Directors Report of The Sirpur Paper Mills Ltd.

Mar 31, 2014

Dear Members,

The Directors have pleasure in presenting their Annual Report and audited accounts of the Company with Auditors'' Report for the financial year ended March 31, 2014.

The financial performance of the Company for the year under review is summarized in the table given below:

Rs Lakhs

Working results 2013-14 2012-13

Production MT 89,256 83,085

Sales MT 86,323 83,789

Net operational revenue 420,49 354,01

Profit/(loss) before other items, finance cost, depreciation & tax (13,92) (14,60)

Other items Fuel surcharge adjustment for earlier years being contested - 10,50

Provision for loss on assets retired from active use - 3,44

Profit/(loss) before finance cost, depreciation & tax (13,92) (28,54)

Finance cost 48,22 44,88

Profit/(loss) before depreciation & tax (62,14) (73,42)

Depreciation 28,84 29,27

Profit/(loss) before tax (90,98) (102,69)

Less: Provision for taxation - (5,59)

Profit/(loss) after tax (90,98) (97,10)

Balance brought forward

from previous year (112,63) (15,53)

Balance carried to

Balance Sheet (203,61) (112,63)

Dividend

In view of the loss during the year, no dividend is being recommended by the Board.

Performance

Your Company produced 89,256 MT of pulp and paper during the year under review as compared to 83,085 MT produced in the previous year and sales were 86,323 MT as compared to 83,789 MT in the previous year.

The gross operating revenue during the year under review was Rs 444,34 lakhs as compared to Rs 372,44 lakhs in 2012-13. Capacity utilization was 65% as compared to 60% in 2012-13.

The loss before other items, finance costs, depreciation and tax was ''13,92 lakhs compared to the loss of ''14,60 lakhs in the previous year. The severe power cut by the state grid continued during the year till July 2013 resulting in forced shut down of one paper machine leading to lower production. The rise in cost of major inputs continued during the year and affected working of the Company. The availability of prime raw material i.e. wood declined further during the year resulting in increase in price by 42% over & above to increase by 40% over last year. Coal price also increased by 12% during the year besides steep increase in prices of major chemicals ranging from 10% to 70%.

The net sales realization of paper was increased by 15% from Rs 42,250 to Rs 48,711 per ton of paper during the year to compensate the increase in input cost; however, the impact of increase in production cost could not be passed fully in paper prices.

The wood availability in last quarter improved to some extent and the management is hopeful that prices of wood will soften in next season starting from October 2014. The power situation in the state also improved by start of generation of hydel power because of adequate rains in the state. However, the paper market is under price pressure from first quarter of 2014-15 because of duty free import of paper from South Asian countries under bilateral treaties and strengthening of rupee against foreign currency.

Your Company''s management is committed to improve the working of the Company and taking necessary efforts to improve the productivity, minimizing of input consumption in terms of per ton of paper, development of new price remunerative paper varieties and by control of wastages.

In a difficult industry environment, your Company ended the year under review with net loss after tax of Rs 90,98 lakhs as against Rs 97,10 lakhs in 2012-13.

Finance

Your Company''s finances have been strained due to continuous losses for the past five years.

Lenders granted moratorium by sanction of CDR package upto December, 2013 and principal term loan instalment payment will start from end of March 2014. Loans increased due to funded interest term loan resulting in increase of finance cost during the year under review to Rs 48,22 lakhs as against Rs 44,88 lakhs in 2012-13. Your Company has paid interest on working capital and FITL regularly and there are no dues in respect of these borrowings. The payment of interest on term loans were due from January, 2014 and the first installment of principal became due on the last day of this fiscal year.

Due to erosion of net worth fully on account of continuous losses resulting in the tightness in working capital due to which service of interest and first installment of term loan due in March end were not paid on due date. Your Company has been able to pay interest for the period January to March, 2014 and first installment due on last day of fiscal year during the first quarter of financial year 2014-15.

Your Company is in discussion with lenders and is working out a solution to address short fall in working capital and repayment of term loan & interest thereon. Further, the Company also is in discussion with lenders for disposal of surplus non- productive assets.

Your Company continues to avail sales tax deferment loan under the then Andhra Pradesh State Government policy till March 2015.

Share Capital

In compliance with the terms and conditions of the CDR package & Master Restructuring Agreement entered with the lenders, a preferential issue of 11,05,100 ordinary shares of Rs 10 each at a premium of ''33 per share was made to a promoter in tranches. The promoter has brought in the balance contribution of Rs 2,37 lakhs during the year and the Company has allotted 5,50,000 shares on August 14, 2013. Thus, the entire contribution of Rs 4,75 lakhs was brought in by promoters. The new shares were listed on the stock exchanges during the year.

Reference to BIFR

The Company had submitted an application to the Hon''ble Board for Industrial and Financial Reconstruction (BIFR) post erosion of net worth of the Company by more than 50% as per audited accounts for the year ended March 31, 2013. The Company had further submitted the required information in the formats as prescribed by the Hon''ble BIFR on periodical intervals in relation to the performance of the Company.

The net worth of the Company as at March 31, 2014, as per the audited accounts presented before the Board, has been eroded fully. Under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, the Board of Directors has to make a reference to BIFR, within sixty days from the date of finalisation of the duly audited accounts at the annual general meeting, for determination of the measures which shall be adopted by the Company.

Plantation

Efforts made for improvement of wood availability in previous years are now showing results as availability of wood has improved over the previous year. It is expected that during the year 2014-15 the same will improve further and also bring down the cost of wood to some extent. The Company has focused all its attention on assistance in plantation in Adilabad district & other catchment area. Your Company is continuing the distribution of subabul seeds to farmers free of cost to improve availability of raw material in the long run and has also established nurseries for development of clonal plantation for better yield. Plantation has also been done on all vacant land owned by your Company. The central and state government has also been approached by Indian Paper Manufacturers Association to allot degraded land for taking up large scale plantation.

Awards & accolades

During the year 2013, in appreciation of its achievements in energy conservation in the paper & pulp sector, your Company has been awarded consecutively second time the First Prize by Ministry of Power, Government of India. This prestigious National Award was received by Mr. Devashish Poddar, Vice-Chairman & Managing Director from Hon''ble President of India, Shri Pranab Mukherjee, in the presence of Hon''ble Minister for Power, Government of India, and several distinguished guests on December 16, 2013.

Your Company has been once again declared winner of ''First Prize for Energy Conservation'' in the Small and Medium Scale Industry Category for the year 2012-13 by New & Renewable Energy Development Corporation of Andhra Pradesh Limited, and the award was received at a function held on December 20, 2013 at Hyderabad.

Human resources development

During 2013-14, your Company has maintained cordial industrial relations. Top priority is given to human resources initiatives especially training and development.

Particulars of employees

Statement on particulars of employees drawing Rs 60 lakhs or more per annum, if employed for whole of the year or Rs 5 lakhs or more per month, if employed for a part of the year pursuant to the provisions of Section 217(2A) of the Companies Act, 1956 is given in annexure ''B'' and forms a part of this report.

Directors'' Responsibility Statement

Pursuant to Section 217 (2AA) of the Companies Act, 1956, the Directors confirm that:

a. in the preparation of the annual accounts all applicable accounting standards have been followed and that no material departures have been made from the same;

b. they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for the year ended on that date;

c. they 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; and

d. they have prepared the annual accounts on a ''going concern'' basis.

Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo

Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo as required to be disclosed under Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 are given in annexure ''A'' attached hereto and forms a part of this report.

Auditors'' Report

The observations made in the auditors'' report are self-explanatory and therefore, do not call for any further comments under Section 217(3) of the Companies Act, 1956.

Auditors

The statutory auditors of the Company, M/s. Deloitte Haskins & Sells, Chartered Accountants, retire at the conclusion of the forthcoming Annual General Meeting.

As per the provisions of Section 139 of the Companies Act, 2013, they are eligible for re-appointment as auditors for a term of three years.

In accordance with the requirements of Sections 139(1) and 141 of the Companies Act, 2013 read with Rule 4 of the Companies (Audit and Auditors) Rules, 2014 they have confirmed in writing, their eligibility and willingness to accept office of the statutory auditors for a period of three years from the conclusion of the forthcoming Annual General Meeting.

The Board, on the recommendation of the Audit Committee, has proposed that M/s. Deloitte Haskins & Sells, Chartered Accountants (ICAI Firm Registration Number: 008072S) be re-appointed as statutory auditors of the Company to hold office from the conclusion of the ensuing Annual General Meeting until the conclusion of seventy eighth Annual General Meeting.

Corporate governance

Your Directors affirm commitment to good corporate governance practices. During the year under review, the Company was in compliance with the provisions of Clause 49 of the Listing Agreement with the stock exchanges relating to corporate governance.

A Report on Corporate Governance along with the certificate of practicing company secretaries for its due compliance forms part of this annual report.

In view of accumulated losses, the provisions relating to constitution of Corporate Social Responsibility (CSR) Committee are not applicable to your Company, till it meets the criteria specified in Section 135 of the Companies Act, 2013 read with rules framed thereunder. Hence, the Company has not constituted CSR Committee.

Directors

The term of office of the Executive Director, Shri Rameshwar Lall Lakhotia ended on July 23, 2014. At the meeting of the Board of Directors held on May 29, 2014, he has been re-appointed as Whole- time Director designated as Executive Director with effect from July 24, 2014 for a further period of two years on remuneration and other terms as approved by the remuneration committee. The proposal for the reappointment of Shri Rameshwar Lall Lakhotia as Executive Director, remuneration and other terms are being placed for approval of the Members at the ensuing Annual General Meeting. Approval of the Central Government will be sought, where required. The Board recommends passing of a Special Resolution confirming his re-appointment. Shri Sudhir Jalan and Shri Rakesh Bhartia, Directors of the Company resigned from the Board of Directors of the Company and vacated the Office as Directors of the Company due to personal reasons with effect from placed December 11, 2013 and February 10, 2014, respectively. The Board on record its high appreciation for the valuable advice rendered by Shri Sudhir Jalan and Shri Rakesh Bhartia, during their tenure as directors of the Company.

In accordance with the provisions of Companies Act, 2013 and the Articles of Association of the Company, Shri Ranjan Kumar Poddar, Director of the Company will retire by rotation at the ensuing Annual General Meeting and, being eligible, offers himself for re- appointment.

In accordance with the provisions of the Companies Act, 2013 and the Listing Agreement, the office of directorship of Shri Laxminiwas Sharma and Shri P. Vaman Rao, existing Independent Directors pursuant to Clause 49 of the Listing Agreement, was liable to retirement by rotation. Consequent upon commencement of the Companies Act, 2013, Section 149 of the Act provides that every listed Company shall have at least one-third of the total number of directors as Independent Directors, who are not liable to retire by rotation and shall hold office for a term up to five consecutive years.

Accordingly, it is proposed to appoint Shri Laxminiwas Sharma and Shri P. Vaman Rao, as Independent Directors under Section 149 of the Act and revised Clause 49 of the Listing Agreement to hold office for five consecutive years from September 29, 2014 for a term upto the conclusion of the Eightieth Annual General Meeting of the Company to be held in the calendar year 2019.

The Board of Directors appointed Shri Vedula Srinivas as Additional Director with effect from August 11, 2014 in the category of Independent Non-Executive Director under Section 149 of the Act and revised Clause 49 of the Listing Agreement to hold office for five consecutive years from September 29, 2014 for a term upto the conclusion of the Eightieth Annual General Meeting of the Company to be held in the calendar year 2019, whose office shall not be liable to retire by rotation.

The Board recommends the appointment of Shri Laxminiwas Sharma, Shri P. Vaman Rao and Shri Vedula Srinivas as Independent Directors not liable to retire by rotation and to hold office for a period of five years up to the conclusion of the Eightieth Annual General Meeting of the Company to be held in the calendar year 2019.

The Board of Directors appointed Shri Padmanabhan Nagarajan as Additional Director, with effect from August 11, 2014 pursuant to the provisions of Section 161(1) of the Companies Act, 2013 and the Articles of Association of the Company and he shall hold office upto the date of the ensuing Annual General Meeting. The Board recommends the appointment of Shri Padmanabhan Nagarajan as Director of the Company, liable to retire by rotation.

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 sub-section 6 of Section 149 of the Companies Act, 2013 and under Clause 49 of the Listing Agreement with the stock exchanges.

Your Board recommends the above appointment/ re-appointment of Directors in the best interest of the Company.

Chief Financial Officer

Shri Vimal Arora, B.Com., F.C.A., has been appointed as Chief Financial Officer (CFO) of the Company pursuant to the provisions of Section 203 of the Companies Act, 2013 read with Clause 49 of the Listing Agreement with the stock exchanges by the Board of Director in its meeting held on May 29, 2014 in place of Shri S. K. Modani, who has left the services of the Company.

Cost accounting records

Pursuant to the provisions of Section 233B of the Companies Act, 1956, your Directors have appointed M/s. S. S. Zanwar & Associates, Cost Accountants, Hyderabad as the cost auditors to conduct the cost audit of your Company for the financial year ended March 31, 2014, which has been approved by the Central Government. Your Company has filed the Cost Audit Report for the year ended March 31,2013 on September 21, 2013. Further, the Cost Audit Report for the financial year ended March 31, 2014 will be filed within the stipulated time.

Acknowledgements

Your Directors thank the customers, suppliers, farmers, financial institutions, banks and Members for their continued support and also recognize the contribution made by the employees towards the Company''s growth.

By order of the Board



Hyderabad, Ranjan Kumar Poddar August 11, 2014 Chairman

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Mar 31, 2013

Dear Members,

The Directors have pleasure in presenting the Annual Report and audited accounts of the Company with Auditors'' Report for the financial year ended March 31, 2013.

The financial performance of the Company for the year under review is summarized in the table given below:

Rs. Lakhs Working results 2012-13 2011-12

Production MT 83,085 99,543

Sales MT 83,789 98,079

Net operational revenue 354,01 389,50

Profit/(loss) before other

items, finance cost, depreciation & tax (14,60) 49,79

Other items

Fuel surcharge adjustment for earlier years'' being contested 10,50

Provision for loss on assets retired from active use 3,44

Profit/(loss) before finance cost, depreciation & tax (28,54) 49,79

Finance cost 44,88 41,87

Profit/(loss) before depreciation & tax (73,42) 7,92

Depreciation 29,27 29,99

Profit/(loss) before tax (102,69) (22,07)

Less: Provision for taxation (5,59) (4,76)

Profit/(loss) after tax (97,10) (17,31)

Balance brought forward from previous year (15,53) 1,78

Balance carried to

Balance Sheet (112,63) (15,53)

Dividend

In view of the loss during the year, no dividend is being recommended by the Board.

Performance

Your Company produced 83,085 MT of pulp and paper during the year under review as compared to 99,543 MT produced in the previous year and sales was 83,789 MT as compared to 98,079 MT in the previous year. The gross operating revenue during the year under review was Rs.376,52 lakhs as compared to Rs.410,61 lakhs in 2011-12. Capacity utilization was 60% since production was affected mainly due to an unfortunate accident in the Chemical (Soda) Recovery Plant at our mills at Sirpur-Kaghaznagar in April, 2012 which resulted in complete shutdown of the production process and loss of production for about 45 days.

Further, the severe power cuts by the state grid throughout the year, had a crippling effect on the operations resulting in shut down of one paper machine for most part of the year leading to tapered production.

The loss before other items, finance costs, depreciation and tax was Rs.14,60 lakhs compared to profit of Rs.49,79 lakhs in the previous year. There was steep increase in prices of wood, power and other major inputs which could not be passed on to the customers. Availability of wood in traditional sourcing areas in Andhra Pradesh declined considerably causing demand-supply mismatch which led to continuous increase in the prices throughout the year. Due to low availability of cheaper species of wood, your Company had to resort to procurement of other costlier species of wood. The situation was aggravated since wood had to be procured from distant locations and from outside the state, which further added to the cost. As a result, the cost of wood during the year increased by 40%.

Simultaneously, cost of coal during the year increased by 20% due to massive short supply of coal from Singareni Collieries during the rainy season which forced your Company to procure from private suppliers and distant places at much higher prices.

The power prices increased by about 70% during the year and additional consumption of coal and furnace oil in order to cope with the severe power cuts in the state has also affected the profitability. Your Company''s incessant efforts towards control on cost and wastages, better input yield and improvement in productivity resulted in savings in consumption of inputs per MT of product which, to an extent, offset the impact of the input price rise.

The financial year ended with net loss after tax of Rs.97,10 lakhs as against Rs.17,31 lakhs in 2011-12.

Finance

Your Company''s finances have been strained due to continuous losses for the past four years. After considerable deliberations, your Company sought flexibility from the lenders and a comprehensive restructuring of its outstanding debt was approved by the lenders under the Corporate Debt Restructuring (CDR) scheme. Your Company has been sanctioned a moratorium of principal and interest for 21 months from the cut off date i.e. April 1, 2012 and the payment of interest commences from January 2014 and that of principal from March 2014. There are no over dues in respect of any of the bank borrowings by your Company as on date.

In view of the approval of the CDR package, the interest rates has adjusted towards lower side marginally, though fresh loans by way of Funded Interest Term Loan (FITL) increased the overall finance cost to Rs.44,88 lakhs as against Rs.41,87 lakhs during 2011-12. Your Company''s management is committed to honouring its obligations, while it finds ways and means to lower the cost of production, improve volumes and enhance profitability.

Your Company continues to avail sales tax deferment loan under Andhra Pradesh State Government policy and remains eligible for incentives under Industrial Incentive Scheme, 2005.

Share Capital

In order to comply with the terms and conditions of the CDR Package and Master Restructuring Agreement entered with the lenders, 11,05,100

Ordinary Shares of Rs.10 each at a price of Rs.43 per share (including premium of Rs.33 per share) is to be issued in one or more tranches on preferential basis to Amba Investment Private Limited, a promoter of the Company, which has given its consent to subscribe the entire issue, as authorised by the Members by a special resolution passed through postal ballot process.

During the year, your Company has made the allotment of first tranche of 5,55,100 Ordinary Shares of Rs.10 each for cash at a price of Rs.43 per share (including premium) on January 31, 2013 to the said promoter and the shares were listed on the stock exchanges.

During the current financial year (i.e. 2013-14), the promoter has brought in Rs.2,37 lakhs as application money and 5,50,000 ordinary shares of Rs.10 each at a price of Rs.43 per share (including premium) were allotted in the second tranche on August 14, 2013.

Thus, the promoter has brought in the entire contribution of Rs.4,75 lakhs as envisaged in the CDR Scheme.

Reporting to BIFR

The accumulated losses of the Company at the end of financial year as on March 31, 2013 have resulted in erosion of more than fifty percent of its peak net worth during the immediately preceding four financial years. While your Company is taking necessary steps to protect further erosion, the Company will report to the Board for Industrial and Financial Reconstruction about such erosion of net worth as envisaged under Section 23 of the Sick Industrial Companies (Special Provisions) Act, 1985 upon finalization of duly audited accounts of the Company for the financial year ended March 31, 2013. Members are requested to take note of this erosion and consider the same at the ensuing Annual General Meeting. A report on causes of erosion of net worth and steps taken by the Company is forming part of the notice of Annual General Meeting.

Plantation

The availability of wood, our principal raw material, has seen a decline during the year. However, your Company has stepped up its initiative to augment raw material availability by distributing large quantities of planting material i.e. seeds, seedlings of subabul & quality clones of eucalyptus plants at subsidized rates to achieve higher yield. Managers of your Company also gave technical guidance and trained the farmers in various farming activities for achieving better results.

Awards & accolades

For the year 2012, in appreciation of its achievements in energy conservation in the paper & pulp sector, your Company has been awarded the First Prize by Ministry of Power, Government of India. This prestigious National Award was received by Mr. Devashish Poddar, Vice-Chairman & Managing Director of the Company from Hon''ble President of India, Shri Pranab Mukherjee, in the presence of Shri Jyotiraditya Scindia, Hon''ble Minister for Power, Government of India, and several distinguished guests on December 14, 2012.

Your Company has been declared winner of ''First Prize for Energy Conservation'' in Small and Medium

Scale Industry Category for the year 2011-12 by New & Renewable Energy Development Corporation of Andhra Pradesh Limited, and the award was received at a function held on December 20, 2012 at Hyderabad.

Your Company has also bagged the ''Innovative Environmental Project-2012'' and National Award for Excellence in Water Management-2012, both instituted by Confederation of Indian Industries.

Human resources development

During 2012-13, your Company has maintained cordial industrial relations. Top priority is given to human resources initiatives especially training and development.

Particulars of employees

Statement on particulars of employees drawing Rs.60 lakhs or more per annum, if employed for whole of the year or Rs.5 lakhs or more per month, if employed for a part of the year pursuant to the provisions of Section 217(2A) of the Companies Act, 1956 is given in annexure ''B'' and forms a part of this report.

Directors'' Responsibility Statement

Pursuant to Section 217 (2AA) of the Companies Act, 1956, the Directors confirm that:

a. in the preparation of the annual accounts all applicable accounting standards have been followed and that no material departures have been made from the same;

b. they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for the year ended on that date;

c. they 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; and

d. they have prepared the annual accounts on a ''going concern'' basis.

Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo

Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo as required under Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 are given in annexure ''A'' attached hereto and forms a part of this report.

Auditors'' Report

The observations made in the auditors'' report are self-explanatory and therefore, do not call for any further comments under Section 217(3) of the Companies Act, 1956.

Auditors

M/s. Deloitte Haskins & Sells, Chartered Accountants, Secunderabad, the Company''s Statutory Auditors, retire at the conclusion of the forthcoming Annual General Meeting and are eligible for re-appointment. The Board, on the recommendation of the Audit Committee, has proposed that M/s. Deloitte Haskins & Sells, Chartered Accountants, Secunderabad be re-appointed as the statutory auditors of the Company to hold office until the conclusion of the next Annual General Meeting. M/s. Deloitte Haskins & Sells, Chartered Accountants, Secunderabad have forwarded their certificate to the Company, stating that their re-appointment, if made, will be within the limit specified in that behalf in sub-section (1B) of Section 224 of the Companies Act, 1956.

Corporate governance

Your Directors affirm commitment to good corporate governance practices. During the year under review, the Company was in compliance with the provisions of Clause 49 of the Listing Agreement with the stock exchanges relating to corporate governance.

A Report on Corporate Governance along with the certificate of practising company secretaries for its due compliance forms part of this annual report.

Directors

The term of office of the Vice-Chairman & Managing Director, Shri Devashish Poddar, ends on July 31, 2013. At the meeting of the Board of Directors held on May 13, 2013 he has been re-appointed as Vice- Chairman & Managing Director with effect from August 1, 2013 for a further period of 2 years on remuneration and other terms as approved by the remuneration committee. The proposal for the re-appointment of Shri Devashish Poddar as Vice-Chairman & Managing Director, remuneration and other terms are being placed for approval of the Members at the ensuing Annual General Meeting. Approval of central government will be sought, where required. The Board recommends passing of a Special Resolution confirming his re-appointment.

Dr. M. S. Rajajee, I.A.S. (Retd), Director of the Company resigned from the Board of Directors and vacated the office as director of the Company due to personal reasons with effect from January 6, 2013. The Board placed on record its high appreciation for the valuable advice rendered by Dr. Rajajee during his tenure as a director of the Company.

Shri Laxminiwas Sharma, Shri P. Vaman Rao and Shri Rakesh Bhartia, Directors of the Company, retire by rotation under Article 122 of the Articles of

Association of the Company at the ensuing Annual General Meeting and are eligible for re-election.

Cost accounting records

Pursuant to the provisions of Section 233B of the Companies Act, 1956 your Directors have appointed M/s. S. S. Zanwar & Associates, Cost Accountants, Hyderabad as the cost auditors to conduct the cost audit of your Company for the financial year ended March 31, 2013 which has been approved by the central government. Your Company has filed the Cost Audit Report for the year ended March 31, 2012 on December 26, 2012. Further, the Cost Audit Report for the financial year ended March 31, 2013 will be filed within the stipulated time.

Acknowledgements

Your Directors are grateful to the customers, suppliers, farmers, financial institutions, banks, employees and shareholders for their unstinted support and look forward to their continued encouragement towards the Company''s growth.

By order of the Board

Hyderabad, Ranjan Kumar Poddar

August 14, 2013 Chairman

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Mar 31, 2011

To the Shareholders

The directors have the pleasure in presenting their Annual Report and audited accounts of the company with Auditors' Report for the year ended 31st March 2011.

Economic scenario

The GDP growth in developing and emerging economies was 7.3% in 2010 (Report by International Monitory Fund). It was higher than the world average. The growth in these developing economies slowed by the end of 2010 as stimulus was slowly removed and policies were tightened to contain rising inflation.

The GDP growth in Indian economy for 2010- 11 was 8.5% and is estimated to remain around 8% during 2011-12. However, the rising inflation coupled with stringent RBI policies, increase in crude oil prices, impact of natural calamities and financial crisis in certain countries are cause of concern which may affect Indian growth.

Working results Rs. in lakhs

2010-11 2009-10

Profit before interest, depreciation and tax 3954.35 4,507.86

Interest 2735.16 2,576.81

Profit before depreciation and tax 1219.19 1,931.05

Depreciation 3035.32 2,975.40

Profit / (Loss) before tax (1816.13) (1,044.35)

Less: Provision for taxation

- Wealth Tax - 1.20

- Deferred Tax (24.84) 139.00

Profit/(Loss)after tax (1791.29) (1,184.55)

Balance brought forward from previous year 1968.87 3153.42

Balance carried to Balance Sheet 177.58 1968.87

Dividend

In view of the loss during the year, no dividend is being recommended by the Board.

Forfeiture of shares

Pursuant to provisions of Articles of Association of the company, the Board of directors of your company forfeited 9154 partly paid ordinary shares, which were allotted in the year 2005 and on which call money remained unpaid.

Performance

During the year, the company installed a twin press to manufacture wet pulp for sale. The company's production of pulp and paper was 93900 tonnes as compared to 91126 tonnes produced in the previous year. The production was marginally higher by 3% as compared with previous year. Capacity utilization was 67.90% i.e. an increase of 2% over the previous year. The capacity utilisation was affected by heavy rains and floods. Due to fall of HT transmission line tower of A P Transco, 12 days production was adversely affected and thereafter due to frequent tripping of power, the production was further affected for next 3 to 4 days. The gross turnover increased to Rs.37932 lakhs during 2010-11 as compared to Rs.34935 lakhs in previous year, recording growth of 8.6%, due to increased production and price increase.

The profit before interest, depreciation and tax was Rs.3954 lakhs compared to Rs.4508 lakhs in previous year. Though there was increase in sales realisation but due to increase in prices of wood, coal, diesel and other major inputs, higher employees' cost, there was decrease in earnings. Further, as a result of increase in interest and depreciation, net loss before tax also increased to Rs.1816 lakhs against Rs.1044 lakhs in previous year.

Market Conditions

The year 2010-11 started on a very positive note and demand during the 1st quarter was robust and order booking was healthy. The earthquake in Chile affected the supply of pulp in the world and International paper prices moved up to $1100 per ton.

This resulted in an increase of paper prices in domestic market also. The new capacities which were commissioned in India also got absorbed because of sudden opening of the export market on account of higher pulp and paper prices.

However, from the second quarter, demand started settling down and had an adverse impact on market prices. Mills had to give discounts to push their sales volumes. However, in the fourth quarter, on account of seasonal demand and government buying, the demand of paper started firming up again which led to an opportunity of increase in prices in the middle of fourth quarter. Excise duty on writing and printing paper was increased from 4% to 5% in the budget. It was perceived by the market that things have settled and general buoyancy in the demand was expected to be continued and year ended with an optimistic positive note.

Due to increase in diesel prices, the transport costs of all inputs have increased. Wood cost increased by almost Rs 500/- per ADMT due to increase in transport, labour and logistic cost. Prices of furnace oil and other major chemicals increased exorbitantly during the financial year.

Finance

The financial commitment towards term loan instalments and interests were duly met in time during the financial year 2010-11. The company has drawn Rs.40 crore as long term funding from banks. The funds raised from preferential issue of Rs. 5 crore also eased the company's liquidity position. The company continues to avail sales tax deferment loan under Andhra Pradesh State Government policy and also eligible for incentives under Industrial Incentive Scheme 2005.

The borrowing cost to the company on term loans and working capital increased on an average by 1.5% per annum.

Due to tight liquidity position, the principal amount of instalment due on 1st July 2011 has not been paid for which necessary arrangements are being made.

Plantation

Various initiatives to ensure availability of raw materials are being continued by distributing large quantities of seedlings of subabul. Quality clones of eucalyptus at subsidised rates are also distributed to achieve higher yield. Technical support and guidance is also imparted to farmers for better results.

Human Resources development

All round focus is on training, health, safety of employees and creating a good working environment. Industrial relations remained cordial during the entire period.

Outlook

On account of seasonal demand and cost push, paper prices in April and May had increased but over supply from the new capacities resulted in a subsequent withdrawal of the price increase. Internationally also, the pulp and paper prices have reduced.

The impact of new production capacities is expected to be neutralised by increase in demand as a result of higher literacy level, increase in individual disposable income resulting into a thrust for packaged foods and articles and ban on plolythene packaging.

It is expected that the domestic excess supply versus the growth would get balanced and market will remain stable during the year.

The prices of all major inputs have further increased during the year 2011-12 such as wood by almost 20%, coal by 30 %, diesel by 9 %, thereby increasing overall cost of production.

During the year 2011-12, interest rates have further hardened, which is further accelerating pressure on financial results.

To arrest pressure on working of the company, steps have been taken to increase productivity, reduce break down and wastages, reduce energy consumption and control input per ton of output. This will increase capacity utilization and will control the cost of production.

With these measures, performance is expected to be better than before.

Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo

Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo as required u/s 217 (1) (e) of the companies Act, 1956, read with the companies (Disclosure of particulars in the report of the Board of directors) rules, 1988, are given in annexure 'A' attached hereto and forms a part of this report.

Particulars of employees

Statement on particulars of employees drawing Rs.60 lakhs or more per annum, if employed for whole of the year or Rs.5 lakhs or more per month, if employed for a part of the year pursuant to the provisions of section 217(2A) of the companies Act, 1956, is given in annexure 'B' attached hereto and forms a part of this report.

Directors' responsibility statement The directors confirm

a) That in the preparation of the annual accounts, all applicable accounting standards have been followed and that no material departures have been made from the same;

b) That they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the loss of the company for the year ended on that date;

c) That they 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;

d) That they have prepared the annual accounts on a going concern basis.

Auditors' Report

The observations made in the auditors' report are self-explanatory and therefore, do not call any further comments under section 217(3) of the companies Act, 1956.

Corporate governance

Your directors affirm commitment to good corporate governance practices. During the year under review, the company was in compliance with the provisions of clause 49 of the listing agreement with the stock exchanges relating to corporate governance.

A report on 'Corporate Governance' along with the certificate of practicing company secretaries for its due compliance are annexed hereto as part of this annual report.

Directors

Shri G. S. Srinivasan was nominated on the Board by IDBI Bank Ltd, as its nominee director w.e.f. 20th June 2011 in place of Shri S. V. Satyanarayana. The Board records its appreciation for the valuable advice received from Shri S. V. Satyanarayana during his tenure as nominee director of the company.

The term of office of the Vice-chairman & managing director, Shri Devashish Poddar, expires on 31st July 2011. At the meeting of the Board of directors of the company held on 11th May 2011, he has been reappointed as Vice-chairman & managing director with effect from 1st August 2011 for a further period of two years on remuneration and other terms as approved by the remuneration committee. The proposal for the reappointment of Shri Devashish Poddar as Vice-chairman & managing director, remuneration and other terms are being placed for approval of the shareholders at the ensuing annual general meeting. Approval of central government will be sought, where required. The Board recommends for passing of a special resolution confirming his reappointment.

Dr. M. S. Rajajee, I.A.S. (retd), Shri P. Vaman Rao and Shri Rakesh Bhartia, directors of the company, retire by rotation under article 122 of the Articles of Association of the company at the ensuing annual general meeting and are eligible for re-election.

Auditors

M/s Deloitte Haskins & Sells, Chartered Accountants, Secundrabad, the Company's Statutory Auditors, retire at the conclusion of the forthcoming annual general meeting and are eligible for re-appointment. The Board, on the recommendation of the audit-committee, has proposed that M/s Deloitte Haskins & Sells, Chartered Accountants, Secundrabad be re-appointed as the statutory auditors of the company to hold office till the conclusion of the next annual general meeting of the company. M/s Deloitte Haskins & Sells, Chartered Accountants, Secundraad have forwarded their certificate to the company, stating that their re-appointment, if made, will be within the limit specified in that behalf in sub-section (1B) of section 224 of the companies Act, 1956.

Cost accounting records

Pursuant to the provisions of section 233B of the companies Act, 1956, your directors have appointed M/s S.S.Zanwar & Associates, cost accountants, Hyderabad as the cost auditors to conduct the cost audit of your company for the financial year ended 31st March 2011, which has been approved by the central government. The Cost Audit Report for the year 2010-11 will be subitted to the central government before the due date.

Acknowledgements

The directors thank the customers, suppliers, farmers, financial institutions, banks and shareholders for their continued support and also recognise the contribution made by the employees towards company's growth.

By order of the Board

Ranjan Kumar Poddar Chairman

Date : July 27, 2011 Place: Hyderabad

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Mar 31, 2010

The directors have the pleasure in presenting their Annual Report and audited accounts of the Company with Auditors Report for the year ended 31st March, 2010.

Homage to Late Shri G.P. Birla

We wish to place on record our deep sorrow at the sad demise of Shri G.P.Birla on 5th March 2010. He was chairman of the Company from 23rd July 1954 to 31st December 1969. His contribution to the development and progress of the Company has been magnificent. He was an outstanding industrialist, a humanist with an urge to improve the lot of weaker sections, a philanthropist and a pioneer in the establishment of cultural, scientific, technological, medical, archaeological and research institutions. His death is an irrepairable loss.

Economic scenario

The global economy recovered smartly during 2009-10 in the latter half driven by an extra ordinary level of co-ordinated

international action in the form of policy stimulus, monetary as well as fiscal. However, the pace and shape of recovery remains uncertain, once the stimulus is withdrawn. The challenges faced in honouring external debt obligations by certain european countries have added to these uncertainties. The developing economies are faced with challenges of high rate of inflation, sharp escalation in asset prices, exchange rate volatility and increased capital inflows.

The Indian economy staged a remarkable recovery to grow at 7.4% during 2009-10 facilitated by policy stimulus and increased Govt. spending. It is estimated that GDP will grow at around 8% during 2010-11. The Indian economy is expected to have a stable and sustained growth as a result of multiple growth drivers such as young population, skilled manpower, rising savings and investment rates, large domestic demand, emergence of globally competitive firms and infrastructure development.



Working results

Rs. in lakhs

2009-10 2008-09

Profit before interest, depreciation and tax 4,507.86 5,276.91

Interest 2,576.81 2,616.15

Profit before depreciation and tax 1,931.05 2,660.76

Depreciation 2,975.40 2,793.06

Profit / (Loss) before tax (1,044.35) (132.30)

Less : Provision for taxation

- Wealth Tax 1.20 1.00

- Fringe Benefit Tax - 24.00

- Deferred Tax 139.00 6.06

Profit / (Loss) after tax (1,184.55) (163.36)

Balance brought forward from previous year 3,153.42 3,760.22

Balance available for appropriation 1,968.87 3,596.86

APPROPRIATIONS

Transfer to general reserve - 180.00

Dividend on Ordinary Shares - 225.17

Tax on Proposed dividend - 38.27

Balance carried to Balance Sheet 1,968.87 3,153.42

1,968.87 3,596.86 Dividend

The Company has suffered loss during the year and as such the Board of directors do not recommend any dividend.

Performance

During the year, the Companys production of paper and paperboard was 91,126 MT compared to 92,298 MT in previous year. Capacity utilisation remained 66% during the year. The production suffered due to non stabilisation of expansion project to rated capacity and suspension of production for 18 days in November 2009 due to contract workers strike.

Net sales were Rs. 335.49 crore in 2009-10

compared to Rs. 346.21 crore in 2008-09.

The profit before depreciation and tax was Rs. 19.31 crore in 2009-10 compared to Rs. 26.61 crore in 2008-09. Net loss after tax amounted to Rs. 11.85 crore in 2009-10 against Rs. 1.63 crore in 2008-09. Average sales realisation decreased by Rs. 1,400 per MT during the year as compared to that in previous year.

Prices of major inputs namely wood and coal have also risen. Wood prices of subabul, which is purchased through agricultural marketing committees, increased by 9.4% in the month of October 2009 and that of coal purchased from collieries by 9% from time to time during the year. Further, the employees cost also increased by Rs. 4.41 crore on account of workers agreement and staff increment with effect from 1st April 2008. Inspite of all these factors, the strategic management has helped to contain the overall cost of production.

The contributory factors for the losses are non stabilisation of the expansion project leading to less production and decrease in sales prices of the finished products.

Finance

The Company has met all its commitments towards payment of interest and loan instalments in time.

In order to meet the long term requirements of funds, Rs. 75 crore has been sanctioned by the banks. Further a short term loan of Rs. 12 crore has been availed from a bank during the year.

The Company has also raised Rs. 5 crore from the preferential issue of ordinary shares to a promoter of the Company in accordance with SEBI (Issue of capital and disclosure requirements) regulations.

The Company continued to avail sales tax deferment loan under Andhra Pradesh government policy.

The above timely co-operation by the lenders and the promoters of the Company has eased out the Companys liquidity position.

Though there is recovery in the economy, yet due to inflationary pressure, the interest rates are under pressure.

Plantation

The Company has continued its social and farm forestry initiatives and distributed 144 Lakhs good quality planting material in 2009- 10 covering an area of 1,600 hectares. Efforts have also been continued to train and provide technical guidance to farmers in various farming activities. The industry has been representing to government to facilitate public – private partnership to allot revenue waste lands for large scale plantation.

Human Resources development

The Company is continuously making efforts

to grow the top line and improve operational efficiencies. The agreement with the workers has been concluded for a period of five years w.e.f. 1st April 2008. The cordial industrial relations were maintained through out the year barring 18 days strike by contract workers. As an important part of HR initiatives, continuous focus is being given on training and development of employees, creating an environment of learning and aligning rewards & recognition with performance.

Outlook

Pulp and waste paper prices in international market remained sluggish in most part of the year 2009 and as such paper manufacturers dependent on imported pulp and waste paper were able to sustain with low sales realisations. In international market pulp and paper prices are hotting up from January 2010 due to which the paper and paper board prices in domestic market are also firming up.

From April 2010 paper and paper board prices have increased by about 8 to 10%. The quality of our product has also established which is also adding to increase in net sales realisation.

The cause of concern is capacity addition between 3.50 to 4 lakh tons by leading manufacturers. However, due to emphasis on education, increased per capita income, demand for hygienic packaged food, corporate growth and technology business such as BPO and KPO etc. demand for paper and paper board will increase faster than production capacities.

The thrust and emphasis to increase volume of business, manufacture of value added products and control over cost and overheads are major contributory factors for better performance. Barring unforeseen circumstances, the profitability of the Company is expected to be better.

Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo Particulars of conservation of energy, technology absorption and foreign exchange earnings and outgo as required u/s 217 (1) (e) of the Companies Act, 1956, read with the Companies (Disclosure of particulars in the report of the Board of directors) Rules, 1988, are given in annexure ‘A attached hereto and forms a part of this report.

Particulars of employees

Statement on particulars of employees drawing Rs.24 Lakhs or more per annum, if employed for whole of the year or Rs.2 Lakhs or more per month, if employed for a part of the year pursuant to the provisions of section 217(2A) of the Companies Act, 1956, is given in annexure ‘B attached hereto and forms a part of this report.

Directors responsibility statement

The directors confirm

a) That in the preparation of the annual accounts, all applicable accounting standards have been followed and that no material departures have been made from the same;

b) That they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the loss of the Company for the year ended on that date;

c) That they 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;

d) That they have prepared the annual accounts on a going concern basis.

Auditors Report

The auditors have invited attention of shareholders towards note no. 8 of schedule 22 regarding conclusion of wage agreement on 24th May, 2010 and charged to Profit and Loss Account Rs. 441 lakhs which includes Rs. 227 lakhs for the year 2008-09 and also stated that no provision was made during 2008-09 as the matter was then under adjudication and no additional burden was then anticipated.

The wage agreement was concluded on 24th May, 2010 w.e.f. 1st April, 2008 for a period of five years and the arrears relating to year 2008-09 and 2009-10 upon ascertainment and determination was provided in the accounts for the year ending 31st March, 2010.

The other observations made in the Auditors Report are self explanatory and therefore, do not call any further comments under section 217(3) of the Companies Act, 1956.

Corporate Governance

Your directors affirm commitment to good Corporate Governance practices. During the year under review, the Company was in compliance with the provisions of clause 49 of the listing agreement with the stock exchanges relating to Corporate Governance.

A report on ‘Corporate Governance along with the certificate of practicing company secretaries for its due compliance are annexed hereto as part of this annual report.

Directors

Shri L. K. Dash, a director retiring by rotation has resigned. The Board of directors of the Company in its meeting held on 9th August, 2010 has accepted his resignation. The Board, while noting Shri L. K. Dashs vacation of office as director, placed on record its appreciation for the valuable advice received from him during his tenure of office as director of the Company.

Life Insurance Corporation of India requested the Company to co-opt Ms. Poonam Bodra, Principal, LIC Zonal Training Centre, Jamshedpur, on the Board of the Company on ‘retire by rotation basis. The Board of directors appointed Ms. Poonam Bodra as an additional director with effect from 9th August, 2010. Ms. Poonam would continue to hold office up to ensuing annual general meeting pursuant to Article 114 of the Articles of Association of the Company. A notice has been received from a member pursuant to section 257 of the Companies Act, 1956, signifying his intention proposing her candidature for appointment as director of the Company at the ensuing annual general meeting.

Shri M. P. Dokania, executive director retired and also vacated the office as director of the Company at the end of his tenure on 30th April, 2010.

At the extra-ordinary general meeting of the Company held on 26th May, 2010, Shri T.V.V. Satyanarayana was appointed as whole-time director, designated as executive director of the Company w.e.f. 30th April, 2010, for a period of one year. However, Shri Satyanarayana resigned and also vacated the office as director of the Company due to personal reasons w.e.f. 9th August, 2010.

The Board placed on record its appreciation for his valuable guidance, control of overall Companys affairs, in various capacities including as whole-time director of the Company.

Shri Rameshwar Lall Lakhotia, B. Tech. (Chemical & Engg.) was appointed as additional director with effect from 24th July 2010 pursuant to Section 260 of the Companies Act, 1956. Shri Lakhotia will hold office up to the date of this annual general meeting. A notice has been received from a member pursuant to section 257 of the Companies Act, 1956, signifying his intention proposing his candidature for appointment as director of the Company at the ensuing annual general meeting.

Shri R. L. Lakhotia was also appointed as whole-time director designated as executive director with effect from 24th July 2010, for a period of two years up to 23rd July 2012. The proposal for his appointment, remuneration and other terms are being placed for the approval of the shareholders at the ensuing annual general meeting. Approval of the Central Government will be sought, where required. The Board recommends for passing of a special resolution confirming his appointment.

Shri Ranjan Kumar Poddar, Shri Sudhir Jalan and Shri Laxminiwas Sharma, directors of the Company, retire by rotation under Article 122 of the Articles of Association of the Company at the ensuing annual general meeting and are eligible for re-election.

Auditors

Messers. Deloitte Haskins & Sells, Chartered Accountants, retire as auditors of the Company and have given their consent for re-appointment. The shareholders will be required to elect auditors for the current year and to fix their remuneration.

As required under the provisions of Section 224 of the Companies Act, 1956 the Company has obtained a written certificate from the above auditors proposed to be re- appointed to the effect that their re- appointment, if made, would be in-conformity with the limits specified in the said section.

Cost accounting records

Pursuant to the provisions of section 233B of the Companies Act, 1956, your directors have appointed M/s. S.S. Zanwar & Associates, cost accountants, Hyderabad as the cost auditors to conduct the cost audit of your company for the financial year ended 31st March 2011,which has been approved by the Central Government.

Acknowledgements

Your directors express their warm appreciation to all the employees for their diligence and contribution.

Your directors express their grateful appreciation for the continued assistance and co-operation received from the government, local bodies, participating financial institutions, banks and shareholders.

By order of the Board

Ranjan Kumar Poddar

Chairman

Date: August 9, 2010

Place: Hyderabad