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Directors Report of Seshasayee Paper & Boards Ltd.

Mar 31, 2015

Dear Members,

The Directors hereby present their Fifty Fifth Annual Report and the Audited Accounts for the year ended 31st March 2015:

WORKING RESULTS

2014-15 2013-14 (in tonnes) (in tonnes)

Production 177904 178272

Sales 177150 1 77917

(Rs. lakhs) (Rs. lakhs) Revenue from Operations

Sales and Other Operating Income 106820 106422

Less: Excise Duty and Excise Cess 5408 5337

101412 101085

Other Income 584 528

Total Revenue 101996 101613

Profit before interest, depreciation, exceptional item and tax 9513 12892

Finance Cost 3721 3871

Depreciation 2929 4897

Exceptional Item 322 -

Profit/(loss) before tax 2541 4124

Provision for current tax 0 0

Transfer to / (from) Deferred Tax 806 1445

Net Profit 1735 2679

DIVIDEND

The Directors recommend payment of Dividend at Rs. 4 (Rs. four) per equity share, absorbing a sum of Rs. 505 lakhs.

As per the provisions of the Income tax Act, 1961, no tax will be deducted at source on dividends distributed. However, the Company will bear the tax on the dividend distributed, amounting to Rs. 102 lakhs.

APPROPRIATIONS

Your Directors propose the following appropriations:

2014-15 (Rs. lakhs)

Net profit for the year 1735

Add :

Surplus brought forward from the previous year 3075

4810

Less :

Transfer to General Reserve 1000 MAT Credit of prior period availed 241

Proposed dividend and tax thereon 607

1848

Balance carried forward 2962

OPERATIONS PRODUCTION

During the year, the production at Unit : Erode was 1 18 378 tonnes, (1 18 197 tonnes in 2013-14). Production was constrained due to restrictions imposed on Grid Power drawal by the State Government especially when Annual Shuts were taken upon our Power Plants. Unit : Erode also produced 20 138 tonnes of Wet Lap Pulp during the year to meet, in part, the pulp requirements of Unit: Tirunelveli.

Unit: Tirunelveli produced 59 526 tonnes of paper (60 075 tonnes in 2013-14). Production was affected by frequent power outages in the Grid System as well as inadequate receipt of orders, following subdued market conditions.

Overall production of paper of the Company was 1 77904 tonnes (1 78 272 tonnes in 2013-14), marginally lower than the previous year.

SALES

Sales in Unit: Erode during the year was 1 17 806 tonnes. While the entire paper produced was sold and "Zero Stock" achieved at the end of the year, 406 tonnes of Notebook and 174 tonnes of paper procured for Trading remained in stock as on March 31,2015.

Unit: Tirunelveli sold 59 309 tonnes of paper, achieving "Zero Stock" at the end of the year. Only 211 tonnes of Notebook, produced during the year remained in stock as on March 31,2015.

Overall sale of paper (including sales under Trading activity) during the year was 1 77 150 tonnes, compared to 1 77 917 tonnes sold during the previous year.

PROFITABILITY

The Revenue from Operations of the Company for the year was Rs. 1 01 996 lakhs, as against Rs. 1 01 613 lakhs, in the previous year,

The Profit before interest, depreciation, exceptional item and tax was Rs. 9 513 lakhs, for the Company as a whole, compared to Rs. 12 892 lakhs, in the previous year.

After absorbing interest and depreciation of Rs. 3 721 lakhs and Rs. 2 929 lakhs, respectively and charging of exceptional item of Rs. 322 lakhs, the Profit before tax was Rs. 2 541 lakhs, as compared to Rs. 4 124 lakhs, in the previous year.

Overall Profit before tax for the year registered a steep fall due to extremely unfavourable market conditions that prevailed throughout the year when cost increases could not be passed on to the customers and discounts had to be offered to push-up sales. Necessity to purchase expensive 'market power', to maintain production when the Captive Power Plant was taken 'off stream' for retrofit, also contributed to the erosion in profits.

The profitability could have suffered much more but for the new rates of depreciation that have come into force effective April 2014 under Schedule II to the Companies Act, 2013.

Consequently, the depreciation charge for the year was lower by Rs. 1 968 lakhs. Based on Schedule II to the Companies Act, 2013, useful life of assets have been revised with effect from April 01,2014. The carrying amounts of assets whose remaining useful life is zero as on April 01, 2014, have been charged to Statement of Profit and Loss under Exceptional Items which amounted to v 322 lakhs.

Due to substantial carried forward unabsorbed depreciation available on account of amalgamation of SPB Papers Limited, the Company was liable only to Minimum Alternate Tax (MAT). As the tax liability under the Regular Method is nil, the entire MAT is eligible to be carried forward as MAT Credit Entitlement for set off in future years. Consequently, the Current Tax liability for the year is Nil. Due to revision of income tax assessments of earlier years, there was a reversal of MAT Credit Entitlement of earlier years, amounting to Rs.241 lakhs which has been adjusted against the Surplus in Statement of Profit and Loss under Reserves and Surplus.

As per the Accounting Standard (AS) 22 of The Companies (Accounting Standards) Rules, 2006, a sum of Rs. 806 lakhs has been transferred to Deferred Tax to the debit of the Statement of Profit and Loss, as against transfer of Rs. 1 445 lakhs in the previous year.

In the result, Profit after tax for the year was Rs. 1 735 lakhs, as compared to Rs. 2 679 lakhs, in the previous year.

FINANCE

Instalments of Term Loans and interest dues on Term Loans and Working Capital borrowings were paid on or before the respective due dates.

INTEREST FREE SALES TAX DEFERRAL LOAN

The Company repaid Rs. 680 lakhs during the year and the balance outstanding as on March 31,2015 was Rs. 3 563 lakhs.

MARKET CONDITIONS

Paper Market conditions were at the lowest ebb throughout the year under review. Lack of demand growth arising out of weak economic conditions that prevailed during the year, unabsorbed excess capacity present in the paper industry, weak demand in overseas markets restricting the export potential and undue competition from imported grades of paper taking advntage of the "zero" import duty concession available under the Regional Free Trade Agreements vitiated the sentiments, offtake and prices of domestic products. Consequently inventories piled up forcing the manufacturers to drop prices, resulting in huge pressure on margins. Sentiments have not changed in April and May 2015 and the market is likely to remain weak and subdued for most part of the year.

EXPORT PERFORMANCE

The Unit : Erode exported 12 329 tonnes during the year, as compared to 13 388 tonnes, exported during 2013-14.The export proceeds amounted to US $ 10 331 873. In Rupee terms, the value of exports amounted to Rs. 6 569 lakhs as compared to Rs. 7 046 lakhs, during the previous year.

Besides the above, the Unit : Erode also sold 609 tonnes, under deemed exports whose proceeds amounted to Rs. 343 lakhs.

The Unit :Tirunelveli exported 12 464 tonnes of Paper during the year, as against 10 404 tonnes, exported during the previous year. The export proceeds amounted to US$ 9 834 277. In Rupee terms, the value of exports amounted to Rs. 6 222 lakhs, as against Rs. 5 184 lakhs in the previous year.

Besides the above, the Unit : Tirunelveli also sold 215 tonnes, under deemed exports whose proceeds amounted to Rs. 113 lakhs.

The total exports, including Deemed Exports, accounted for 14.40% of total Production for the year.

TREE FARMING ACTIVITY

The Company continues to provide quality Clonal Seedlings of Eucalyptus, as well as Casuarina, at subsidised rates, to interested farmers and assist them with technical help to achieve higher yields.

Technical support for this initiative is provided by the Department of Tree Breeding of Forest College and Research Institute, Mettupalayam, attached to Tamilnadu Agricultural University, Coimbatore, through a Collaborative Research Project. Last year, farmers owning 19 098 acres were benefited by such support.

The Company's vision is to ensure that more trees are grown than what the Company needs for maintaining capacity pulp production, thus ensuring Greening of the State. Accordingly the company will continue to help farmers in planting at least 18000 - 20000 acres of land in the state, year after year. This massive tree farming initiative, is helping the Company to achieve 'Wood Positive' status.

ISO 9001 / ISO 14001 ACCREDITATION

Company's Quality Management Systems continue to be covered by the "ISO 9001" accreditation. Company's Environmental Management System, continues to enjoy "ISO 14001", accreditation.

OHSAS 18001 CERTIFICATION

The Company continues to enjoy certification under Occupational Health and Safety Assessment Series 18001 (OHSAS) which is an international standard that facilitates management of Occupational Health and Safety risks associated with the business of the organisation.

FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATION

The Company has been certified under three Standards of FSC, viz., FSC-STD-40-004, FSC- STD-40-005 v2-1 and FSC-STD-40-003 v1-0. By this, the Company assures its stakeholders that the wood, wood fibre and pulp purchased by it are traceable to responsibly managed forests and that adequate document controls are in place to ensure identification and traceability throughout the Chain of Custody. This also means that the Company is capable of manufacturing and selling FSC Pure and FSC Mixed Products in the domestic and international markets.

AWARDS

Energy Conservation :

During the year, the Company won the following prestigious Energy Conservation Awards :

* National Energy Conservation Award 2014 in Pulp and Paper Sector - II Prize from Government of India (Ministry of Power);

* IPMA Energy Conservation Award for the year 2013-14.

EXPORT HOUSE STATUS

The Company is accredited with "Star Export House" Status, by the Government of India, Ministry of Commerce, Directorate General of Foreign Trade, in recognition of its export performance.

DEPOSITORY SYSTEM

As on March 31, 2015, 4 892 Members were holding their shares in demat form and 96 26 887 Equity Shares, representing 76.32% of the total Paid up Equity Share Capital of the Company, have been dematerialised.

SUBSIDIARY

M/s Esvi International (Engineers & Exporters) Limited (Esvin) is a wholly owned subsidiary of the Company. Currently, Esvin holds properties and derives property income.

MILL DEVELOPMENT / EXPANSION PLAN

The Company has since drawn up plans to undertake Mill Development Plan (II) for Unit: Erode comprising :

* Augmentation of paper production capacity from 1 15 000 tonnes to 1 65 000 tonnes per annum.

* Augmentation of wood pulp production from 1 15 000 tonnes to 1 45 000 tonnes per annum.

* Augmentation of Captive Power Plant capacity by 15 MW.

* Upgrading Waste Water Treatment facilities to comply with all relevant regulations.

The Company has since completed the preparation of Environmental Impact Assessment Report and the requisite Public Hearing was held. Company's application is now before the Expert Appraisal Committee of MOEF for award of Environment Clearance.

MDP II, estimated to cost Rs. 300 crores, will be undertaken in convenient phases.

Similarly, a Mill Expansion Plan has been drawn up for Unit: Tirunelveli at an estimated cost of Rs. 180 crores. The Product will consist of :

* Augmenting Paper production capacity from 72 000 tonnes to 1 10 000 tonnes per annum by various debottlenecking measures and upgradation of quality.

* Installation of a coal based 18 MW Captive Power Plant.

The Company has secured necessary Environment Clearance for undertaking this Project which is being implemented in convenient phases.

CURRENT YEAR (2015-16)

In Unit : Erode, the Production during April 2015, was 10 315 tonnes, as compared to 8 928 tonnes, produced during April 2014. In Unit : Tirunelveli, the Production was 5 004 tonnes in April 2015, as against 4 050 tonnes in April 2014. The overall Production for the Company, for the month of April 2015, was 15 319 tonnes. Total Revenue (net of Excise Duty and Cess), during April 2015, amounted to Rs. 6 054 lakhs, compared to Rs. 5 373 lakhs, during April 2014.

During April 2015, 943 tonnes of paper, valued at US$ 717 927 (equivalent to Rs. 452 lakhs) were exported.

In addition, 31 tonnes, valued at Rs. 18 lakhs and 100 tonnes, valued at Rs. 51 lakhs, were exported under deemed exports and merchant exports, respectively.

Paper market continues to witness depressed conditions.

ENVIRONMENTAL PROTECTION

The Company continues to provide utmost attention to the conservation and improvement of the environment. In Unit : Erode, the Power Boilers and Recovery Boilers are equipped with Electro Static Precipitators, to arrest dust emissions. The Company has installed and operates an Anaerobic Lagoon, for high BOD liquid effluents and a Secondary Treatment System, for total Mill effluent. These facilities are operating efficiently, enabling the Company to comply with the pollution control norms, prescribed by the Pollution Control Authorities, on a sustained basis in both the units. The treated effluent water continues to be utilised for irrigating nearby sugarcane fields in Unit: Erode, while tree planting is undertaken at Unit: Tirunelveli. The implementation of the Mill Development Plan has enabled the Mill to enhance its environmental performance and compliance, thereby complying with the Charter on Corporate Responsibility for Environmental Protection (CREP) on a sustained basis.

Unit : Tirunelveli is well equipped with efficient Electrostatic Precipitator for the Power Boiler and has an extensive green cover. Its treated waste water, after recycling, is used to irrigate the Company owned lands.

MANAGEMENT'S DISCUSSION AND ANALYSIS REPORT

The Report on Management's Discussion and Analysis, as required under Clause 49(VIII)(D) of the Listing Agreement with Stock Exchanges covering industry structure and developments, opportunities and threats, outlook, discussion on financial performance, etc., is contained in "Management Discussion and Analysis Report" that forms an integral part of this Report and annexed as Annexure - I.

CORPORATE GOVERNANCE

Pursuant to Clause 49 of the Listing Agreement, Corporate Governance Report, together with the Certificate from the Company's Auditors confirming the compliance of conditions on Corporate Governance is given in Annexure - II.

DISCLOSURE REQUIREMENTS UNDER SECTION 143(3) OF THE COMPANIES ACT, 2013

Section 143(3) of the Companies Act, 2013 requires the Board's Report to include several additional contents and disclosures compared to the earlier law. Most of them have accordingly been made in the Corporate Governance Report at the appropriate places that forms an integral part of this Report.

EXTRACT OF THE ANNUAL RETURN

The details forming part of the Extract of the Annual Return in Form MGT - 9, is given in Annexure - III.

DIRECTORS' RESPONSIBILITY STATEMENT

While preparing the annual accounts, the Company has adhered to the following:

* Applicable Accounting Standards, referred to in Section 129(1) of the Companies Act, 2013, have been followed.

* The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2015 and of the profit of the Company for the said period.

* The Directors have taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

* The Directors have prepared the annual accounts on a "going concern" basis.

* The Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively.

* The Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

During the year, the Company did not give any Loan or Guarantee or provided any security or make investment covered under Section 186 of the Companies Act, 2013.

PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTY

The Corporate Governance Report contains relevant details on the nature of Related Party Transactions (RPTs) and the policy formulated by the Board on Material RPTs. Particulars of Contracts or Arrangements with Related Parties referred to in Section 188(1) of the Companies Act, 2013 is furnished in accordance with Rule 8(2) of the Companies (Accounts) Rules, 2014 in Form AOC - 2 as Annexure - IV.

MATERIAL CHANGES AND COMMITMENTS

There was no change in the nature of business of the Company during the year.

There are no material changes and commitments in the business operations of the Company since the close of the financial year on 31st March 2015 to the date of this Report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The information relating to Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo, as required under Section 134(3)(m) of the Companies Act, 2013, read with Rule 8 of the Companies (Accounts) Rules, 2014, is given in Annexure - V.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Section 135 of the Companies Act, 2013 mandates every company having minimum threshold limit of net worth, turnover or net profit as prescribed to constitute a Corporate Social Responsibility Committee of the Board, formulation of a Corporate Social Responsibility Policy that shall indicate the activities to be undertaken by the Company as specified in Schedule VII to the Companies Act, 2013 and duly approved by the Board, fix the amount of expenditure to be incurred on the activities and monitor the CSR Policy from time to time.

Accordingly, your Company has constituted a CSR Committee of the Board and formulated a CSR Policy. The CSR Report, forming part of this Report, is furnished in Annexure - VI.

PARTICULARS OF EMPLOYEES

The information required pursuant to Section 197, read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is furnished in Annexure - VII.

CASH FLOW STATEMENT

As required under Clause 32 of the Listing Agreement with the Stock Exchanges, a Cash Flow Statement is attached to the Balance Sheet.

INDUSTRIAL RELATIONS

Relations between the Management and Employees were cordial throughout the year under review. Discussions with Labour Unions / Staff Association are in progress with regard to the long term agreement on wages / salary and other benefits in Unit: Erode. In Unit: Tirunelveli, a long term agreement has since been reached with the Union covering the wages / salary and other benefits.

DIRECTORS

During the year, the Government of Tamilnadu withdrew the nomination of Sri Mohan Verghese Chunkath, IAS, as its Nominee on the Board of our Company, who was earlier appointed in the casual vacancy caused by the withdrawal of nomination of Sri C V Sankar, IAS. As there was no casual vacancy, Sri Hans Raj Verma, IAS, was appointed as an Additional Director. He retires at the ensuing Annual General Meeting and being eligible offers himself for election at the said Meeting.

Sri S K Prabakar, IAS, was appointed as the Nominee Director of Tamilnadu Industrial Investment Corporation Limited on 2nd February 2013. He could not attend any Board Meetings in the last 12 months and hence Sri S K Prabakar, IAS automatically ceased to be a Director on our Board with effect from 1st April 2015, as provided under Section 167(1)(b) of the Companies Act, 2013.

All the Independent Directors have given the declaration that they had met the criteria on independence, as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. The performance evaluation of Independent Directors has been done by the entire Board of Directors, excluding the Director being evaluated at the Board Meeting held on March 26, 2015. The Board, on the basis of such performance evaluation, determined to continue the term of appointment of all the Independent Directors who have been appointed by the Company at its 54th Annual General Meeting for a fixed tenure till March 31,2019.

AUDITORS

M/s Suri & Co., and M/s S Viswanathan, Chartered Accountants, Chennai have been appointed as Statutory Auditors of the Company till the conclusion of the 57th Annual General Meeting and M/s Maharaj N R Suresh and Co., till the conclusion of the 58th Annual General Meeting, subject to ratification by Members at every Annual General Meeting. Accordingly, requisite Resolution for ratifying their appointment is proposed in the manner stated in the Notice for the 55th Annual General Meeting.

Particulars of Statutory Auditors, Internal Auditors and the Secretarial Auditors have been given in the Corporate Governance Report that forms an integral part of this Report. Secretarial Audit Report, as required by Section 204(1) of the Companies Act, 2013, is attached in Annexure - VIII.

ACKNOWLEDGEMENT

The Directors place on record their great appreciation of the cooperation extended by all Executives and Employees of the Company which helped to sustain the profitable operations of the Company in a difficult year. The Directors also express their sincere thanks to the Government of India, Government of Tamilnadu and Commercial Banks, for their understanding, guidance and assistance and Dealers, Customers and Suppliers, for their excellent support, at all times.

On behalf of the Board

N GOPALARATNAM Chairman

Chennai May 30, 2015


Mar 31, 2014

The Directors hereby present their Fifty Fourth Annual Report and the Audited Accounts for the year ended 31st March 2014:

WORKING RESULTS

2013-14 2012-13 (in tonnes) (in tonnes)

Production 178272 169438

Sales 177917 170079

(Rs. lakhs) (Rs. lakhs)

Revenue from Operations

Sales and Other Operating Income 106675 87807

Less: Excise Duty and Excise Cess 5337 4358

101338 83449

Other Income 275 417

Total Revenue 101613 83866

Profit before interest, depreciation and tax 12892 11007

Finance Cost 3871 4446

Depreciation 4897 4914

Profit/(loss) before tax 4124 1647

Provision for current tax 0 0

Transfer to / (from) Deferred Tax 1445 (-) 404

Net Profit 2679 2051

DIVIDEND

The Directors recommend payment of Dividend at Rs. 4 (Rs. four) per Equity Share, absorbing a sum of Rs. 505 lakhs.

As per the provisions of the Income tax Act, 1961, no tax will be deducted at source on dividends distributed. However, the Company will bear the tax on the dividend distributed, amounting to Rs. 85 lakhs.

APPROPRIATIONS

Your Directors propose the following appropriations:

2013-14 (Rs. lakhs)

Net profit for the year 2679

Add :

Surplus brought forward from the previous year 3487

6166

Less :

Transfer to General Reserve 2500 Proposed dividend and tax thereon 590

3090

Balance carried forward 3076

OPERATIONS PRODUCTION

During the year, the production at Unit : Erode was 1 18 197 tonnes, as compared to 1 19 366 tonnes, produced in the previous year. The production was marginally lower by 1 169 tonnes, compared to the previous year, mainly on account of severe restrictions on power availability imposed by the State Government.

The Unit : Erode also produced 18 177 tonnes of Wet Lap Pulp to augment the Pulp requirements of Unit : Tirunelveli.

The Unit : Tirunelveli produced 60 075 tonnes Paper during the year, as compared to 50 072 tonnes, produced in the previous year, higher by 10 003 tonnes.

The overall Production for the Company was 1 78 272 tonnes of Paper and Boards for the year, as compared to 1 69 438 tonnes produced, in the previous year.

SALES

During the year, the Unit: Erode sold 1 17 138 tonnes, against its production of 1 18 197 tonnes, While the entire paper produced had been sold and zero stock was achieved at the end of the financial year, nearly 502 tonnes of converted Note Books remained in stock, for disposal during the ensuing school season.

The Unit : Tirunelveli sold 60 642 tonnes, during the year and achieved zero stock at the end of the financial year.

The overall sale of Paper and Paper Boards, (including sales under trading activity), effected by the Company during the year, was 1 77 917 tonnes, compared to 1 70 079 tonnes,sold during the previous year.

PROFITABILITY

The Gross Turnover, including Other Operating Income, had crossed Rs. 1000 crore mark this year and stood at Rs. 1067 crores, as against Rs. 878 crores, in the previous year.

The Revenue from Operations of the Company for the year was Rs. 1 01 613 lakhs, as against Rs. 83 866 lakhs, in the previous year.

The Profit before interest, depreciation and tax was Rs. 12 892 lakhs, for the Company compared to Rs. 11 007 lakhs, in the previous year.

After absorbing interest and depreciation of Rs. 3 871 lakhs and Rs. 4 897 lakhs, respectively, the Profit before tax was Rs. 4 124 lakhs, as compared to Rs. 1 647 lakhs, in the previous year.

The overall Profit before tax for the year registered an impressive growth, due to increased production and better price realisations for the end products. The Profit could have been much better, but for the steep increase in prices of wood by nearly 70% and severe restrictions imposed by the State Government on availability of power from State Grid.

Due to substantial carried forward unabsorbed depreciation available on account of amalgamation of SPB Papers Limited, the Company was liable only to Minimum Alternate Tax (MAT). As the tax liability under the Regular Method is nil, the entire MAT is eligible to be carried forward as MAT Credit Entitlement for set off in future years. Consequently, the Current Tax liability for the year is Nil.

As per the Accounting Standard (AS) 22 of The Companies (Accounting Standards) Rules, 2006, a sum of Rs. 1 445 lakhs has been transferred to Deferred Tax to the debit of the Profit and Loss Account, as against transfer of Rs. 404 lakhs from Deferred Tax and credited to the Profit and Loss Account in the previous year.

In the result, Profit after tax for the year was Rs. 2 679 lakhs, as compared to Rs. 2 051 lakhs, in the previous year.

FINANCE

Instalments of Term Loans and interest dues on Term Loans and Working Capital borrowings were paid on or before the respective due dates. The entire Term Loan borrowed by Unit : Erode, for its Mill Development Plan, was fully repaid during the year. Unit : Erode does not carry any Term Loans in its books, other than the Working Capital borrowings. The Term Loan outstanding for Unit : Tirunelveli was Rs. 15 839 lakhs, as on March 31, 2014.

INTEREST FREE SALES TAX DEFERRAL SCHEME

As the repayment of the loan has already commenced, the Company repaid Rs. 521 lakhs during the year and the balance outstanding as on March 31, 2014 was Rs. 4 243 lakhs.

MARKET CONDITIONS

The year commenced with favourable conditions of demand, resulting from the text books and exercise note books sectors. Modest price increases could be effected to offset the cost increases.

However, the slide in demand for paper commenced by end September 2013, when the Maplitho grades experienced a fall in demand. By this time, the market and the end users were fully aware of the cost of production having escalated beyond the control of manufacturers, leaving them with no choice but to accept the increased prices charged by the manufacturers.

This in turn continued to keep the demand at higher than the off-season levels, due to the end users purchasing and storing more than their requirements to save on future price revisions.

Despite multiple revisions in price, the manufacturers were still short of covering the escalation in cost of production, primarily due to increase in price of wood, coal and chemicals. With unabated increase in prices of wood, another price revision was effected in December 2013, to partially neutralise the increase in costs. This was the last price revision for the year, which was not fully absorbed by the market.

The fourth quarter was most unique in the paper industry. Till now, every year demand for paper for the educational sector would commence from January and peak around April and May. This year, there was no indication of this additional demand, since the major consumers / publishers had already stored sufficient stocks to counter the price revisions.

From the 1st January 2014, as per FTA agreement with the ASEAN countries, import of paper was at zero Customs Duty item and this weakened the sentiments of the market further. General elections, that would normally trigger additional consumption of paper, had no impact on the demand this time. The general sluggishness in the economy, contributed to the postponement of regular purchases, due to uncertainty in the industrial and commercial sectors of the economy.

All the above factors resulted in a very subdued demand where stocks started piling up with all the manufacturers. This continued during the first quarter of the current financial year.

By securing some bulk orders, the Company could cover the machines with orders and achieve zero stock at the end of the year.

The outlook for the current year appears ''weak'', though a stable market is projected by Analysts.

EXPORT PERFORMANCE

The Unit : Erode exported 13 388 tonnes during the year, as compared to 15 314 tonnes, exported during 2012-13.The export proceeds amounted to US $ 10 431 863. In Rupee terms, the value of exports amounted to Rs. 7 046 lakhs as compared to Rs. 7 204 lakhs, during the previous year.

Besides the above, the Unit : Erode also sold 243 tonnes, under deemed exports whose proceeds amounted to Rs. 135 lakhs.

The Unit : Tirunelveli exported 10 404 tonnes of Paper during the year, as against 9 812 tonnes, exported during the previous year. The export proceeds amounted to US$ 8 514 217. In Rupee terms, the value of exports amounted to Rs. 5 184 lakhs, as against Rs. 4 345 lakhs in the previous year.

Besides the above, the Unit : Tirunelveli also sold 406 tonnes, under deemed exports whose proceeds amounted to Rs. 213 lakhs.

The exports, including Deemed Exports, accounted for 13.71% of Production.

TREE FARMING ACTIVITY

The Company provides quality Clonal Seedlings of Eucalyptus, as well as Casuarina Seedlings, at subsidised rates, to interested farmers and assist them with technical help to achieve higher yields.

Technical support for this initiative is provided by the Department of Tree Breeding of Forest College and Research Institute, Mettupalayam (FC&RI), attached to Tamilnadu Agricultural University, Coimbatore, through a Collaborative Research Project. Last year, farmers owning 19 507 acres were benefited by such support.

ISO 9001 / ISO 14001 ACCREDITATION

Company''s Quality Management Systems continue to be covered by the "ISO 9001" accreditation. Company''s Environmental Management System, continues to enjoy "ISO 14001", accreditation.

OHSAS 18001 CERTIFICATION

The Company continues to enjoy certification under Occupational Health and Safety Assessment Series 18001 (OHSAS) which is an international standard that facilitates management of Occupational Health and Safety risks associated with the business of the organisation.

FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATION

The Company has been re-certified under three Standards of FSC, viz., FSC-STD-40-004, FSC-STD-40-005 v2-1 and FSC-STD-40-003 v1-0. By this, the Company assures its stakeholders that the wood, wood fibre and pulp purchased by it are traceable to responsibly managed forests and that adequate document controls are in place to ensure identification and traceability throughout the Chain of Custody. This also means that the Company is capable of manufacturing and selling FSC Pure and FSC Mixed Products in the domestic and international markets.

AWARDS

Safety

The Company won the following Safety Awards, instituted by the Government of Tamilnadu, for the year 2012, in respect of units which worked for more than 10 lakhs man hours in a year:

- For highest reduction in accident rate when compared to the previous year - First Prize;

- For Lowest Weighted Frequency Rate in accidents when compared to other industries coming under the same classification and group - First Prize and

- For longest accident free period in man hours - First Prize.

EXPORT HOUSE STATUS

The Company continues to enjoy "Two Star Export House" Status, awarded by the Government of India, Ministry of Commerce, Directorate General of Foreign Trade, in recognition of its export performance.

DEPOSITORY SYSTEM

As on March 31, 2014, 95 89 050 Equity shares, representing 76.02% of the total Paid up Equity Share Capital of the Company were held by 4 750 Shareholders under Demat form.

FURTHER ISSUE OF SHARES

During the year, the Company issued 13 63 628 Equity Shares to the Equity Shareholders of SPB Papers Limited (since amalgamated with our Company), pursuant to the Scheme of Amalgamation approved by the Hon''ble High Court of Madras.

SUBSIDIARY

M/s Esvi International (Engineers & Exporters) Limited (Esvin) is a wholly owned subsidiary of the Company. Currently, Esvin holds properties and derives property income.

CURRENT YEAR (2014-15)

In Unit : Erode, the Production during April 2014, was 8 928 tonnes, as compared to 9 558 tonnes, produced during April 2013. In Unit : Tirunelveli, the Production was 4050 tonnes in April 2014, as against 3 654 tonnes in April 2013. The overall Production for the Company, for the month of April 2014, was 12 978 tonnes. Total Revenue (net of Excise Duty and Cess), during April 2014, amounted to Rs. 5 373 lakhs, compared to Rs. 5 079 lakhs, during April 2013.

During April 2014, 764 tonnes of paper, valued at US$ 665 918 (equivalent to Rs. 403 lakhs) were exported.

Market conditions for paper are ''soft'' and weak demand growth is forecast.

ENVIRONMENTAL PROTECTION

The Company continues to provide utmost attention to the conservation and improvement of the environment. In Unit : Erode, the Power Boilers and Recovery Boilers are equipped with Electro Static Precipitators, to arrest dust emissions. The Company has installed and operates an Anaerobic Lagoon, for high BOD liquid effluents and a Secondary Treatment System, for total Mill effluent. These facilities are operating efficiently, enabling the Company to comply with the pollution control norms, prescribed by the Pollution Control Authorities, on a sustained basis. The treated effluent water continues to be utilised for irrigating nearby sugar cane fields. The implementation of the Mill Development Plan has enabled the Mill to enhance its environmental compliance, thereby complying with the Charter on Corporate Responsibility for Environmental Protection (CREP) on a sustained basis.

Unit : Tirunelveli is well equipped with efficient Electrostatic Precipitator for the Power Boiler and has an extensive green cover. Its treated waste water, after recycling, is used to irrigate the Company owned lands.

AUDIT COMMITTEE

The Audit Committee of the Board consists of four members and all of them are Non-Whole- time Directors, viz., Sri R V Gupta, Dr S Narayan, Sri Bimal Kumar Poddar andSri V Sridar.

Sri R V Gupta is the Chairman of the Audit Committee.

CORPORATE SOCIAL RESPONSIBILITY COMMITTEE (CSR)

The Company has constituted a Corporate Social Responsibility Committee (CSR), consisting of Sri N Gopalaratnam, Sri V Sridar, Sri K S Kasi Viswanathan and Sri V Pichai as its members. The Committee will formulate CSR Policy, recommend CSR Initiatives and monitor CSR expenditure.

DIRECTORS'' RESPONSIBILITY STATEMENT

While preparing the annual financial statements, the Company has adhered to the following:

Applicable Accounting Standards, referred to in Section 211(3-C) of the Companies Act, 1956, have been followed.

The said Accounting Standards are being applied consistently. The Company has made judgements and estimates that are reasonable, prudent and are in the interest of the Company''s business so as to give a true and fair view of the state of affairs of the Company as at March 31, 2014 and of the profit of the Company for the said period.

The Directors have taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

The Directors have prepared the financial statements on a "going concern" basis.

CORPORATE GOVERNANCE

The Report on Management''s Discussion and Analysis and Report on Corporate Governance are forming part of Directors'' Report and are annexed as Annexure - II and Annexure - III.

As required by the Listing Agreement, an Auditors'' Report on Corporate Governance and a Declaration by the Managing Director / Chief Executive Officer with regard to Code of Conduct are attached to the said Report.

Further, as required by Clause 49 of the Listing Agreement, a Certificate, duly signed by the Managing Director and Deputy Managing Director & Secretary, was submitted to the Board of Directors on the financial statements and cash flow statement of the Company for the year ended March 31, 2014 at the meeting held on May 30, 2014.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The information relating to 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 the Report of Board of Directors) Rules, 1988, is given in Annexure - I and forms part of this Report.

PARTICULARS OF EMPLOYEES

During the year 2013-14, none of the employees of the Company was in receipt of remuneration, in excess of the limit prescribed in Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975.

CASH FLOW STATEMENT

As required under Clause 32 of the Listing Agreement with the Stock Exchanges, a Cash Flow Statement is attached to the Balance Sheet.

EMPLOYEES

Relations between the Management and Employees were cordial throughout the year under review.

DIRECTORS

At the Board Meeting held on March 22, 2014, the Board of Directors re-appointed:

- Sri N Gopalaratnam, as Chairman with executive powers,

- Sri K S Kasi Viswanathan, as Managing Director and

- Sri V Pichai, as Deputy Managing Director & Secretary,

for a further term of three years from April 01, 2014. The re-appointment / remuneration package for the above three Whole-time Directors require the approval of the Members in General Meeting and hence, forms part of the Agenda for the Fifty Fourth Annual General Meeting.

Sri Bimal Kumar Poddar retires by rotation, under Article 104 of the Articles of Association of the Company at the conclusion of the ensuing Fifty Fourth Annual General Meeting and being eligible offers himself for re-election at the said Meeting.

The Company has received notices under Section 160 of the Companies Act, 2013 from Members proposing the candidature of Sri R V Gupta, Sri V Sridar and Dr S Narayan together with requisite deposit of Rs. one lakh for each for appointment as Independent Directors.

The Company has received declarations from all the Independent Directors of the Company confirming that they meet with the criteria of independence, as prescribed both under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement with the Stock Exchanges.

AUDITORS

M/s Suri & Co., Chennai, Messrs S Viswanathan, Chennai and M/s Maharaj N R Suresh & Co., Chennai, Auditors of the Company, retire at the conclusion of the ensuing Annual General Meeting and are eligible for re- appointment. Necessary Resolution for their appointment is proposed at the ensuing Annual General Meeting.

COST AUDIT

Pursuant to Section 233-B of the Companies Act, 1956, the Central Government has ordered that the Company carries out an audit of cost accounts relating to paper every year. M/s S Mahadevan & Co., Cost Accountants, was appointed as Cost Auditor for the year 2013-14. The Cost Audit Report for the year 2013-14 will be submitted to the Central Government before the due date.

ACKNOWLEDGEMENT

The Directors place on record their great appreciation of the tireless efforts of all Executives and Employees of the Company for their fine performance in a difficult year. The Directors also express their sincere thanks to the Government of India, Government of Tamilnadu and Commercial Banks, for their understanding, guidance and assistance and Dealers, Customers and Suppliers, for their excellent support, at all times.

On behalf of the Board

N GOPALARATNAM

Chairman

Chennai

May 30, 2014


Mar 31, 2013

The Directors hereby present their Fifty Third Annual Report and the Audited Accounts for the year ended 31st March 2013.

As informed in last year''s Directors'' Report, taking into consideration the advantages, the Board of Directors of both SPB Papers Limited (SPBPL) and our Company (SPB) formulated and approved a Scheme of Amalgamation for the transfer and vesting of the Undertaking of SPBPL with and into SPB, pursuant to the provisions of Section 391 to 394 and other relevant provisions of the Companies Act, 1956.

On the Company Petition filed by both the Companies, the Hon''ble High Court of Madras has since accorded approval for the said Scheme of Amalgamation with effect from April 01, 2012.

Both the Companies have accepted the order of the Hon''ble High Court and filed necessary returns with the Registrar of Companies.

Accordingly, the accounts for the year ended March 31, 2013 have been prepared taking into account the operations of SPB Papers Limited which has since been dissolved

WORKING RESULTS

2012-13 2012-13 2012-13 2011-12 Unit: Unit: Total Erode Tirunelveli (Actuals) (Actuals) (Actuals) (Actuals) (in tonnes) (in tonnes) (in tonnes) (in tonnes)

Production 119366 50072 169438 118282

Sales 120023 50056 170079 117522 (Rs. lakhs) (` lakhs) (Rs. lakhs) (Rs. lakhs)

Revenue from Operations

Sales and Other Operating Income 64533 23544 88077 63912

Less: Excise Duty and Excise Cess 3614 1108 4722 2770

60919 22436 83355 61142

Other Income 408 103 511 463

Total Revenue 61327 22539 83866 61605

Profit before interest, depreciation and tax 10717 290 11007 10354

Finance Cost 2067 2379 4446 2432

Depreciation 3468 1446 4914 3426

Profit before tax 5182 (-) 3535 1647 4496

Provision for current tax 0 1168

Transfer from Deferred Tax (-) 404 (-) 82

Net Profit 2051 3410



DIVIDEND

The Directors recommend payment of Dividend at Rs.4 per Equity Share, absorbing a sum of Rs.504.55 lakhs.

As per the Scheme of Amalgamation approved by the Hon''ble High Court of Madras, the shareholders of SPB Papers Limited who will be allotted Equity Shares in the Share Capital of our Company, are eligible for dividend for the full year of 2012-13.

As per the provisions of the Income tax Act, 1961, no tax will be deducted at source on dividends distributed. However, the Company will bear the tax on the dividend distributed, amounting to Rs.85.75 lakhs.

APPROPRIATIONS

Your Directors propose the following appropriations:

2012-13 (Rs.lakhs)

Net profit for the year 2051

Add : Surplus brought forward from the previous year 3026

5077

Less : Transfer to General Reserve 1000

Proposed dividend and tax thereon 590

1590

Balance carried forward 3487

OPERATIONS PRODUCTION

During the year, the Unit : Erode''s production was 1 19 366 tonnes, as compared to 1 18 282 tonnes, produced in the previous year. The production was marginally higher by 1 084 tonnes compared to the previous year. This could be achieved despite severe restrictions on power availability imposed by the State Government.

The Unit : Erode also produced 21 851 tonnes of Wet Lap Pulp to augment the Pulp requirements of Unit : Tirunelveli.

The Unit : Tirunelveli produced 50 072 tonnes Paper during the year, as compared to 36 069 tonnes produced in the previous year.

The overall Production for the Company was 1 69 438 tonnes of Paper and Boards for the year.

SALES

During the year, the Unit : Erode sold 1 19 163 tonnes, against its production of 1 19 366 tonnes. While the entire paper produced had been sold and zero stock was achieved at the end of the financial year, nearly 404 tonnes of converted Note Books remained in stock for disposal during the ensuing school season.

In addition, the Unit : Erode, as part of its trading activity, had bought 287 tonnes of paper, board, etc., and sold 860 tonnes, including out of opening stock of 798 tonnes, whose turnover amounted to Rs.204 lakhs and sold petroleum products valued at Rs.2 665 lakhs. Closing Stock of Traded Goods was 225 tonnes as on March 31, 2013.

The Unit : Tirunelveli sold 50 056 tonnes during the year.

The overall sale of Paper and Paper Board effected by the Company during the year was 1 70 079 tonnes.

PROFITABILITY

The Revenue from Operations of Unit : Erode was Rs.64 533 lakhs, for the year 2012-13, compared to Rs.63 912 lakhs, during the previous year. The Revenue from Operations registered a marginal increase of Rs.621 lakhs, compared to the previous year. The increase in Revenue from Operations was mainly on account of higher production and increase in prices of paper effected during the second half of the financial year.

The Revenue from Operations of Unit : Tirunelveli was Rs.23 544 lakhs.

The overall Revenue from Operations of the Company, net of Excise Duty for the year was Rs.83 866 lakhs.

The Profit before interest, depreciation and tax was Rs.11 007 lakhs for the Company as a whole, compared to Rs.10 354 lakhs, in the previous year.

After absorbing interest and depreciation of Rs.4 446 lakhs and Rs.4 914 lakhs, respectively, the profit before tax was Rs.1 647 lakhs, as compared to Rs.4 496 lakhs, in the previous year.

The overall Profit before Tax for the year registered a steep fall due to steep increase in prices of wood by more than 30% and the effect of amalgamation of SPB Papers Limited with the Company with effect from April 01, 2012.

Due to substantial business loss and carried forward depreciation available on account of amalgamation of SPB Papers Limited, the Company was liable only to Minimum Alternate Tax (MAT). As the tax liability under the Regular Method is nil, the entire MAT is eligible to be carried forward as MAT Credit Entitlement for set off in future years. Consequently, the Current Tax Liability for the year is Nil.

As per the Accounting Standard (AS) 22 of The Companies (Accounting Standards) Rules, 2006, a sum of Rs.404 lakhs has been transferred from Deferred Tax and credited to the Profit and Loss Account, as against transfer of Rs.82 lakhs, in the previous year.

In the result, profit after tax for the year was Rs.2 051 lakhs, as compared to Rs.3 410 lakhs, in the previous year

FINANCE

The Unit : Erode paid the instalments of the Term Loans and the interest dues on Term Loans and Working Capital Limits, on or before the respective due dates. Unit : Tirunelveli paid the interest dues on or before the due dates on Term Loans and Working Capital Limits. There were no instalments of Term Loan payable during the year for Unit : Tirunelveli.

INTEREST FREE SALES TAX DEFERRAL SCHEME

During the year 2012-13, the Company availed Rs.358 lakhs under the Scheme and the cumulative amount availed, upto March 31, 2013, was ` 4764 lakhs. .

MARKET CONDITIONS

The year commenced with a negative outlook for the paper industry. Demand in the notebook segment had come down, due to announcement of free notebook distribution scheme by the Government of Tamil Nadu for Government and Government aided schools. Most of the major notebook manufacturers found themselves saddled with huge stocks and the smaller converters cancelled pending orders. With the educational sector peak flattening out by the end of June 2012, the outlook for the balance period of the financial year was not positive.

On the export front, during the months of April and May 2012, buoyancy continued, but from mid June 2012 onwards, the market started sliding.

From the third quarter onwards, there was some improvement in paper market conditions. The continued power shortage in Tamil Nadu and Andhra Pradesh, coupled with the weak Rupee ensured a very limited flow of material from the recycled paper mills in South India to the market. Commencement of finalisation of Text Book tenders by various State Governments had its impact in North and West, limiting flows to the market. Thus, A grade Mills were not compelled to offer further discounts, other than what was offered in Maplitho Products in August 2012, which continued in September 2012.

From October 2012, the impact of cost push was severe. Prices of Wood and Chemicals had shown an increasing trend from the end of second quarter. This forced the Mils to effect price revisions to offset the cost escalations, which were accepted by the market without much resistance.

Power position, throughout the year, was bleak in the Southern States and is not likely to improve, till the onset of the monsoon. Hence, supplies from the smaller mills are likely to be restricted. Also Text Books and Student Exercise Notebooks segment is showing marked preference for A Grade Papers.

No new capacities are to be commissioned in the immediate future, except for a new machine (1 50 000 tpa) during the end of second quarter. This may help in sustaining the demand and prices in the market, during the current year.

EXPORT PERFORMANCE

The Unit : Erode exported 15 314 tonnes, including export of 1 015 tonnes of paper and paper boards to Nepal and Iran during the year, as compared to 10 533 tonnes, during 2011-12. The exports accounted for about 12.83% of total production.

The export proceeds amounted to US $ 12 410 486. In Rupee terms, the value of exports amounted to Rs.7 204 lakhs, including value of exports to Nepal and Iran amounting to Rs.452 lakhs, as compared to Rs.4 620 lakhs, during the previous year.

Besides the above, the Unit : Erode also sold 268 tonnes, under deemed exports whose proceeds amounted to Rs.133 lakhs.

The Unit : Tirunelveli exported 9 812 tonnes of Paper during the year, accounting for 19.60% of Production. The export proceeds amounted to US$ 7 124 963. In Rupee terms the value of exports amounted to Rs.4 345 lakhs, including value of exports to Iran amounting to Rs.453 lakhs.

TREE FARMING ACTIVITY

The Company provides quality Clonal Seedlings of Eucalyptus as well as Casuarina Seedlings at subsidised rates to interested farmers and assist them with technical help to achieve higher yields.

Technical support for this initiative is provided by the Department of Tree Breeding of Forest College and Research Institute, Mettupalayam, (FC&RI) attached to Tamilnadu Agricultural University, Coimbatore, through a Collaborative Research Project. Last year, farmers owning 11 263 acres were benefited by such support.

ISO 9001 / ISO 14001 ACCREDITATION

Company''s Quality Management Systems continue to be covered by the "ISO 9001" accreditation. Company''s Environmental Management System, continues to enjoy "ISO 14001" accreditation.

OHSAS 18001 CERTIFICATION

The Company continues to enjoy certification under Occupational Health and Safety Assessment Series 18001 (OHSAS) which is an international standard which facilitates management of Occupational Health and Safety risks associated with the business of the organisation.

FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATION

Scientific Certification Systems (SCS), who is accredited by the FSC, has awarded to the Company the Forest Stewardship Council (FSC) Certification, valid till May 2015. FSC is an international certification and labeling system that guarantees that paper and wood products carrying the FSC label come from environmentally and socially responsible sources.

AWARDS

Safety

Safety Awards, for the year 2008, in respect of units which worked for more than 10 lakhs man hours in a year:

0 For highest reduction in accident rate when compared to the previous year - Third Prize

0 For Lowest Weighted Frequency Rate in accidents when compared to other industries coming under the same classification and group - Third Prize

0 For longest accident free period in man hours - Second Prize.

EXPORT HOUSE STATUS

The Company continues to enjoy "Two Star Export House" Status, awarded by the Government of India, Ministry of Commerce, Directorate General of Foreign Trade, in recognition of its export performance.

DEPOSITORY SYSTEM

As on March 31, 2013, 4 910 Members were holding their shares in demat form and 87 72 550 Equity Shares, representing 77.98% of the total Paid up Equity Share Capital of the Company, have been dematerialised.

SUBSIDIARY

During the year, the Company acquired 100% of the Equity of Esvi International (Engineers & Exporters) Limited (Esvin) thereby making it a wholly owned subsidiary of the Company. Esvin was involved in execution of projects, both in India and outside of India, in the past. Currently, it holds properties and derives property income

CURRENT YEAR (2013-14)

In Unit : Erode, the production during April 2013, was 9 558 tonnes as compared to 10 345 tonnes, produced during April 2012. In Unit : Tirunelveli, the Production was 3 654 tonnes in April 2013. The overall Production for the month of April 2013, for the Company was 13 212 tonnes.

Total Revenue (net of Excise Duty and Cess), during April 2013 amounted to Rs.4 479 lakhs, for Unit: Erode, compared to Rs.3 896 lakhs, during April 2012. For Unit: Tirunelveli, the Total Revenue and (net of Excise Duty and Cess) amounted to Rs.1 364 lakhs for April 2013. The overall Total Revenue for the month of April 2013, for the Company was Rs.5 843 lakhs.

During April 2013, 270 tonnes of paper, valued at US $ 2 28 156 (equivalent to Rs.133 lakhs) were exported by both Erode and Tirunelveli units.

Market sentiments were favourable during April 2013.

ENVIRONMENTAL PROTECTION

The Company continues to provide utmost attention to the conservation and improvement of the environment. In Unit : Erode, the Power Boilers and Recovery Boilers are equipped with Electro Static Precipitators, to arrest dust emissions. The Company has installed and operates an Anaerobic Lagoon, for high BOD liquid effluents and a Secondary Treatment System, for total Mill effluent. These facilities are operating efficiently, enabling the Company to comply with the pollution control norms, prescribed by the Pollution Control Authorities, on a sustained basis. The treated effluent water continues to be utilised for irrigating nearby sugar cane fields. The implementation of the Mill Development Plan had enabled the Mill to enhance its environmental performance and compliance thereby complying with the Charter on Corporate Responsibility for Environmental Protection (CREP) on a sustained basis.

Unit : Tirunelveli is well equipped with efficient Electrostatic Precipitator for the Power Boiler and has an extensive green cover. Its treated waste water, after recycling, is used to irrigate the Company owned lands

AUDIT COMMITTEE

The Audit Committee of the Board consists of four members and all of them are Non-Whole- time Directors, viz., Sri R V Gupta, Dr S Narayan, Sri Bimal Kumar Poddar and Sri V Sridar.

Sri R V Gupta is the Chairman of the Audit Committee.

DIRECTORS'' RESPONSIBILITY STATEMENT

While preparing the annual financial statements, the Company has adhered to the following:

Applicable Accounting Standards referred to in Section 211(3-C) of the Companies Act, 1956, have been followed.

The said Accounting Standards are being applied consistently. The Company has made judgements and estimates that are reasonable, prudent and are in the interest of the Company''s business so as to give a true and fair view of the state of affairs of the Company as at March 31, 2013 and of the profit of the Company for the said period.

The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

The Directors have prepared the financial statements on a "going concern" basis..

CORPORATE GOVERNANCE

The Report on Management''s Discussion and Analysis and Report on Corporate Governance are forming part of Directors'' Report and are annexed as Annexure - III and Annexure - IV.

As required by the Listing Agreement, an Auditors'' Certificate on Corporate Governance and a Declaration by the Chairman and Managing Director with regard to Code of Conduct are attached to the said Report.

Further, as required by Clause 49 of the Listing Agreement, a Certificate, duly signed by the Chairman and Managing Director and Director (Finance) & Secretary, was submitted to the Board of Directors on the financial statements and cash flow statement of the Company for the year ended March 31, 2013 at the meeting held on May 30, 2013.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The information relating to 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 the Report of Board of Directors) Rules, 1988, is given in Annexure - I and forms part of this Report.

PARTICULARS OF EMPLOYEES

During the year 2012-13, none of the employees of the Company was in receipt of remuneration, in excess of the limit prescribed in Sub-section (2A) of Section 217 of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975.

CASH FLOW STATEMENT

As required under Clause 32 of the Listing Agreement with the Stock Exchanges, a Cash Flow Statement is attached to the Balance Sheet.

EMPLOYEES

Relations between the Management and Employees were cordial throughout the year under review.

DIRECTORS

Dr S Narayan, IAS (Retd.), Sri K S Kasi Viswanathan and Sri V Pichai retire by rotation, under Article 104 of the Articles of Association of the Company at the conclusion of the ensuing Fifty Third Annual General Meeting and being eligible offer themselves for re-election at the said Meeting.

During the year, The Tamilnadu Industrial Investment Corporation Limited (TIIC) withdrew the nomination of Sri Md. Nasimuddin, IAS and nominated its Chairman and Managing Director, Sri Swaran Singh, IAS, as its Nominee Director on the Board of the Company. Later, the nomination of Sri Swaran Singh, IAS was withdrawn and TIIC nominated its Chairman and Managing Director, Sri S K Prabakar, IAS, as its Nominee Director on the Board of the Company. Sri S K Prabakar, IAS is not liable to retire by rotation.

During the year, the Tamilnadu Government withdrew the nomination of Sri C V Sankar, IAS, and nominated Sri Mohan Verghese Chunkath, IAS, Additional Chief Secretary to Government,

Environment and Forests Department, as its Nominee on the Board of our Company. Sri Mohan Verghese Chunkath, IAS, was appointed as a Director in the casual vacancy caused by the withdrawal of nomination of Sri C V Sankar, IAS and is liable to retire by rotation.

Your Directors place on record the valuable services rendered by Sri Md. Nasimuddin, IAS, Sri Swaran Singh, IAS and Sri C V Sankar, IAS, during their tenure as Directors of the Company.

AUDITORS

M/s Suri & Co., Chennai and Messrs S Viswanathan, Chennai, Auditors of the Company, retire at the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. Your Directors also recommend appointment of M/s Maharaj N R Suresh & Co., Chartered Accountants, Chennai as Auditors of the Company. Necessary Resolution for their appointment is proposed at the ensuing Annual General Meeting.

COST AUDIT

Pursuant to Section 233-B of the Companies Act, 1956, the Central Government has ordered that the Company carries out an audit of cost accounts relating to paper every year. M/s S Mahadevan & Co., Cost Accountants, was appointed as Cost Auditor for the year 2012-13. The Cost Audit Report for the year 2012-13 will be submitted to the Central Government before the due date.

ACKNOWLEDGEMENT

The Directors place on record their great appreciation of the tireless efforts of all Executives and Employees of the Company for their fine performance in a difficult year. The Directors also express their sincere thanks to the Government of India, Government of Tamilnadu and Commercial Banks, for their understanding, guidance and assistance and Dealers, Customers and Suppliers, for their excellent support, at all times.

On behalf of the Board

N GOPALARATNAM

Chairman and Managing Director

Chennai May 30, 2013


Mar 31, 2012

The Directors hereby present their Fifty Second Annual Report and the Audited Accounts for the year ended 31st March 2012 :

WORKING RESULTS

2011-12 2010-11 (Actuals) (Actuals) (in tonnes) (in tonnes) Production 118282 120558

Sales 117522 121010

(Rs lakhs) (Rs lakhs)

Revenue from Operations

Sales and Other Operating Income 63912 59515

Less: Excise Duty and Excise Cess 2770 2167

61142 57348

Other Income 463 638

Total Revenue 61605 57986

Profit before interest, depreciation and tax 10354 11680

Interest 2432 2203

Depreciation 3426 3400

Profit before tax 4496 6077

Provision for current tax 1168 -

Transfer (from) / to Deferred Tax (-) 82 (-) 423

Net Profit 3410 6500

DIVIDEND

The Directors recommend payment of Dividend at Rs 5 per Equity Share, absorbing a sum of Rs 562.50 lakhs. As per the provisions of the Income tax Act, 1961, no tax will be deducted at source on dividends distributed. However, the Company will bear the tax on the dividend distributed, amounting to Rs 91.25 lakhs.

APPROPRIATIONS

Your Directors propose the following appropriations:

2011-12 (Rs lakhs)

Net profit for the year 3410

Add :

Surplus brought forward from the previous year 2195 Transfer from Investment Allowance Reserve 75

2270 5680

Less :

Transfer to General Reserve 2000 Proposed dividend and tax thereon 654

2654

Balance carried forward 3026

OPERATIONS

During the year, the Company's production was 1 18 282 tonnes, as compared to 1 20 558 tonnes, produced in the previous year. The production could have been higher but for the severe restrictions on power availability imposed by the State Government, which affected production whenever our Captive Power Plants were shut for annual inspection and during maintenance related outages.

The revenue was Rs 61 605 lakhs for the year under review, as compared to Rs 57 986 lakhs in the previous year. Total revenue was higher by 6.2%, on account of higher production and sale of Pulp.

The Profit before interest, depreciation and tax was Rs 10 354 lakhs, as compared to Rs 11 680 lakhs, in the previous year.

Major factors that impacted the profitability for the year under review were increases in prices of Wood, Bagasse, Coal and Chemicals.

After absorbing interest and financing charges and depreciation of Rs 2 432 lakhs and Rs 3 426 lakhs, respectively, the profit before tax was Rs 4 496 lakhs, as compared to Rs 6 077 lakhs, in the previous year.

There was no carried forward loss or depreciation available for set off against current year's profit. Consequently, the Company was liable for regular tax at normal rate. The said current tax liability worked out to Rs 1 168 lakhs. The unutilised MAT Credit Entitlement could be utilised to the extent Rs 287 lakhs to reduce the cash outgo.

As per the Accounting Standard (AS) 22 of The Companies (Accounting Standards) Rules, 2006, a sum of Rs 82 lakhs has been transferred from Deferred Tax and credited to the Statement of Profit and Loss, as against Rs 423 lakhs, in the previous year.

In the result, profit after tax for the year was Rs 3 410 lakhs, as compared to Rs 6 500 lakhs, in the previous year.

FINANCE

The Company paid the instalments of the Term Loans and the interest dues on Term Loans and Working Capital borrowings, on or before the respective due dates.

INTEREST FREE SALES TAX DEFERRAL SCHEME

During the year 2011-12, the Company availed Rs 401 lakhs under the Scheme and the cumulative amount availed, upto March 31, 2012, was Rs 4 406 lakhs.

MARKET CONDITIONS

The year 2011-12 began with buoyant paper market conditions as paper sourcing for notebooks was getting shifted to big integrated mills. As in earlier years, the Company started the year with Zero Stock of the finished goods inventory. Paper prices were up-revised in April

2011 and May 2011 to offset, in part, the continuous escalation in prices of coal, wood, chemicals, etc.

The buoyancy that had set-in, disappeared by June 2011 with the notebook season coming to an end. Paper Mills had to roll back the price revisions, made earlier, to garner orders to keep the units running. The Calendar /

Diary season could not provide any relief to the paper manufacturers due to weak demand for these products. While the poor off take for uncoated woodfree grades (Maplitho, Creamwove varieties) continued till year end, MG and Yankee products maintained normal demand and stable prices.

The Company had taken the initiative of stepping-up exports of the woodfree varieties and resorting to high volume 'Contract Orders' - albeit - at lower margins to combat the floundering domestic market.

During the year, Government of India replaced the DEPB Scheme (an incentive for exports) with a less attractive Duty Draw Back Scheme. The Company could not achieve Zero Stock at the end of the financial year, as the export goods, awaiting the arrival of ships, at the port, could not be shipped due to work stoppage by a section of the workmen at the Dock.

Outlook for the current year appears subdued. Market sentiments may remain weak, consistent with the falling economic conditions prevalent in the country. The excess capacity available in the woodfree grade is not likely to get fully absorbed till 2013-14. Till then, stepping- up exports may provide better margins and relief.

EXPORT PERFORMANCE

The Company exported 10 533 tonnes of paper and paper boards during the year, as compared to 8 773 tonnes, during 2010-11. The Exports accounted for about 8.9% of total production.

The export proceeds amounted to US $ 9 513 777, equivalent to Rs 4 620 lakhs, as compared to Rs 3 703 lakhs, during the previous year.

Besides the above, the Company also sold 409 tonnes, under deemed exports whose proceeds amounted to Rs 194 lakhs.

TREE FARMING ACTIVITY

Last year, the Contract Tree Farming Scheme was discontinued and a Modified Scheme was introduced whereby the Company provides quality Clonal Seedlings of Eucalyptus, as well as Casuarina Seedlings at Subsidized rates to interested farmers and assist them with technical help to achieve higher yields.

Technical support for this initiative is provided by the Department of Tree Breeding of Forest College and Research Institute, Mettupalayam, (FC&RI) attached to Tamilnadu Agricultural University, Coimbatore, through a Collaborative Research Project. Last year, farmers planted Eucalyptus and Casuarina to the extent of 8169 acres under this programme.

ISO 9001 / ISO 14001 ACCREDITATION

Company's Quality Management Systems continue to be covered by the "ISO 9001" accreditation. Company's Environmental Management System, continues to enjoy "ISO 14001", accreditation.

OHSAS 18001 CERTIFICATION

The Company continues to enjoy certification under Occupational Health and Safety Assessment Series 18001 (OHSAS) which is an international standard which facilitates management of Occupational Health and Safety risks associated with the business of the organisation.

FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATION

In May 2010, Scientific Certification Systems (SCS), who is accredited by the FSC, awarded to the Company the Forest Stewardship Council (FSC) Certification, valid till May 2015. FSC is an international certification and labeling system that guarantees that paper and wood products carrying the FSC label come from environmentally and socially responsible sources.

The Company has been certified under three Standards of FSC, viz., FSC-STD-40-004 v2-0, FSC-STD-40-005 v2-1 and FSC-STD-40-003 v1-0. By this, the Company assures its stakeholders that the wood, wood fibre and pulp purchased by it are traceable to responsibly

managed forests and that adequate document controls are in place to ensure identification and traceability throughout the Chain of Custody. This also means that the Company is capable of manufacturing and selling FSC Pure and FSC Mixed products in the domestic and international markets.

AWARDS

The Company received the EHS Excellence Award 2011 instituted by Confederation of Indian Industry (CII) (Southern Region) in recognition of best practices of EHS (Environment, Health and Safety) in Plant / Manufacturing Sector for the year 2011.

EXPORT HOUSE STATUS

The Company continues to enjoy "Two Star Export House" Status, awarded by the Government of India, Ministry of Commerce, Directorate General of Foreign Trade, in recognition of its export performance.

DEPOSITORY SYSTEM

As on March 31, 2012, 5 106 Members were holding their shares in demat form and 87 33 435 Equity shares, representing 77.63% of the total Paid up Equity Share Capital of the Company, have been dematerialised.

SPB PAPERS LIMITED

As informed in last year's Directors' Report, Subburaj Papers Limited (SPL) set up a de-inked waste paper pulp based Paper Mill, with an annual capacity of 90 000 tonnes, in Tirunelveli District, Tamilnadu. The unit commenced operations in August 2009. The Project encountered huge cost and time overruns. Despite all financial support from the Banks to complete erection and commissioning, the unit could not be operated continuously.

As per the technical study conducted, at the request of the Promoters of SPL, the unit required further investment to add certain balancing equipments to reach the capacity of 90 000 tonnes per annum and make it viable.

As Promoters of SPL expressed inability to invest further funds and requested the Company to take over the unit as management buy out, the Company evaluated the option and found that the proposal offered advantages to the Company and will strengthen the existing operations, besides providing great opportunity for future growth.

SPL was acquired by ESVIN-SPB Group in February 2011 by taking over the assets and liabilities and also by purchase of the entire Equity Shares. In the process, our Company acquired 62 50 000 Equity Shares of Rs 10 each, constituting 41.67% of the total Equity Capital of SPL. Among others, the acquisition involved settlement of the dues of the existing Banks through a negotiated One Time Settlement (OTS). For this purpose, the Company availed a Short Term Loan of Rs 210 crores from Canara Bank and advanced to SPL a sum of Rs 180 crores to enable them to settle the Banks under OTS. On sanction of regular fund based limits, SPL has since repaid the said loan to the Company.

After take over, the name of SPL was altered as SPB Papers Limited (SPBPL). Balancing equipments for manufacture of fine papers from purchased pulp were installed and production operations commenced from April 2011 onwards.

Our Company, while finalising the acquisition of SPBPL in February 2011 had clear plans to merge the same with it at the appropriate time and had disclosed this intent to the Stock Exchanges in its filing on 01 02 2011. SPB, with its technical, financial and managerial inputs, has successfully de-bottlenecked the plant operations of SPBPL and has fairly stabilised production during the Financial Year 2011-12. Further, product quality of SPBPL is now well accepted by both the domestic and export markets.

SPBPL is located close to Tuticorin Port giving it logistical advantage for export of Paper and import of pulp, fuel and recovered fibre. It is also in close proximity to major consumer segment in Sivakasi and Kerala. The merged operations would help leverage these strengths for overall cost optimisation.

The amalgamation will enable appropriate consolidation of SPB and SPBPL, with pooling and more efficient utilisation of their combined resources, greater economy of scales, reduction in overheads and other expenses and improved operating performance. The benefit of such integrated operations could be derived from better resource management, reduction in overall working capital requirements and tie-up of resources on more competitive terms. The amalgamation will enable the business of the merged entity to be carried on more conveniently and advantageously. The amalgamation is, thus, intended to have beneficial results for the said companies, their shareholders and other stakeholders.

The product range of SPB and SPBPL are complementary and hence the combined operations would help cater to a wider market segment. With the help of De-inking Plant located in SPBPL and facility to handle recovered fibre, there would be diversified raw material source, including environment friendly source of raw material, for the combined operations of SPB post-amalgamation.

In these circumstances and in the business interest of the SPB and SPBPL and having regard to the synergistic linkages that exist between them, it was considered desirable and expedient to amalgamate SPBPL with SPB and give effect to the amalgamation from the beginning of Financial Year 2012-13, i.e., with effect from 01 04 2012.

Accordingly, the Board of Directors of both SPBPL and SPB have formulated and approved a Scheme for the transfer and vesting of the Undertaking of SPBPL with and into SPB, pursuant to the provisions of Sections 391 to 394 and other relevant provisions of the Companies Act, 1956.

Based on independent valuations, a Share Exchange Ratio was fixed at one (1) Equity Share of Rs 10 each of SPB for every Eleven (11) Equity Shares of Rs 10 each of SPBPL. The Equity

Shares of SPB will be allotted to the Shareholders of SPBPL whose names appear in the Register of Members of SPBPL on the Record Date to be fixed for this purpose. The fairness of the Share Exchange Ratio was certified by a SEBI recognised Category - I Merchant Banker.

The Scheme is to be approved by the Stock Exchanges, the Secured Creditors, Un-secured Creditors, Members of both the Companies and the Hon'ble High Court of Madras.

CURRENT YEAR (2012-13)

Production, during April 2012, was 10345 tonnes as compared to 9388 tonnes, produced during April 2011. Total Revenue (net of Excise Duty and Cess), during April 2012 amounted to Rs 3 896 lakhs, compared to Rs 3 146 lakhs, during April 2011.

During April 2012, 935 tonnes of paper, valued at US$ 786 778 (equivalent to Rs 406 lakhs) were exported.

Market conditions continue to exhibit weak sentiments during April 2012.

ENVIRONMENTAL PROTECTION

The Company continues to provide utmost attention to the conservation and improvement of the environment. The Power Boilers and Recovery Boilers are equipped with Electro Static Precipitators, to arrest dust emissions. The Company has installed and operates an Anaerobic Lagoon, for high BOD liquid effluents and a Secondary Treatment System, for total Mill effluent. These facilities are operating efficiently, enabling the Company to comply with the pollution control norms, prescribed by the Pollution Control Authorities, on a sustained basis. The treated effluent water continues to be utilised for irrigating nearby sugar cane fields.

With the commissioning of all the equipment under the Mill Development Plan, the Mill has enhanced its environmental performance and compliance thereby complying with the Charter on Corporate Responsibility for Environmental Protection (CREP) on a sustained basis.

AUDIT COMMITTEE

The Audit Committee of the Board consists of four members and all of them are Non-Whole- time Directors, viz., Sri R V Gupta, Dr S Narayan, Sri Bimal Kumar Poddar and Sri V Sridar.

Sri R V Gupta is the Chairman of the Audit Committee.

DIRECTORS' RESPONSIBILITY STATEMENT

While preparing the annual financial statements, the Company has adhered to the following:

- Applicable Accounting Standards referred to in Section 211(3-C) of the Companies Act, 1956 have been followed.

- The said Accounting Standards are being applied consistently. The Company has made judgements and estimates that are reasonable, prudent and are in the interest of the Company's business so as to give a true and fair view of the state of affairs of the Company as at March 31, 2012 and of the profit of the Company for the said period.

- The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

- The Directors have prepared the financial statements on a "going concern" basis.

CORPORATE GOVERNANCE

The Report on Management's Discussion and Analysis and Report on Corporate Governance are forming part of Directors' Report and are annexed as Annexure - II and Annexure - III.

As required by the Listing Agreement, an Auditors' Report on Corporate Governance and a Declaration by the Chairman and Managing Director with regard to Code of Conduct are attached to the said Report.

Further, as required by Clause 49 of the Listing Agreement, a Certificate, duly signed by the Chairman and Managing Director and Director (Finance) & Secretary, was submitted to the Board of Directors on the financial statements and cash flow statement of the Company for the year ended March 31, 2012 at the meeting held on May 29, 2012.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The information relating to 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 the Report of Board of Directors) Rules, 1988, is given in Annexure - I and forms part of this Report.

PARTICULARS OF EMPLOYEES

During the year 2011-12, none of the employees of the Company was in receipt of remuneration, in excess of the limit prescribed in Sub-section (2A) of Section 217 of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975.

CASH FLOW STATEMENT

As required under Clause 32 of the Listing Agreement with the Stock Exchanges, a Cash Flow Statement is attached to the Balance Sheet.

EMPLOYEES

Relations between the Management and Employees were cordial throughout the year under review.

DIRECTORS

Sri V Sridar and Sri Arun G Bijur retire by rotation, under Article 104 of the Articles of Association of the Company at the conclusion of the ensuing Fifty Second Annual General Meeting and being eligible offer themselves for re-election at the said Meeting.

During the year, The Tamilnadu Industrial Investment Corporation of India Limited (TIIC) withdrew the nomination of Mrs Sheela Rani Chunkath, IAS and nominated its Principal Secretary / Chairman and Managing Director, Sri T Prabhakara Rao, IAS, as its Nominee Director on the Board of the Company. Later, the nomination of Sri T Prabhakara Rao, IAS was withdrawn and TIIC nominated its Chairman and Managing Director, Sri Md. Nasimuddin, IAS, as its Nominee Director on the Board of the Company. Sri Md. Nasimuddin, IAS is not liable to retire by rotation.

During the year, the Tamilnadu Government withdrew the nomination of Dr V Irai Anbu, IAS, as its Nominee on the Board of our Company, who was earlier appointed in the casual vacancy caused by the withdrawal of nomination of Sri Debendranath Sarangi. As there was no casual vacancy, Sri C V Sankar, IAS was appointed as an Additional Director and is liable to retire by rotation under Article 97 of the Articles of Association of the Company. Accordingly, he retires at the ensuing Annual General Meeting and being eligible offers himself for election at the said meeting.

During the year, Life Insurance Corporation of India (LIC), nominated Mrs Philomina Thomas, Executive Director, (Principal, Zonal Training Centre, LIC of India, Gurgaon), as a Director on the Board of our Company, to represent LIC. Board of Directors, at the meeting held on November 04, 2011, appointed Mrs Philomina Thomas, as an Additional Director liable to retire by rotation under Article 97 of the Articles of Association of the Company. Accordingly, she retires at the ensuing Annual General Meeting and being eligible offers herself for election at the said meeting.

Your Directors place on record the valuable services rendered by Dr V Irai Anbu, IAS, Mrs Sheela Rani Chunkath, IAS and Sri T Prabhakara Rao, IAS, during their tenure as Directors of the Company.

AUDITORS

Messrs Suri & Co., Chennai and Messrs

S Viswanathan, Chennai, Auditors of the Company, retire at the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. Necessary Resolution for their appointment is proposed at the ensuing Annual General Meeting.

COST AUDIT

Pursuant to Section 233-B of the Companies Act, 1956, the Central Government has ordered that the Company carries out an audit of cost accounts relating to paper every year. M/s S Mahadevan & Co., Cost Accountants, was appointed as Cost Auditor for the year 2011-12. The Cost Audit Report for the year 2011-12 will be submitted to the Central Government before the due date.

ACKNOWLEDGEMENT

The Directors place on record their great appreciation of the tireless efforts of all Executives and Employees of the Company for their fine performance in a difficult year. The Directors also express their sincere thanks to the Government of India, Government of Tamilnadu and Commercial Banks, for their understanding, guidance and assistance and Dealers, Customers and Suppliers, for their excellent support, at all times.

On behalf of the Board

N GOPALARATNAM

Chairman and Managing Director

Chennai

May 29, 2012


Mar 31, 2011

The Directors hereby present their Fifty First Annual Report and the Audited Accounts for the year ended 31st March 2011 :

WORKING RESULTS

2010-11 2009-10 (Actuals) (Actuals) (in tonnes) (in tonnes)

Production 120558 117989

Sales 121010 118287

(Rs. lakhs) (Rs. lakhs)

Gross Sales 58974 52897

Other Income 747 873

Less: Excise Duty and Excise Cess 2167 1971

Sales and Other Income 57554 51799 (net of Excise Duty)

Profit before interest, depreciation and tax 11642 12172

Interest 2165 2840

Depreciation 3400 3361

Profit before tax 6077 5971

Provision for Current Tax - -

Transfer (from) / to (-) 423 1978 Deferred Tax

Net Profit 6500 3993

DIVIDEND

The Directors recommend payment of Dividend at Rs. 5.00 per equity share, absorbing a sum of Rs. 562.50 lakhs. As per the provisions of the Income tax Act, 1961, no tax will be deducted at source on dividends distributed. However, the Company will bear the tax on the dividend distributed, amounting to Rs. 91.25 lakhs.

APPROPRIATIONS

Your Directors propose the following appropriations :

2010-11 (Rs. lakhs)

Net profit for the year 6500

Add :

Surplus brought forward from the previous year 2349

8849

Less :

Transfer to General Reserve 6000

Proposed dividend and tax thereon 654

6654

Balance carried forward 2195

OPERATIONS

During the year, the Companys production was 1 20 558 tonnes, as compared to 1 17 989 tonnes, produced in the previous year. The production was marginally higher by 2.2% compared to the previous year.

The gross turnover was Rs. 58974 lakhs for the year under review, as compared to Rs. 52897 lakhs in the previous year. The gross turnover went up by 11.5%, due to increased production and sales and better market conditions that prevailed during the first half of the year, enabling the industry to effect price revision to partially neutralize the steep cost escalations.

The Profit before interest, depreciation and tax was Rs. 11642 lakhs, as compared to Rs. 12172 lakhs, in the previous year.

Major factors that impacted the profitability for the year under review, as compared to actuals for the previous year, were :

Favourable Factors :

- Increase in Sales Realisation, due to increase in prices of paper and withdrawal of discounts.

- Increase in contribution, due to increase in Production.

- Decrease in prices of Power and Fuel cost, due to favourable mix and usage of Power and Fuel.

- Lower Repairs and Maintenance expenditure.

- Lower Interest and Financing charges, due to repayment of Term Loan Instalments and closure of Working Capital borrowings.

- Increase in Trading Profit.

Un-favourable Factors :

- Increase in prices of Raw Materials, especially Wood and Bagasse.

- Increase in Raw Materials cost, due to adverse mix and usage of Raw materials.

- Increase in prices of Power and Fuel, especially Imported Coal.

- Increase in cost of Chemicals, due to increase in prices of Chemicals and usage of Chemicals.

- Higher Employee Cost, consequent to the long term wage settlement and on account of increased Dearness Allowance payment and normal increments.

- Increase in Other Expenses, mainly due to conversion charges for Note Books.

- Decrease in Other Income.

- Higher provision made for Depreciation.

The Company earned a profit before tax of Rs. 6077 lakhs, for the year ended March 2011, compared to Rs. 5971 lakhs for the year ended March 2010.

After absorbing interest and financing charges and depreciation of Rs. 2165 lakhs and Rs. 3400 lakhs, respectively, the profit before tax was Rs. 6077 lakhs, as compared to Rs. 5971 lakhs, in the previous year.

The Company was liable to only Minimum Alternate Tax (MAT) of Rs. 1193 lakhs, as against Rs. 1004 lakhs, in the previous year. In view of incentives available under Section 80-IA of the Income Tax Act, 1961, for the Captive Power Project and the Power Project under Mill Development Plan, the total income as per the regular method under the Income Tax Act, 1961, is Nil. Hence, the entire MAT liability is carried over as MAT Credit Entitlement. Together with the opening balance of Rs. 1353 lakhs, the total MAT Credit Entitlement of Rs. 2546 lakhs is being carried forward to be set-off in the financial year 2011-12 or thereafter.

As per the Accounting Standard (AS) 22 of The Companies (Accounting Standards) Rules, 2006, a sum ofRs. 423 lakhs has been transferred from Deferred Tax and credited to the Profit and Loss Account, as against transfer of Rs. 1978 lakhs to Deferred Tax, in the previous year.

In the result, profit after tax for the year was Rs. 6500 lakhs, as compared to Rs. 3993 lakhs, in the previous year.

FINANCE

The Company paid the instalments of the Term Loans and the interest dues on Term Loans and Working Capital Loans, on or before the respective due dates.

INTEREST FREE SALES TAX DEFERRAL SCHEME

During the year 2010-11, the Company availed Rs. 348 lakhs under the Scheme and the cumulative amount availed upto March 31, 2011 was Rs. 4005 lakhs.

MARKET CONDITIONS

Beginning of the year witnessed certain positive events indicating the beginning of recovery in the paper market.

- Most of the waste paper based mills could not supply large volumes to the market because of their commitment to supply to the local Governments against huge orders,

resulting in diversion of order to the larger Mills.

- The severe earthquake in Chile resulted in non availability of nearly 3 million tonnes of Pulp from 4 mills located in Chile that led to severe shortage of paper in European, Chinese and Japanese markets. This led to rise of Pulp prices and rise in demand for paper in the international markets.

- The commissioning of large new capacities in the domestic sector, though dampened the market sentiments, led to domestic mills venturing higher volumes into export markets.

- Restricted availability and soaring prices of recovered paper curtailed the output of paper from recycled paper mills.

- The census work, by Government of India, triggered demand for substantial volume of paper.

- The passage of the Fundamental Rights to Education Act in Parliament increased the demand for large volume of paper for text books and notebooks.

Consequent to the restricted availability of Pulp, international paper prices moved up to US$ 1100 during April 2010, resulting in increased volume of exports from India. This enabled the integrated large mills to go in for price revisions to compensate partially the cost increases.

The buoyancy witnessed in the market during the first quarter started to wane during the second quarter due to :

- Gradual increase of volumes from the newly commissioned capacities in the domestic market.

- In the international market the prices of Uncoated Wood Free Paper came down to US$ 850, which led to severe pressure on prices.

- The Diary and the Calendar season witnessed shrinkage of demand due to

corporates reducing their budget allocation for these products.

- Additional volumes of Copiers being released in new brands by the mills that had recently expanded their capacities.

This scenario forced A-Grade Mills to correct prices and offer discounts.

Market conditions worsened further from the beginning of the third quarter with additional supplies from the new capacities. Further discounts were offered by the Mills to push their production into the market and reduce the inventory. Faced with severe unviable prices of raw material, both domestic and International, recycled paper manufacturers were forced to reduce their production. The international prices continued to be low. The "strong Rupee" added to the lower realisation.

Fourth quarter commenced with a slight improvement in terms of enquiries and orders in the Creamwove and Maplitho varieties. This was the result of the commencement of the notebook season. While additional supply from the A-Grade Mills in these segments was sufficient enough to cover the additional seasonal demand, it was the non-availability of the recycled paper, due to various reasons which resulted in this spurt.

More critical in this period was the impact of excess availability of Copier Brands, especially from the new capacities that had come up recently.

All round increase in prices of Coal, Hard Wood, Chemicals, etc., necessitated up-revision of prices by Rs. 1000 per tonne in February 2011. Upward revision of Excise Duty from 4% to 5%, in the Central Government Budget for 2011-12, was passed on to the market with further increase in prices of all varieties by Rs. 500 per tonne effective March 01, 2011. In case of Exports, the prices were up-revised in February/ March 2011 by US$ 35 for Branded Copier and by US$ 20 for all other MF-III products.

The impact of severe earth quake and Tsunami in Japan on March 13, 2011 had its toll

in the Indian domestic paper market, as well as in the International markets. Prices of pulp, paper, as well as recovered paper moved up.

SPB could once again successfully achieve Zero Stock at the end of March 31, 2011, an achievement for the fourteenth time in the last seventeen years.

EXPORT PERFORMANCE

The Company exported 8773 tonnes of paper and paper boards during the year, as compared to 5935 tonnes, during 2009-10. The exports accounted for about 7.28% of total production.

The export proceeds amounted to US$ 8 144 589, equivalent to Rs. 3703 lakhs, as compared to Rs. 2370 lakhs, during the previous year.

Besides the above, the Company also sold 875 tonnes, under deemed exports whose proceeds amounted to Rs. 402 lakhs.

TREE FARMING ACTIVITY

To augment the availability of forest raw materials and to bring down their prices, the Company continues its initiative to develop its own source of plantations, following the footsteps of many of the Paper Mills in other States who have already taken pro-active steps during the last 5-8 years, by distributing large quantities of seedlings and saplings of Eucalyptus Hybrid, Subabul, etc.

In this direction, till last year, the Company entered into agreements with farmers who were evincing keen interest in tree plantations. It is now proposed to change the existing system of entering into individual agreements with the farmers for growing trees and agreeing to fell and remove when they mature, since the scheme is not working all that well as originally envisaged. Many farmers, unmindful of the agreement, fell the trees and sell in the open market. They also do not settle the Bank dues. Consequently, the agreement is only on paper and the Company is not in a position to enforce the agreement terms with the farmers.

We have now modified the Scheme and provide quality Clonal Seedlings of Eucalyptus as well as Casuarina Seedlings at subsidised rates to interested farmers and assist them with technical help to achieve higher yields.

Technical support for this initiative is provided by the Department of Tree Breeding of Forest College and Research Institute (FC&RI), Mettupalayam, attached to Tamilnadu Agricultural University, Coimbatore, through a Collaborative Research Project.

ISO 9001 / ISO 14001 ACCREDITATION

Companys Quality Management Systems continue to be covered by the "ISO 9001" accreditation. Companys Environmental Management System, continues to enjoy "ISO 14001" accreditation.

OHSAS 18001 CERTIFICATION

The Company continues to enjoy certification under Occupational Health and Safety Assessment Series 18001 (OHSAS) which is an international standard which facilitates management of Occupational Health and Safety risks associated with the business of the organisation.

FOREST STEWARDSHIP COUNCIL (FSC) CERTIFICATION

Last year Scientific Certification Systems (SCS) who is accredited by the FSC awarded to the Company the Forest Stewardship Council (FSC) Certification, valid till May 2015. FSC is an international certification and labeling system that guarantees that paper and wood products carrying the FSC label come from environmentally and socially responsible sources.

The Company is the only Indian Paper Company that has been certified under three Standards of FSC, viz., FSC-STD-40-004, FSC-STD-40-005 v2-1 and FSC-STD-40-003 v1-0. By this, the Company assures its stakeholders that the wood, wood fibre and pulp purchased by it are traceable to responsibly

managed forests and that adequate document controls are in place to ensure identification and traceability throughout the Chain of Custody. This also means that the Company is capable of manufacturing and selling FSC Pure and FSC Mixed products in the domestic and international markets.

EXPORT HOUSE STATUS

The Company continues to enjoy "Two Star Export House" Status, awarded by the Government of India, Ministry of Commerce, Directorate General of Foreign Trade, in recognition of its export performance.

DEPOSITORY SYSTEM

As on March 31, 2011, 5 025 Members were holding their shares in DEMAT form and 87 08 298 Equity shares, representing 77.41% of the total Paid up Equity Share Capital of the Company, have been dematerialised.

SUBBURAJ PAPERS LIMITED

Subburaj Papers Limited (SPL) set up a de-inked waste paper pulp based Paper Mill, with an annual capacity of 90 000 tonnes, in Tirunelveli District, Tamilnadu. The unit commenced operations in August 2009.

The Project encountered huge cost and time overruns. Despite all financial support from the Banks to complete erection and commissioning, the unit could not be operated continuously. At the request of the Promoters of SPL, a technical study was undertaken to evaluate means to revive the unit. The study highlighted that the unit could be made viable provided further investment is made to add certain balancing equipments to reach the capacity of 90 000 tonnes per annum.

The Promoters of SPL expressed inability to invest further funds and requested SPB to take over the unit as management buy out. SPB evaluated the option and found that the proposal offered advantages to SPB and will strengthen the existing operations

besides providing great opportunity for future growth.

The proposal involved settling the dues to SPLs Banks and also the creditors outstanding in the books. After detailed discussions, all the Banks of SPL agreed for a One Time Settlement (OTS). For the above purpose, Canara Bank, one of the Consortium Banks of SPB, provided a Short Term Loan of Rs. 210 crores, including start-up Working Capital Limit of Rs. 30 crores. With this funding support, SPB advanced Rs. 180 crores to SPL to enable them to settle their Banks under the OTS. The other creditors appearing in the books of accounts of SPL are being settled in stages.

During March 2011, SPB acquired 41.67% of the Equity Capital of SPL, held by the Promoters. The acquisition of the remaining shares of SPL is in progress.

SPB has already taken steps to restart the operations. Trials are under way and production is being built up gradually. It is expected that before end July 2011, operations in the unit will stabilise.

CURRENT YEAR (2011-12)

Production, during April 2011, was 9388 tonnes as compared to 9910 tonnes, produced during April 2010. Sales realisation (net of Excise Duty and Cess), during April 2011 amounted to Rs. 3146 lakhs (6713 tonnes), compared to Rs. 2586 lakhs (6186 tonnes), during April 2010.

During April 2011, 36 tonnes of paper, valued at US$ 32 997 (equivalent to Rs. 15 lakhs) were exported.

Market conditions witnessed improved sentiments during April 2011.

ENVIRONMENTAL PROTECTION

The Company continues to provide utmost attention to the conservation and improvement of the environment. The Power Boilers and Recovery Boilers are equipped with Electro Static Precipitators, to arrest dust emissions.

The Company has installed and operates an Anaerobic Lagoon, for high BOD liquid effluents and a Secondary Treatment System, for total Mill effluent. These facilities are operating efficiently, enabling the Company to comply with the pollution control norms, prescribed by the Pollution Control Authorities, on a sustained basis. The treated effluent water continues to be utilised for irrigating nearby sugar cane fields.

With the commissioning of all the equipment under the Mill Development Plan, the Mill has enhanced its environmental performance and compliance thereby complying with the Charter on Corporate Responsibility for Environmental Protection (CREP) on a sustained basis.

AUDIT COMMITTEE

The Audit Committee of the Board consists of four members and all of them are Non Whole- time Directors, viz., Sri R V Gupta, Dr S Narayan, Sri Bimal Kumar Poddar and Sri V Sridar.

Sri R V Gupta is the Chairman of the Audit Committee.

DIRECTORS RESPONSIBILITY STATEMENT

While preparing the annual financial statements, the Company has adhered to the following :

- Applicable Accounting Standards referred to in Section 211(3-C) of the Companies Act, 1956 have been followed.

- The said Accounting Standards are being applied consistently. The Company has made judgements and estimates that are reasonable, prudent and are in the interest of the Companys business so as to give a true and fair view of the state of affairs of the Company as at March 31, 2011 and of the profit of the Company for the said period.

- The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act,

1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

- The Directors have prepared the financial statements on a "going concern" basis.

CORPORATE GOVERNANCE

The Report on Managements Discussion and Analysis and Report on Corporate Governance are forming part of Directors Report and are annexed as Annexure - III and Annexure - IV.

As required by the Listing Agreement, an Auditors Report on Corporate Governance and a Declaration by the Chairman and Managing Director with regard to Code of Conduct are attached to the said Report.

Further, as required by Clause 49 of the Listing Agreement, a Certificate, duly signed by the Chairman and Managing Director and Director (Finance) & Secretary, was submitted to the Board of Directors on the financial statements and Cash Flow Statement of the Company for the year ended March 31, 2011 at the meeting held on May 28, 2011.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

The information relating to 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 the Report of Board of Directors) Rules, 1988, is given in Annexure - I and forms part of this Report.

PARTICULARS OF EMPLOYEES

The statement of employees, referred to in sub-section (2A) of Section 217 of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975 is given in Annexure - II and forms part of this Report. The employees shown therein are not relatives of any Director of the Company.

CASH FLOW STATEMENT

As required under Clause 32 of the Listing Agreement with the Stock Exchanges, a Cash Flow Statement is attached to the Balance Sheet.

EMPLOYEES

Relations between the Management and Employees were cordial throughout the year under review. During the year, the Company entered into long term settlements with the Trade Unions and Staff Association, covering payment of Salaries, Wages, Production Incentive, Bonus, etc. While the settlement relating to Salaries and Wages is for a period of five years from April 1, 2009, the agreement relating to Bonus and Production Incentive covers five financial years from 2008-09 to 2012-13.

DIRECTORS

Sri R V Gupta, IAS (Retd.) Sri Bimal Kumar Poddar and Dr S Narayan, IAS (Retd.), Directors, retire by rotation, under Article 104 of the Articles of Association of the Company at the conclusion of the ensuing Fifty First Annual General Meeting and being eligible offer themselves for re-election at the said Meeting.

At the meeting held on March 25, 2011, the Board of Directors re-appointed Sri K S Kasi Viswanathan, as Deputy Managing Director and Sri V Pichai, as Director (Finance) & Secretary for a further term of three years from April 01, 2011. The re-appointment / remuneration package of both Sri K S Kasi Viswanathan and Sri V Pichai require the approval of the members in General Meeting and hence forms part of the Agenda for the Fifty First Annual General Meeting.

During the year, the Tamilnadu Government withdrew the nomination of Sri Debendranath Sarangi, IAS and nominated Dr V Irai Anbu, IAS, as its Nominee on the Board of our Company. Dr V Irai Anbu, IAS was appointed as a Director in the casual vacancy caused by the withdrawal of nomination of Sri Debendranath Sarangi, IAS and is liable to retire by rotation.

Your Directors place on record the valuable services rendered by Sri Debendranath Sarangi, IAS, during his tenure as Director of the Company.

AUDITORS

Messrs Suri & Co., Chennai and Messrs S Viswanathan, Chennai, Auditors of the Company, retire at the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. Necessary Resolution for their appointment is proposed at the ensuing Annual General Meeting.

COST AUDIT

Pursuant to Section 233-B of the Companies Act, 1956, the Central Government has ordered that the Company carries out an audit of cost accounts relating to paper every year. M/s S Mahadevan & Co., Cost Accountants, was appointed as Cost Auditor for the year 2010-11. The Cost Audit Report for the year 2010-11 will be submitted to the Central Government before the due date.

ACKNOWLEDGEMENT

The Directors are pleased to place on record their great appreciation of the tireless efforts of all Executives and Employees that enabled the Company to achieve profitable financial results in a difficult year. The Directors also express their sincere thanks to the Government of India, Government of Tamilnadu and Commercial Banks, for their understanding, guidance and assistance and Dealers, Customers and Suppliers, for their excellent support, at all times.

On behalf of the Board

N GOPALARATNAM Chairman and Managing Director

Chennai May 28, 2011

 
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