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                                      1.0 Preamble:

                                      1.1 Global Paper Market

                                      World paper production is around 430 million MT. USA is the largest producer in the world, followed by China, Japan and Canada. India holds 15th rank among paper producing countries. India’s share in World global production is about 2.6%.

                                      The average per capita consumption in the world and in Asia are around 56 kg and 40 kg respectively whereas the Indian average is still hovering between 10-11 kg.

                                      1.2 Indian Paper Market

                                      Indian paper industry is highly fragmented, consisting of large, medium and small mills totaling over 750, out of which only 50 mills have a capacity of 50K TPA or more.

                                      The installed capacity is approximately 12.75 million MT, however industry is operating at 89% capacity utilization. The domestic production is around 11.38 million MT against current demand estimated at approx 13?3.5 million MT. Country is importing approx. 2.3 million MT of mainly newsprint and photocopy paper and also exporting approximately 0.50 million MT.

                                      India is the fastest growing paper market in the world @ 6% per annum and by 2024-25, Indian demand is projected to increase to 23.50 million MT. Increase of per capita paper consumption by 1 kg will increase the demand by 1.1 million MT.

                                      The industry provides employment to 0.50 million people directly and 1.5 million people indirectly.

                                      1.3 Industry composition

                                      Industry comprises of large, medium & small mills.

                                      Indian paper market consists of Writing & Printing Paper (38% - 4.8 million MT), Newsprint (20% - 2.5 million MT), Industrial paper segment (40 % - 5.15 million MT) specialty paper viz. Copier paper etc. (2% - 0.65 million MT).

                                      In the writing and printing segment uncoated varieties constitute around 4.25 million MT and coated varieties constitute around 0.75 million MT.

                                      The industry is concentrated 30% in the south and 30% in the west, followed by 35% in the north and only 5% in the east. The industry is controlled by major 50 paper mills. Broadly, on the basis of Size, Technology, Modernization and Quality produced, the industry can be classified into A, B and C groups. HPC falls in B+ group and as such, faces competition from both large and modern Paper mills which fall in grade ‘A?and also from ‘B?grade paper mills which had started as medium but have now grown by expansion and modernization and are giving tough competition to HPC on account of their improved brightness and aggressive marketing.

                                      One important aspect of this industry is that it is seasonal in nature and demand moves in line with academic session of schools and colleges, the segment which consumes the maximum quantity of paper. The Paper demand starts picking up mainly from October, reaches its peak during December to March and starts slowing down gradually from April to September every year. Therefore, meticulous order planning is needed for maintaining continuous production throughout the year.

                                      Marketing policies / pricing strategies are framed considering all of the above factors.

                                      2.0 HPC at a Glance

                                      HPC is engaged in manufacturing of Writing & Printing Paper

                                      w HPC has 2 units both located in Assam
                                      w Nagaon Paper Mill (NPM), Jagi Road
                                      w Cachar Paper Mill (CPM) Panchgram
                                      w Annual paper production target of each mill: 1 lakh MT of Writing & Printing Paper.
                                      w Production available to Market : 2 lacs MT in normal production scenario.

                                      3.0 Basic Raw Material

                                      There are 3 basic Raw Materials for manufacturing of Paper, viz., Forest based virgin Pulp (Bamboo/ Wood ?30%), Agro based virgin pulp (Bagasse, Rice & Wheat Straw ?30%) and Recycled fiber (Waste Paper ?40%). HPC uses Bamboo as its basic Raw Material.

                                      w Bamboo is considered to be the best raw material for manufacturing of paper due to its morphological characteristics, which imparts superior qualities to the paper especially strength and durability. This has been corroborated by Central Pulp & Paper Research Institute.
                                      w Supreme Court has categorically recognised vide judgment dated 18.02.2002 that bamboo and cane belong to grass family.
                                      w Bamboo belongs to grass family and grows profusely and is naturally regenerated through rhizome & seed hence it is a naturally fast growing species. Harvesting of bamboo does not impact environment and due to this reason, it is considered to be environment friendly.

                                      4.0 Product Range

                                      Sl. No.

                                      Products

                                      GSM Range

                                      1.

                                      Cream Wove

                                      45 ?90

                                      2.

                                      Surface Sized Maplitho

                                      58 ?120

                                      3.

                                      Computer Stationery Paper

                                      52 ?80

                                      4.

                                      Copier Paper

                                      75 ?80

                                      5.

                                      White Offset Printing

                                      60 ?75

                                      6.

                                      Duplicating (Full Size)

                                      60 ?63

                                      7.

                                      Duplicating (Cut Size)

                                      60 ?63

                                      8.

                                      Offset Cartridge

                                      110 - 130

                                      9.

                                      Typewriting Paper

                                      40 ?45

                                      10.

                                      White Cover

                                      75 ?130

                                      5.0 Structure of Taxes & Duties

                                      100% FDI is allowed in Paper industry.

                                      India has entered into Free Trade Agreements (FTA) with ASEAN countries under which import of paper is allowed at concessional or Zero customs duty.

                                      Excise Duty : 6.125%

                                      VAT : 6% including surcharge
                                      CST : 5 % (2% against C form )

                                      Customs Duty : 10%

                                      6.0 Mode of Sales

                                      w There are 2 methodologies for selling paper :
                                      a) Ex-mill
                                      b) Ex-depot
                                      w Ex-mill sale occurs right at the mill gate. Title of the goods passes to the buyer the moment material leaves mill premises. Usually institutional customers and stockists in the vicinity of the unit prefer to purchase paper on Ex- Mill basis.
                                      w Ex-depot sale is made from our Depots. The material is transferred from mill to HPC’s own depot and the buyer lifts it from there. This mode is mainly preferred by the stockists and in a few cases small institutions or govt. departments in the vicinity of that depot.

                                      The option lies with the customer whether to procure material Ex-Mill or Ex-Depot

                                      7.0 HPC Network

                                      HPC has a wide network of depots which are under regional offices:

                                      Regional office

                                      Depots

                                      North

                                      Delhi, Lucknow, Chandigarh, Jaipur, Ghaziabad

                                      Northeast

                                      Guwahati, Agartala

                                      East

                                      Kolkata, Patna, Cuttack (C&F Agent)

                                      West

                                      Mumbai, Indore, Ahmedabad

                                      South

                                      Hyderabad, Chennai, Bangalore, Kochi

                                       

                                       

                                      8.0 Marketing Strategy

                                       

                                      Indian Paper Market comprises of two major segments

                                      a) Institutional sale
                                      b) Market sale

                                      In a normal production scenario, HPC has a large production capacity of 2 lacs MT at its disposal to market, therefore HPC focuses on both the segments.

                                      8.1 Institutional buyers procure paper in two ways

                                      A) Direct Purchase of paper

                                      In this mode the buyer floats two separate tenders. One tender is for purchase of paper and another is for printing of books. The buyer purchases the paper directly and then allocates the same to Printers. The purchase takes place normally under SSA (Sarva Siksha Abhiyan)

                                      Modus Operandi

                                      w Tenders are floated by institutional buyers (Text Book Boards, Govt. Depts. and Autonomous bodies) for purchase of Water Mark paper.
                                      w Nowadays in most cases, e-tender has been introduced and both technical and price bids are submitted electronically. Only samples and payments like EMD, etc. are submitted physically. Still, physical tenders continue in some cases.
                                      w The technical bid is first opened and evaluated by the buyer for compliance. If the bid is accepted, the samples are sent to laboratory for testing.
                                      w Price bids of only those bidders whose samples pass testing are opened.
                                      w Purchase order is issued to the bidder quoting minimum price (L1). However, the tendering authority reserves the right to split the order among multiple bidders and accordingly it is done likewise in most cases.
                                      w 80-90% payment is released after supply of paper
                                      w Balance 10-20 % payment is released after successful testing of samples and completion of other procedural formalities.
                                      w Some institutions enter into MoU with HPC with mutually agreed rates, terms and conditions.

                                      Paper so procured is delivered to their authorized printers for printing of Text books.

                                      This segment is catered directly by the corporation without involvement of any middleman.

                                      In very few cases viz. local Municipalities, Colleges & Private Educational Institutions, quantity is small and requirement is spread over a longer period and delivery is to be made in tranches for which material is required to be stored. Collection of payment is also an issue. HPC finds it difficult and unviable to cater to such buyers directly and local stockists are authorized to quote and grab the order.

                                      Salient features of Institutional segment where paper is directly purchased:

                                      High level of uncertainty: There is high level of uncertainty. Receiving order is subject to successful sample testing at Government laboratories and achieving L1 position in tender. In a single stroke the order may be “got or lost? Consequently, production planning becomes difficult unless the order is assured through MoU.

                                      Sizes and watermark: Every institution has its own separate fixed sizes alongwith watermark. As such, the generation of deckle mismatch paper hovers around 6-15% of production, which has to be either repulped or sold at a discounted price.

                                      Payment cycle: Unless otherwise agreed in an MoU, the payment cycle ranges between 45-90 days from manufacturing of material, and the first installment is in the range of 80-90%; the balance is released only after successful testing of samples drawn from supplied paper.

                                      Fund blockage: Unless an order is supported by advance payment, there is considerable fund blockage and that too for long periods. During a fund crunch situation, catering to this segment becomes difficult.

                                      Economy of scale: Since institutional orders come in single or 2 GSMs/sizes, economy of scale is high.

                                      Deductions and penalty: Penalty structures are integral part of tender. In the event of delay/non-supply of material or non-compliance with product specifications, huge deductions are made and sometimes even blacklisting is done by the tenderer.

                                      Inspection and storage: Some institutions insist on DGS&D inspection at mill before dispatch of paper, which is a cumbersome and time consuming procedure and leads to fund blockage.

                                      Sometimes institutional customers do not accept total material directly at their godwns due to space constraints and some storage arrangement has to be made which have cost implications on account of godown charge and insurance premium.

                                      Pricing strategy for the Institutional segment where paper is directly purchased:

                                      Institutional customers are spread throughout the country. Every state floats tender either for purchase of paper or for printed books. Out of total 700+ paper mills in the country, only 25-30 mills take active interest in this segment while other mills normally avoid it due to complexity and uncertainty of getting order every year, and also for the large blockage of fund for a very long period vis-a-vis market sales, possibility of deductions, rivalry among mills, etc.

                                      As such, pricing strategy for this segment is complex in nature. While deciding a price to be quoted, many factors like their product specification versus our capability to meet said specification, their last purchase price, possibility of competition and the prices that they may be expected to quote, local active mills in the vicinity of that Text Book board, past experience of dealing with the tenderer, their penalty structure on late delivery or on variations in specifications of NIB versus supplied paper, EMD amount, Freight factor, deductions they have made from HPC supplies in past, our fund position and comfort level to block the fund for such a long time, interest cost, allied costs and most importantly our production capability versus our order position and their supply schedule (whether clashing with those of other valued buyers), loss of deckle matching on manufacturing their paper, etc., are considered.

                                      Most of the text book corporations opt for splitting the tendered/order quantity among all the bidders subject to their acceptance of L-I rate. Based on all of the above a pricing strategy is decided as to whether to be aggressive or moderate. L-I bidder is given maximum quantity and has to shoulder the responsibility of completing the supplies in stipulated time. The pressures are quite heavy and in the event of delay in supply, penalty burden and possibility of blacklisting are very high.

                                      Due to production constraints and uncertainty of fund constraints, HPC has adopted a Moderate approach, however, we have been quoting in most of the tenders where their product specifications are matching with our capability to meet said specifications so that HPC is not burdened and at the same time we get some quantity of the order and HPC’s presence is always felt.

                                      Pricing for institutional customers is a very sensitive issue. Hence, it is closely finalized based on the above factors.

                                      NSR from institutional customers is apparently higher than the prevailing NSR from market sale. However, due to other factors, viz., deckle mismatch, interest cost, freight and storage, deductions in the event of non-supply/delayed supply, etc., this gap narrows down.

                                      Moreover, institutional orders are taken on a FOR/delivered price basis, spread over a longer period, and as such, in the event of any change in transportation cost and other allied costs, it cannot be passed on to the customer, whereas in case of market sales, possibility of revising the price according to market dynamics is always there.

                                      B) Direct Purchase of Text Book

                                      In order to avoid  the  lengthy procedure of procurement of paper,  problem of managing double allocation and distribution of fund under two separate heads, i.e., purchase of paper and  printing of books,  possibility of damages due to double handling of paper reels etc., some of the State Text Book Boards, viz., U P Text Book Board, Jharkhand Education Project Council, Uttarakhand Text Book Board, Karnataka Text Book Board and also some State Departments of SSA, are   procuring  printed  text  books directly from the  printers.

                                      Modus Operandi

                                      w Text Book Board invites technical bids from the printers alongwith paper samples of mills
                                      w Printers are supposed to use the paper only from the mills empanelled/approved by the respective Text Book Board.
                                      w There is no quantity allocation to any individual mills/binding on printers to buy any pre-fixed quantity from a particular mill. Printers are at liberty to procure/buy paper either from one or more numbers of approved/ empanelled mills. Hence, the mills have to market their product among the approved printers.
                                      w This segment has multiple buyers with their mixed and non matching delivery schedules, unsecured payments, and as such, this segment is catered through the stockist who brings consent letter from maximum number of buyers (Printers).
                                      w Since this segment is highly competitive and unsecured, hence paper is sold as per the prevailing price and policies in vogue.

                                      HPC has no scope of participating directly in this segment.

                                      Prevailing Stockist price, terms & conditions are applicable for this segment.

                                      Material is sold only against advance payment before delivery.

                                      However since supplies are time bound related to text book boards and academic sessions, supply preference is given to this segment over market sales.

                                      8.2 Market Sales:

                                      w HPC has a wide network of accredited stockists across the country who are attached to the local Depots.
                                      w They represent HPC in the market and procure orders from end consumers.
                                      w Stockist has the option of take material on Ex-Mill/Ex-Depot Basis.
                                      w At present, credit option has been dispensed with and all market sales take place only against advance.
                                      w Quantity discount and cash discount are allowed to stockists as per policy.
                                      w Present structures of the above incentives are reproduced below:

                                      Quantity Discount

                                      Quantity lifted in calendar month (MT)

                                      Discount Rs./MT

                                      50 & above

                                      600/-

                                      100 & above

                                      900/-

                                      200 & above

                                      1200/-

                                      400 & above

                                      1500/-

                                      600 & above

                                      1700/-

                                      Cash Discount is allowed at 3.25%

                                      Price lists are given as Annexure A

                                      Salient features of Market sales:

                                      w Order acceptance and supply takes place only against advance payment. Hence, Market orders help in cash flow.
                                      w There is hardly any deckle mismatch generation as manufacturing is done after matching and combining various compatible order sizes in same GSM received from different stockists.
                                      w There is no sample testing involved and as such there is no question of any deduction. However, at times, in case of any established manufacturing defect compensation may be required to be paid, which rarely happens.
                                      w Flexibility of price revisions as per market dynamics
                                      w Since manufacturing is against firm orders hence dispatches are immediate.

                                      In view of the facts stated above, a healthy ratio is a mix of both segments in 50:50.

                                      However, due to production constraints it has not been possible to maintain such an ideal ratio and much preference had to be given to cater to institutional orders in time, to avoid levy of penalties and the possibility of blacklisting.

                                      Pricing policies for market sale:

                                      Pricing strategy for market sales is also a very complex one. There are around 750 mills in the country out of which about 50 mills are there which really matter. All are in private sector where pricing, discount structure, etc. keep changing according to market dynamics. Unlike a CPSU, the private sector acts/reacts fast and they have the flexibility to meet the market dynamics. Discounts/incentives are an integral part of Paper Industry scenario.

                                      Discounts/incentives in the form of Trade discount, Reel discount, cash discount, offtake discount, freight rebate, yearly bonus, special discount, regional discount are integral part of industry practice which keeps changing as per the market scenario. HPC being a small player which hardly caters around 4-5 % of the total Writing & Printing paper segment cannot stay out of the same and has to follow the system.

                                      For taking any price decision, opinion/feedback of depots are taken into consideration and accordingly price and discount structures are revised.

                                      9.0 Bulk Incentive Scheme (BIS)

                                      Paper market has been highly subdued for the last 4-5 years on account of large paper manufacturing capacity addition till 2013 and also large scale import under FTA (FREE TRADE AGREEMENT) among ASEAN countries at Concessional/Zero custom duty. Simultaneously, HPC has been facing severe financial crisis due to sub-optimal capacity utilization at CPM on account of large-scale flowering of bamboo(which renders bamboo unusable for paper production) in NER for a period of 3 years and subsequent embargo by National Green Tribunal (NGT) w.e.f. May 2014 and its cascading effects on the finances of Corporation. Bankers are not ready to extend any further exposure to the Corporation due to continuous losses and negative worth.

                                      Therefore, from time to time BIS (Bulk Incentive Scheme) has been launched with special features to mobilize maximum fund by way of advance from the market and also to ensure continuous machine booking throughout the year, when adequate institutional orders which are uncertain in nature and are to be supplied on a payment cycle of 75-90 days are not in hand. BIS has helped in mobilizing large funds at Zero interest and to maintain continuous production.

                                      10.0 Appointment of Stockists

                                      Please visit website “www.www.petaquilla.cn > Notice/Advertisement > Appointment of Stockists/Channel Partners?for full details of the appointment procedure.

                                      11.0 Insurance:

                                      w In case of Ex-Mill sale, the buyer arranges for the Insurance. Sometimes HPC also arranges insurance, at the cost of buyers at actuals.
                                      w In case of Ex-Depot sale, the material is insured for damage, shortage, pilferage, fire and other eventualities during transit period and for a certain stipulated period of storage after material reaches destination.
                                      w In case of institutional supplies, HPC takes the responsibility of insuring the material as prices to institutional customers are quoted on FOR/Delivered basis.

                                      12.0 Customer Service:

                                      w Customer complaints are attended and processed by the Customer Service Cell.
                                      w Details of any complaint are conveyed to respective mill alongwith samples, inspection reports, etc. and based on the report of the mill, claims, if any, are settled.

                                      13.0 Exports:

                                      w HPC earlier exported paper to various countries, viz., Sri Lanka, Myanmar, Bangladesh, Egypt, Nepal etc.
                                      w Due to the perennial production constraints through which HPC has been going for the last few years, export has been kept in abeyance.

                                      Download:

                                      w Click view Ex-Depot Sale CPM
                                      w Click view Ex-Depot Sale NPM
                                      w Click view Ex-Mill Sale CPM
                                      w Click view Ex-Mill Sale NPM
                                      . .

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