Andhra Pradesh Paper Mills

The Directors have pleasure in presenting the 44th Annual Report and
 the Audited Accounts for the year ended 31st March, 2008.
 
                                                               Rs. Crore
 Financial .Results                                 2006-07     2007-08
 
 Sales and other income (after
 accounting for accretion in stocks)                 522.79      604.97
 Profit before Tax                                    22.90       19.66
 Provision for Tax                                    (1.23)       3.12
 Profit for the year                                  24.13       16.54
 Add: Profit brought forward from previous year       73.49       92.19
 Profit available for appropriation                   97.62      108.73
 Appropriations:
 Transfer to General Reserve                           2.42        1.66
 Proposed Equity Dividend                              2.57        2.57
 Corporate Tax on Dividend                             0.44        0.44
 Balance carried to Balance Sheet                     92.19      104.06
                                                      97.62      108.73
 
 During the year under review, your Company recorded a production of
 1,80,681 MT and sales of Rs.628.24 crore. The Company earned a profit
 of Rs.16.54 crore for the year as compared to Rs.24.13 crore in the
 previous year. The profitability was affected due to loss of production
 of 2,640 MT on Paper Machine No. 3 of Unit:APPM and 2,500 MT on Paper
 Machine No. 3 of Unit:CP on account of rebuild of machines.
 
 Change in the Share Capital
 
 The Company allotted 19,13,875 equity shares of Rs.10 each at a premium
 of Rs.94.50 per share on 11th April, 2007 to the Promoters on
 preferential basis aggregating to Rs.1,999.99 lakhs. Consequently, the
 equity share capital had gone up from Rs.23,81,96,800 divided into
 2,38,19,680 equity shares of Rs.10 each to Rs.25,73,35,550 divided into
 2,57,33,555 equity shares of Rs.10 each.
 
 Dividend
 
 Your Directors are pleased to recommend a dividend of Re.l per share on
 2,57,33,555 Equity Shares of Rs.10 aggregating to Rs.257.34 lakhs.
 
 Marketing and Exports
 
 The domestic paper industry has grown at a steady rate of 6.0 per cent
 over the last few years and it is expected to grow by 6.6 per cent over
 the next 2 to 3 years. As most players are in the process of adding
 capacities, it is expected that capacities in excess of one million
 tonnes will come on to stream in the next two years.
 
 Paper prices rose significantly over the last three years with prices
 going up by around 15 per cent in 2005-06 on an average. In 2007-08,
 paper prices remained firm and did not show much buoyancy. However, in
 2008-09 it is expected to witness downward pressure post capacity
 additions expected towards the end of the year.
 
 The sales and exports during the year under review stood at 1,76,758 MT
 and 13,101 MT respectively.
 
 Major export destinations during the year were Angola, Bangladesh,
 Egypt, Nigeria, Sri Lanka, United Arab Emirates and Yemen.
 
 Raw Material procurement
 
 In the field of social/farm forestry, efforts were made to increase the
 area under plantation activities in order to meet the demand of
 pulpwood in tune with the mill development plan. Concerted efforts by
 Unit:APPM have enabled to meet and overcome the stiff competition in
 the catchment for pulpwood procurement.
 
 Shortfall in bamboo supply by Government of Andhra Pradesh was
 compensated by procurement from neighbouring states.
 
 Raw Material resource development 94 million quality seedlings were
 developed and distributed during the year 2007-08 covering an area of
 13,500 hectares under plantation as against 71.5 million seedlings
 covering an extent of 10,500 hectares during previous planting year
 2006.  Research on clonal development has resulted in introduction of
 high yielding, disease resistant clones and versatile to a wide variety
 of agro-climate conditions in inland and coastal areas.
 
 Research and Development initiatives with low cost planting techniques,
 quality seed material and high yielding, short rotation planting stock
 have enhanced raw material availability spread over 72,000 hectares.
 These benefits are extended to around 34,000 families and creating
 employment resource pool of 36 million man-days especially in rural
 areas.
 
 Forestry in socio-economic upliftment
 
 The ongoing wasteland development project with Integrated Tribal
 Development Agency under Indira Kranti Patham in tribal areas with
 Clonal pulpwood plantations and District Water Management Agency, East
 Godavari District continued during 2007 also.
 
 This would not only generate the pulpwood to mills but will also help
 in meeting the local needs of farmers by means of generating employment
 and upliftment of socio-economic conditions of the villagers and tribal
 communities.
 
 Farm forestry in coastal wastelands of Krishna District has brought
 about 2,200 acres under plantation for the benefit of local inhabitants
 and protection of coastal environment against natural disasters,
 besides improving the soil fertility status of degraded, waste lands
 and checking soil erosion.
 
 The industries presence in greening waste lands for raw material
 resources have created a strong network comprising tribal
 beneficiaries, self-help groups, village organizations etc. to fight
 against poverty and natural disasters.
 
 Mill Development Plan (MDP)
 
 Unit:APPM
 
 Projects implemented
 
 Non-condensable gas (HVLC) burning system was installed for the first
 time in the Indian pulp and paper industry for pollution abatement and
 improving the environment.
 
 Rebuild of Paper Machine Nos.3 was carried out for increasing
 production by 8500 TPA and improving the quality for copier and surface
 sized varieties. The rebuild includes installation of Duo-Former,
 replacement of existing HOPE drainage elements tops with ceramic,
 addition of 4 dryers in pre-dryers, rebuild of steam & condensate
 system with latest state-of-art rotary joints & siphons, re-build of
 Hood & PV System, installation of size press with bigger diameter
 rolls, higher nip pressure new calendar stack with Thermo rolls and
 replacement of existing dryers doctors with oscillating doctors.
 
 Wet Lap machine No.3 of 100 BDTPD capacity was installed and
 commissioned.
 
 Projects under progress
 
 Installation of new coal fired boiler of high pressure with increased
 thermal efficiency is in progress. The boiler is equipped with high
 efficiency and low emission ESP (50 mg/NM) to meet the norms of
 Pollution Control Board.  The boiler has the facility for incinerating
 wood dust and sludge from effluent treatment plant. The boiler is
 expected to be commissioned in September 2008.
 
 Installation of a second hand paper machine imported from Germany with
 a capacity of 67,000 TPA is in progress. The dismantled machine was
 received at site. Basic engineering was completed and detailed
 engineering is in progress.  Procurement activity of the balance items
 is started. Civil works are in progress. Commercial production is
 expected by the end of September 2009.
 
 Unit:CP
 
 Projects implemented
 
 Rebuild of Paper Machine No.3 was carried out for increasing the
 production by 12,000 TPA for manufacturing quality product mix of 58
 gsm and above.
 
 The rebuild includes installation of Wet Lap re-pulping & slushing
 system, refiners, three (3) complete Hydro Foil units, Duo shake unit
 rebuild of 3 press, addition of Baby Dryer, 1 No. Transfer foil, 3
 Nos. Duo Stabilizers, revamping and augmentation of steam & condensate
 system.
 
 Black liquor de-silication plant was installed to remove silica from
 black liquor from rice straw pulp. Multiple effect evaporator plant was
 installed to concentrate black liquor and transport to Unit:APPM for
 chemical recovery.
 
 New re-winder of higher capacity to meet the increased production of
 reels of good quality was installed.
 
 Projects under progress
 
 Order was released for supply of sludge de-watering press for disposal
 of sludge. Basic engineering is in progress.  Equipment is expected to
 be commissioned in February 2009.
 
 Highlights of socio-economic activities
 
 As a responsible corporate citizen, the Company continued to play a
 very active role by participating in various socio- economic activities
 which include medical aid to the rural population through the mobile
 medical van service which is well received and appreciated by the
 public. Around 35,000 villagers got benefited and about Rs.6.5 lakhs
 worth of medicines were distributed. Three tailoring centers continue
 to provide free training in embroidery and tailoring for the
 economically backward women folk to make them self-reliant.  The
 management rendered its support during the celebrations of Nandi
 Natakotsavam - 2007 conducted by the Government of Andhra Pradesh at
 Rajahmundry.
 
 Particulars of conservation of energy, technology absorption and
 foreign exchange earnings and outgo Particulars of conservation of
 energy, technology absorption and foreign exchange earnings and outgo
 as required under Section 217 (1) (e) of the Companies Act, 1956, read
 with the Companies (Disclosure of Particulars in Report of the Board of
 Directors) Rules, 1988, are given in the Annexure - I attached hereto
 and forms a part of this report.
 
 Particulars of Employees
 
 The information required to be disclosed under Section 217 (2A) of the
 Companies Act, 1956 read with Companies (Particulars of Employees)
 Rules, 1975 is given in Annexure - II.
 
 Public Deposits
 
 Eight deposits totaling Rs.4.10 lakhs due for repayment on or before
 31st March, 2008 were not claimed by the depositors on that date.
 Deposits aggregating Rs.1.85 lakhs were refunded upto 30th April, 2008.
 During the year under review, the Company has transferred a sum of
 Rs.5,166 being the amount of deposit matured and remaining unclaimed
 for a period of seven years to the Investor Education & Protection
 Fund.
 
 Auditors
 
 M/s. Brahmayya & Co., Chartered Accountants, Visakhapatnam, Auditors of
 the Company will retire at the conclusion of the ensuing Annual General
 Meeting and being eligible offered themselves for re-appointment.
 
 Directors
 
 During the year under review, Industrial Development Bank of India
 Limited had withdrawn the nomination of Shri K.K. Rai as its nominee
 director with effect from 6th November, 2007.
 
 The Board placed on record its warm appreciation of the services
 rendered by Shri K.K. Rai during his tenure as Director of the Company.
 
 The Board of Directors at the Meeting held on 30th October, 2007
 appointed Shri R.V. Raghavan and Shri PJ.V. Sarma as Independent
 Directors.
 
 Shri R.C. Mall resigned as Executive Director and he was relieved from
 the services of the Company with effect from 30th November, 2007. The
 Board also placed on record its warm appreciation of the services
 rendered by Shri R.C. Mall during his tenure as Executive Director of
 the Company. The Board at the meeting held on 30th October, 2007 also
 appointed Shri M.K. Tara as Director and Managing Director for a period
 of five years from the date of his assuming charge. Shri Tara assumed
 charge as Managing Director on 7th November, 2007. As per Article 129
 of the Articles of Association of the Company read with Schedule XIII
 of the Companies Act, 1956, the appointment of Shri M.K. Tara would
 require the approval of shareholders at the ensuing Annual General
 Meeting.
 
 The Board of Directors at the meeting held on 12th May, 2008 appointed
 Shri P.K. Paul and Shri Rajiv Kapasi as independent Directors. The
 Board at the same meeting also appointed Shri P.K. Suri as additional
 Director and also as Wholetime Director designated as Director
 (Operations) for a period of five years with effect from 12th May,
 2008. As per Article 129 of the Articles of Association of the Company
 read with Schedule XIII of the Companies Act, 1956, the appointment of
 Shri P.K. Suri would also require the approval of shareholders at the
 ensuing Annual General Meeting.
 
 Pursuant to Article 129 of the Articles of Association of the Company,
 Shri R.V. Raghavan, Shri PJ.V. Sarma, Shri P.K. Paul, Shri Rajiv
 Kapasi, Shri M.K. Tara, and Shri P.K. Suri, Directors will hold office
 upto the date of ensuing Annual General Meeting and they being
 eligible, offered themselves for re-appointment.
 
 Pursuant to Article 142 of the Articles of Association of the Company,
 Shri L.N. Bangur and Smt. Alka Bangur, Directors will retire by
 rotation at the ensuing Annual General Meeting and they are eligible
 for re-appointment.
 
 Delisting of Equity Shares
 
 The Company submitted application to The Hyderabad Stock Exchange
 Limited (HSE) for delisting of its equity shares as approved by the
 shareholders at the 43rd Annual General Meeting of the Company. The
 permanent recognition granted to HSE (under the provisions of
 Securities Contracts (Regulation) Act, 1956, was withdrawn by the
 Securities and Exchange Board of India w.e.f. 29th August, 2007 vide
 press No.252/2007 dated 3rd September, 2007. By virtue of the said
 notification, the equity shares of the Company stand delisted from The
 Hyderabad Stock Exchange Limited.
 
 Industrial Relations
 
 The Industrial Relations at both the units of the Company have been
 harmonious and cordial. The employees and unions have been proactive in
 maintenance of discipline and co-operative in improving productivity.
 
 For promoting employee involvement with innovative ideas and creative
 suggestions for overall improvement in performance and development of
 the employees and organization, APPM Employee Suggestion Scheme was
 reintroduced with effect from 17th January, 2008.
 
 The Company had introduced a scheme for recruitment of graduate
 trainees in the discipline of B.Sc, (MPC/Industrial Chemistry) for
 supervisory posts keeping in view the future requirements and also for
 filling up the vacancies caused by the retirements. The graduate
 trainees will receive practical training for 6 months and thereafter,
 they will be posted in the relevant departments.
 
 Thrust is being given on safety training by employing M/s.  DNV AS,
 Hyderabad for training all the first line and middle management level
 supervisory staff of various departments in both the units in safety
 and accident prevention management in addition to regular technical and
 soft skills programmes.  During the year, the total training man days
 were 5,576.
 
 Cost Accounting Records
 
 The Cost Accounting Records for the year ended 31st March, 2008 were
 maintained as per Cost Accounting Records Rules.  M/s. Narasimha Murthy
 & Co., Cost Accountants was appointed as Cost Auditors of the Company
 with the approval of Central Government to audit the cost accounts for
 the year ended 31st March, 2008.
 
 Directors Responsibility Statement
 
 Your Directors hereby confirm and declare that:
 
 a.  in the preparation of Annual Accounts for the year ended 31st
 March, 2008, the applicable Accounting Standards had been followed
 along with proper explanation relating to material departures as
 explained in Note No. 7 of Schedule 19 (II) of the said Annual
 Accounts;
 
 b.  they had selected such accounting policies and applied them
 consistently and made judgments and estimates that are reasonable and
 prudent so as to give a true and fair view of the state of affairs of
 the Company at the end of the financial year i.e. 31st March, 2008 and
 of the profit of the Company for that period;
 
 c.  they had taken proper and sufficient care of the maintenance of
 adequate accounting records in accordance with the provisions of
 Companies Act, 1956 for safeguarding the assets of the Company and for
 preventing and detecting the fraud and other irregularities;
 
 d.  they had prepared the accounts for the year ended 31st March, 2008
 on a going concern basis.
 
 Response to the Auditors observation
 
 As regards Auditors observation vide Item Nos. 4 (d) and (e) of
 Auditors Report dated 12th May, 2008 regarding Accounting Standard 22
 on Accounting for Taxes on Income, an explanation has been given in
 Note No. 7 of Schedule 19 (II) of the Annual Accounts for the year
 ended 31st March, 2008.
 
 Acknowledgements
 
 Your Directors wish to place on record their gratitude to Central
 Government and the Government of Andhra Pradesh, IFC, DEG,
 Export-Import Bank of India, Finnish Fund for Industrial Cooperation
 Limited, Centurion Bank of Punjab Ltd., IDBI Bank Limited, State Bank
 of India, Canara Bank, and HDFC Bank Limited for their continued
 support during the year. Your Directors also wish to convey their
 thanks to the valued customers and dealers for their continued
 patronage during the year. Your Directors also place on record their
 appreciation of the contribution made by all the employees during the
 year under review.
 
                                          For and on behalf of the Board
 
 Secunderabad                                                L.N. Bangur
 29th July, 2008                                                Chairman