in the opinion of the management, the diminution is other than temporary.

6. Inventoriesi. Raw materials and paddy husk are valued at cost (weighted average).ii. Work in process is valued at estimated cost.iii. Finished goods are valued at lower of cost or net realisable value and for this purpose, cost is determined on direct cost basis. iv. Stores (excepting paddy husk), spares and loose tools are valued at cost (FIFO basis).v. Scraps are valued at estimated realisable value.vi. Import entitlements/licence (DEPB) at estimated realisable value.

7. Foreign Currency TransactionsOutstanding foreign currency assets and liabilities, other than those covered by Forward Exchange Contract, are translated at the exchange rate prevailing as on Balance Sheetdate. Foreign Exchange asset / liability covered by Forward Exchange Contract are translated at the rate prevailing at the date of transaction as increased or decreased bythe proportionate difference between the forward rate and exchange rate on the date of transaction, such difference having been recognised over the life of contract. Gainsor loss on these assets and liabilities relating to the acquisition of fixed assets are adjusted to the cost of such fixed assets and those relating to other accounts are recognisedin the Profit and Loss Account.

8. Borrowing CostsBorrowing costs that are attributable to the acquisition/construction of qualifying assets are capitalised as part of cost of such assets. A qualifying asset is an asset that

Schedules forming part of Annual AccountsSchedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)

requires a substantial period of time to get ready for its intended use. All other borrowing costs are recognised as an expense in the year in which they are incurred.

9. Taxes on IncomeProvision for tax on income for the year (i.e. Current Tax) is made after considering the various deductions/relief admissible under the Income Tax Act, 1961. Provision for taxeffect of timing difference (i.e. Deferred Tax) is made in accordance with the provisions of the Accounting Standard 22, Accounting for Taxes on Income (AS-22) issued by theInstitute of Chartered Accountants of India.

10.SalesSales are recognised on despatch of goods to customers. Sales includes Excise Duty and does not include Sales Tax.

11.Retirement BenefitsContributions are made to approved gratuity, superannuation and provident fund. In respect of gratuity, the company has adopted a cash accumulation scheme with the LifeInsurance Corporation of India. The company has made premium contributions towards the gratuity scheme as called for by LIC.

12.CENVAT credit availed in respect of capital goods is adjusted from cost of assets and in respect of other items is adjusted from related expenses

13.Prior period items, if material, are shown separately.

B. NOTES

1. Contingent Liability not provided for:

a. Estimated amount of capital commitments (Net of advances) Rs.182.67 lacs (Rs.183.46 lacs)

b. Claims against the Company not acknowledged as debts :

i. Excise duty Rs. 0.17 lacs (Rs. 0.17 lacs)

ii. Trade Tax, Appeals pending with Hon'ble High Court, Allahabad Rs. 74.66 lacs (Rs. 74.66 lacs)

iii. Others Rs. 12.50 lacs (Rs. 12.50 lacs)

c. Guarantee given by Banks Rs. 21.77 lacs (Rs. 21.77 lacs)

2. Additional informations as required under paragraphs 3, 4C and 4D of Part II of Schedule VI to the Companies Act, 1956 are as under:-

a. Details for each class of goods manufactured, sold and stocks during the year (as certified by the management)

i. Capacity

Product Unit Licensed Capacity Installed Capacity

Kraft, Writing Printing and MT 27500 16000other uncoated paper MT (27500) (16000)

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c. Value of material consumed

Imported value Indigenous valueRs. % Rs. %

i. Raw Material 1,16,12,703 16.45 5,89,66,821 83.55

(1,27,49,587) (20.74) (4,87,34,708) (79.26)

ii. Stores & Spares* 2,96,111 0.56 5,28,32,118 99.44

(Nil) (Nil) (4,86,26,497) (100.00)

* Include interalia Wire, Felt and Chemicals grouped under manufacturing expenses.

d. CIF Value of Imports

i. Capital Goods Rs. 5,40,000/- (Rs. 7,41,754/-)

ii. Raw Materials and consumables Rs. 99,21,927/- (Rs. 92,57,876/-)

e. Remittance in Foreign Currency on account of Dividend Nil (Nil)

f. Earnings in Foreign Exchange

FOB Value of Exports Rs. 2,01,77,660/- (Rs.1,09,47,519/-)

g. Expenditure in Foreign Currency

i. Travelling Rs. 1,71,964/- (Rs. 72,823/-)

ii. Interest on Working Capital Loans Rs. 9,91,499/- (Rs. 5,99,522/-)

iii. Others Rs. 54,688/- (Rs. 35,799/-)

3. In the opinion of the Board and to the best of their knowledge and belief the value on realisation of the current assets, loans and advances, if realised, in the ordinary courseof business would not be less than the amount at which they are stated in the Balance Sheet. The provisions for all known liabilities are adequate and not in excess ofamount considered reasonably necessary.

4. Fixed deposit receipts for Rs.30,000/- (Rs.30,000/-) are pledged with the Assistant Commissioner, Trade Tax (Assessment), Faizabad as security, Rs.25,629/- (Rs.25,000/-) with Canara Bank, Overseas branch, Kanpur as margin money against foreign letter of credit and fixed deposit receipts for Rs.7,55,000/- (Rs. 7,55,000/-) arepledged with the banks against the Guarantees given to the following parties:-

Schedules forming part of Annual AccountsSchedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)

i. Production, sales and stocks of finished goods:

Class of Goods Unit Opening Stock ProductionQuantity Value (Rs.) Quantity

Kraft paper MT 707.0002 1,11,58,038 14,761.9310(791.8914) (1,07,94,706) (14,795.2276)

Self Consumed Closing Stock SalesQuantity Value(Rs.) Quantity Value (Rs.) Quantity Value (Rs.)

3.1921 23,838 917.5228 1,43,92,888 14,548.2163 28,68,91,389(2.2559) (25,795) (707.0002) (1,11,58,038) (14,877.8629) (26,79,85,682)

b. Raw material consumed

Quantity ValueMT Rs.

Bagasse 13,169.724 2,13,54,284(26,079.400) (3,17,41,802)

Wheat Straw 9,225.083 1,40,63,817(Nil) (Nil)

Old Gunny/Jute Good 4,558.200 1,58,61,286(4,207.000) (1,47,03,288)

Corrugated Cartons 1,308.733 76,87,434(434.220) (22,89,618)

Imported Waste Paper/Pulp 1,008.400 1,16,12,703(1,158.000) (1,27,49,587)

7,05,79,524(6,14,84,295)

Note: Consumption includes storage loss and wastage during processing of Bagasse 80.000 MT (100.000 MT) and Wheat Straw 565.907 MT (Nil)

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12. Related parties disclosures as required under Accounting Standard AS-18 “Related Parties Disclosure” issued by the Institute of Chartered Accountants of India are given asbelow:

a. List of related parties with whom transactions have taken place during the year:

i. Key management personnel (Directors) Mr. G. Narayana, Mr. K. K. Jhunjhunwala, Mrs. Manjula Jhunjhunwala, Mr. Ved Krishna, Mr. G. N. Gupta, Dr. P. Banerjee, Mr. R. N. Chakraborty (Resigned w.e.f. 28.10.2004), Mr. A. K. Gupta and Mr. D. S. Gandikota

ii. Relatives of Key management personneMr. Yash Krishna, Mrs. Shailja Krishna, Mr. Indroneel Banerjee, Mr. D. B. Banerjee, Mrs. Chhaya Banerjee, Mrs. Rupa Chakraborty, Ms. Charu Chakraborty, Ms. Manoshi Chakraborty, Mrs. Manju Gupta, Master Mayank Gupta, Ms. Deepali Gupta and Mr. Rajiv Kumar Gupta

iii. Entities & AssociatesMegha Agro Products Limited, M/s Namrata Mill Board Industries, M/s Jingle Bell Nursery School Society and M/s K. K. Jhunjhunwala (HUF)

b. Transactions with related parties

i. Key management personnel and their relativesRent paid Rs. 48,000/- (Rs. 48,000/-)Fixed deposits received Rs. 9,06,123/- (Rs. 12,91,362/-)Fixed deposits repaid Rs. 17,39,978/- (Rs. 79,712/-)Interest paid on fixed deposits Rs. 2,39,888/- (Rs. 2,20,615/-)Fixed deposits at the Balance Sheet date Rs. 18,17,593/- (Rs. 26,86,448/-)Accrued interest at the Balance Sheet date Rs. 2,38,022/- (Rs. 3,13,927/-)Legal and Professional charges RS. 40,000/- (Nil)Dividend paid Rs. 5,14,538/- (Rs. 4,92,460/-)Other advances at the Balance Sheet date Nil (Rs. 53,909/-)Unsecured loan at the Balance Sheet date Rs. 12,00,000 /- (Rs. 12,00,000/-)Sale of goods and assets Rs. 3,385/- (Rs. 3,83,040/-)

ii. With related entities & associatesMegha Agro Products LimitedPaid for vehicle hire charges Rs. 1,44,000/- (Rs. 1,23,225/-)Dividend paid Rs. 9,68,640 /- (Rs. 9,68,640/-)Amount payable at the Balance Sheet date Nil (Rs. 24,000/-)M/s Namrata Mill Board IndustriesReceived for services and sale of goods Rs. 2,72,996/- (Rs. 3,53,380/-)Interest received Rs. 5,657/- (Rs. 26,938/-)Amount receivable at the Balance Sheet date Nil (Rs. 1,04,726/-)

Schedules forming part of Annual AccountsSchedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)

FDR Amount Value of GuaranteeRs. Rs.

a. Hon'ble High Court, Allahabad 2,80,000 2,77,414Lucknow Bench, Lucknow (2,80,000) (2,77,414)

b. Commissioner, Customs, 4,75,000 19,00,000Mumbai/Raigarh (4,75,000) (19,00,000)

5. Directors’ Remuneration:a. Salary Rs. 20,55,169/- (Rs. 17,86,553/-)b. Contribution to Provident Fund Rs. 35,545/- (Rs. 36,238/-)c. Sitting fee Rs. 80,000/- (Rs. 80,000/-)

Rs. 21,70,714/- (Rs. 19,02,791/-)d. Value of perquisites Rs. 2,54,987/- (Rs. 2,54,444/-)

Total Rs. 24,25,701/- (Rs. 21,57,235/-)

Contributions made to LIC Group Gratuity Cash Accumulation Scheme has not been considered since the amount is not ascertained individually.

6. Income tax assessment has been completed upto the assessment year 2002-03.

7. Fixed deposits includes Rs.12,93,123/- (Rs. 24,18,978/-) from directors.

8. The Deferred Tax Liability comprises of tax effect of timing differences on account of: Amount in Rupees

As at 31st December 2004 2003

Deferred Tax AssetsItems covered u/s 43 B 57,484 NilDeferred Tax LiabilitiesExcess of net block over written Down Value as per the provisions of the Income Tax Act, 1961 4,53,76,548 4,41,38,531Net Deferred Tax Liabilities 4,53,19,064 4,41,38,531Net increase in liability debited to Profit and Loss Account 11,80,533

9. Interest on term loan includes Rs. 1,87,231/- (Rs. 1,84,963/-) paid to Directors on fixed deposits.

10. The advances recoverable in cash or in kind includes, the amount due from directors Nil (Rs. 53,909/-) and from a firm in which a director is interested as a partner Nil(Rs.1,04,726/-) The maximum amount outstanding at any time during the year from such directors Nil (Rs.4,08,395/-) and from such firm Nil (Rs.2,39,108/-).

11. As the company’s business activity falls within a single segment viz. ‘Paper’, the disclosure requirements of Accounting Standard 17 “Segment Reporting” issued by theInstitute of Chartered Accountants of India is not applicable.

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Public Issue

0 5 2 9 4

N I L

N I LBonus Shares

Right Issue N I L

Private Placement

3 1 1 2Registration No. State CodeBalance Sheet DateI. Registration Details

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities 2 4 7 6 1 6

III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands)

2 0 0 4 2 0

Total Assets 2 4 7 6 1 6

Paid-up Capital 3 8 6 5 5 Reserves and Surplus 1 0 2 8 9 8

Secured Loans 4 5 7 7 8 Unsecured Loans 1 4 9 6 6

Sources of Funds

N I L

Application of Funds

Annexure to the Notes to the Accounts Balance Sheet Abstract and Company’s General Business Profile(Information pursuant to Part IV of Schedule VI of the Companies Act, 1956)

Total Income

1. Item Code No. (ITC Code) 480431.00Product Description Kraft Paper in rolls or sheets

2. Item Code No. (ITC Code) 480255.90Product Description Paper weighing 40gsm but less than 150gsm

2 6 1 5 2 3

IV. Performance of the Company (Amount in Rs. Thousands)

V. Generic Names of three Principal Products of the Company (as per monetary terms)

Total Expenditure 2 3 4 9 0 5

Profit before Tax 2 6 6 1 8 Profit after Tax 1 5 8 6 2

Earnings per Share ( In Rs.) 4 . 1 0 Dividend rate @ % 1 2 . 5 0

Deferred Tax Liability 4 5 3 1 9

Net Fixed Assets 1 9 0 6 8 6 Investments 6

Net Current Assets 5 6 9 2 4 Miscellaneous Expenditure N I L

Accumulated Loosses N I L

Schedules forming part of Annual AccountsSchedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)

Signature to Schedules 1 to 17

For KAPOOR TANDON & CO. For and on behalf of the BoardChartered Accountants

K. K. Jhunjhunwala Ved Krishna G . N. GuptaRajesh Parasramka Executive Vice Chairman Managing Director DirectorPartnerMembership No. 74192Camp: New Delhi D. S. Gandikota A. K. Gupta Deepak NathaniJanuary 22, 2005 Director Director Finance Company Secretary

M/s Jingle Bell Nursery School SocietyFixed deposits received Rs. 36,32,846/- (Rs. 1,25,000/-)Fixed deposits repaid Rs. 18,57,742/- (Rs. 5,00,000/-)Interest paid on fixed deposits Rs. 4,85,574/- (Rs. 4,84,376/-)Fixed deposits at the Balance Sheet date Rs. 44,07,846/- (Rs. 26,32,742/-)Accrued interest at the Balance Sheet date Rs. 3,88,297/- (Rs. 8,45,515/-)Salary reimbursement of teaching staff Rs. 4,58,662/- (Rs. 4,37,750/-)Sale of goods and services Rs. 29,515/- (Rs. 1,61,372/-)M/s K. K. Jhunjhunwala (HUF)Rent paid Rs. 1,50,000/- (Rs. 1,38,000/-)Dividend paid Rs. 16,000/- (Rs. 16,000/-)

Note: a. Details of remuneration to directors are given in note 5 above. b. No amounts pertaining to related parties have been written off or provided for as doubtful assets, excepting Rs.20,000/- being cost of 200 equity shares of Fortune

Constructions Pvt. Ltd., written off during the yearc. The transactions have been considered for the period during which such relationship exist.

13. ‘Sundry Creditors’ in schedule 11 of Liabilities includes Rs. 16,75,262/- (Rs. 2,30,717/-), the amounts due to Small Scale Industrial Undertakings. The name of Small ScaleIndustrial Undertaking to whom the company owes and is outstanding for more than 30 days, as at December 31, 2004 is as under:

Amar Alum & Allied Chemicals Pvt. LtdCardinal Chemicals Pvt. LtdFine Core Pipe Pvt. LtdM/s Sharda Industries

The above information regarding Small Scale Industrial Undertaking has been determined to the extent such parties have been identified on the basis of information availablewith the Company.

14. Balances with Scheduled Bank includes Rs.2,67,576/- being the proportionate amount held with Bank Of Baroda on amalgamation of The Benares State Bank Limited. Theamount will be released on proportionate basis from surplus of realisation of NRR (Not Readily Realisable Assets) as per the scheme of amalgamation.

15. Figures in bracket pertains to previous period and have been regrouped/rearranged wherever necessary.

16. The Balance Sheet Abstract and Company’s general business profile as required by Part IV of Schedule VI to the Companies Act, 1956 are given in the annexure attached.

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Cash Flow Statement for the year ended 31st December, 2004(Pursuant to Clause 32 of the Listing Agreement)

2004 2003

C Cash Flow from Financing Activities

Interest Paid (7,309) (8,790)

Proceeds from Working Capital Borrowings 7,437 15,715

Proceeds of Short Term Borrowings (2,798) 5,785

Repayment of Long Term Borrowings (9,450) (16,599)

Dividend Paid (3,825) (3,660)

Net Cash (used in)/from Financing Activities (15,945) (7,549)

Net increase/(Decrease) in Cash and Cash equivalents 7 (1,427)

Cash and Cash equivalents (Opening Balance) 3,613 5,040

Cash and Cash equivalents (Closing Balance) 3,620 3,613

As per our report of even date attached.

For Kapoor Tandon & Co. For and on behalf of the Board

Chartered Accountants

K. K. Jhunjhunwala Ved Krishna G . N. Gupta

Rajesh Parasramka Executive Vice Chairman Managing Director Director

Partner

Membership No. 74192

Camp: New Delhi D. S. Gandikota A. K. Gupta Deepak Nathani

January 22, 2005 Director Director Finance Company Secretary

Note: The above cash flow statement has been prepared under the 'Indirect Method' as set out in the Accounting Standard-3 on Cash Flow Statements, issued by the Institute

of Chartered Accountants of India.

Cash Flow Statement for the year ended 31st December, 2004(Pursuant to Clause 32 of the Listing Agreement) (Rupees in thousand)

2004 2003

A Cash Flow from Operating Activities :

Net profit before tax 26,618 11,997

Adjustment for:-

Depreciation 14,284 14,164

Profit on Sale of Fixed Assets (46) (180)

Interest Income (759) (1,347)

Interest Expenses 7,309 8,790

Others (Miscellaneous Expenditure written off) – 118

Loss on Sale of Fixed Assets/Investments 367 21,155 2,591 24,136

Operating Profit before Working Capital changes 47,773 36,133

Adjustment for:-

Inventories (5,512) (22,737)

Trade and Other Receivables 823 599

Trade Payable and Other Liabilities (2,827) 5,439

Income Tax Paid (Including tax on dividend) (9,614) (17,130) (2,859) (19,558)

Cash generated from operations 30,643 16,575

Interest Received 759 1,347

Net Cash from operating activities 31,402 17,922

B Cash Flow from Investing Activities:

Purchase of Fixed Assets (Including CWIP) (17,606) (17,665)

Sale of Fixed Assets 2,156 5,715

Sale of Investments – 150

Net Cash used in investing activities (15,450) (11,800)

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BOARD OF DIRECTORS G. Narayana, Chairman

K K Jhunjhunwala, Executive Vice Chairman

Ved Krishna, Managing Director

A K Gupta, Director Finance

Mrs. Manjula Jhunjhunwala, Non Executive Director

G N Gupta, Non Executive Director

D S Gandikota, Non Executive Director

DR. P Banerjee, Non Executive Director

BANKERS State Bank of India

Canara Bank

AUDITORS Kapoor Tandon & Co.,Chartered Accountants

Kanpur.

REGISTERED OFFICE47/81, Hatia Bazar

Kanpur-208001

WORKS & CORPORATE OFFICEYash Nagar

PO. Darshan NagarFaizabad-224135

Uttar PradeshPhone No: 05278-258777; 258589

Fax:05278-258062Web: www.yash-papers.com

E-mail: info@yash-papers.com

REGISTRAR AND TRANSFER AGENT Skyline Financial Services Pvt. Ltd.123, Vinoba Puri, Lajpat Nagar-II

New Delhi-110024Phone No.: 011-29833777

29847136Fax No.:011-2984 8352

E-mail:admin@skylinerta.com

Corporate Information

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