Yash Papers Limited

Annual Report 2004

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p o w e r

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Forward looking statement In this Annual Report we have disclosed forward-looking information to enable investors to comprehend our prospects and take informed investment decisions. This report and other statements - written and oral - that we periodically make contain forward-looking statements that set out anticipated results based on the management's plans and assumptions. We have tried wherever possi-

ble to identify such statements by using words such as 'anticipate', 'estimate', 'expects', 'projects', 'intends', 'plans', 'believes', and words of similar substance in connection with any discussion of future performance. We cannot guarantee that these forwardlooking statements will be realised, although we believe we have been prudent in assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate

assumptions. Should known or unknown risks or uncertainties materialise, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should bear this in mind. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

Contents
Strategy focus focus

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Product focus

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Service focus

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Transparency focus

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Reliability

00 Performance focus 00 Executive vice-chairman's message 00 Managing Director's review 00 Management's discussion and analysis 00 Directors' Report 00 Annexure to Directors' Report 00 Report on Corporate Governance 00

concept, research and visualisation by

(info@trisyscom.com)

Yash Papers has demonstrated that its niche is profitable; in 2004, it reported a revenue of Rs 2584 lacs and a post tax profit of Rs 158.62 lacs.

Yash Papers Limited* is not just another paper manufacturing company; it is one of the largest modern agro residue-based paper brands in India.

Yash Papers is not just any conventional paper manufacturer that uses plantation wood as raw material; it uses agriculturallyderived bagasse and wheat straw as its inputs.

Yash Papers' may be a narrow product focus but is thinking big; it is planning an ambitious Rs 8500 lacs greenfield project to manufacture 23100 TPA of MG grade poster paper.

What makes

Yash Papers different

Yash Papers has adopted a strategy opposite to the usual large volume approach; it has selected to specialize annually in the manufacture of 16,000 tonnes of a value-added kraft range that comprises the hard tissue, wrapping and packaging/ stationery grades.

Yash Papers is a progressive manufacturer; it possesses a captive power generation facility, an effluent treatment plant and a well-equipped quality control laboratory.

Yash Papers is not marketing its products only within India; its growing international footprint extends to the ASEAN, Australia and Africa.

Yash Papers does not make a product and expect the market to buy it; on the contrary, its principal strength is a niche product focus that leverages ongoing Research and Development into how kraft paper can be customised for specific application requirements.

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

Over the last few pages, you read how

Yash Papers
has protected consumer
2

and customer interests in the marketplace. In the next few pages, read how the Company's niche focus made this possible.

Instead of becoming a small and insignificant player in a large commodity paper segment, we prefer to emerge as a large player in a small niche.
Ved Krishna, MD.

Kraft
The dull brown paper we only used in wrapping our schoolbooks when we were young. No longer. Because over the last few years, kraft paper has been reinvented in a stylish, understated and cost-effective kind of way. And is being increasingly used as a complement with a number of upmarket everyday brands. At Yash Papers, we are proud to have had the foresight to specialise in the manufacture of various kraft grades. And make this reinvention possible.

Environment-friendly

pizza packaging
A WIN-WIN FOR CONSUMER, CORPORATE AND COMMUNITY FROM YASH PAPERS The next time you order a burger or a pizza across a KFC or Pizza Hut counter, check the brown of the packaging when the loaded tray comes to you. It is kraft and it comes from Yash Papers.

Over the last few years, a number of product managers in Indias FMPG (fast moving perishable goods) industry have turned to kraft for their packaging requirements. For a number of reasons. It is aesthetic. It is durable. It is cost-effective. More importantly, when made from bagasse-based material, it is environment friendly. Helping reconcile the interest of the consumer and the corporate with that of the community.

Effective

school book packaging

STABILITY AND RESPONSIBILITY FROM YASH PAPERS

Over the last few decades, subjects have changed, curricula have evolved and teaching styles have improved. But kraft continues to be the preferred wrapping for text and exercise books for most students across India. This longstanding preference for kraft among school managements and students has been based on a responsible understanding of the following priorities: The need to reconcile differences in the economic backgrounds of students with standardised packaging. The need to select a paper variety that evokes a sense of stability and responsibility in the educational sector. At Yash Papers, this market for kraft appears optimistic in view of the increasing national literacy from 52.21 per cent in 1992 to 65.38 per cent in 2001 and the projected coverage of every Indian with at least eight years of education by 2010 (Source: Department of Education, Government of India). Ensuring the integration of kraft into student lives well into the long-term.

In-movie

entertainment
USUAL MATERIAL FOR POPCORN PACKAGING FROM YASH PAPERS There was a time when one walked into a film theatre with a ticket and a pretty young lady for company. Times have changed. Over the last few years, a packet of popcorn has emerged as the third accompanist. Across more than 12000 movie halls in India, popcorn now comes inevitably in kraft paper bags. Unlike plastic, kraft is environment-friendly and helps retain the flavour of popcorn for longer. Ensuring that as movie watching increases, the enhanced offtake of kraft will continue.

Retaining Retaining

freshness freshness
ROSES Roses are ARE grown GROWN on fondness, ON FONDNESS, FERTILISER fertiliser and fresh air, and AND FRESH AIR, AND protected by Yash Papers PROTECTED BY YASH When a rose is carefully PAPERS plucked in New Zealand, the When a rose depend is carefully best growers on plucked in New Zealand, the best growers wrappers from Yash Papers to depend on wrappers from Yash preserve the fruits of their hard Papers to preserve the fruit of their work. hard work. For two important reasons. For two important reasons. Yash Papers Papers' specialised specialised wrapper wrapper quality quality Yash does two two things: things: it it aerates aerates the the petals petals with with does adequate oxygen oxygen and and prevents prevents the the moisture moisture in in adequate the flower flower from from extending extending to to sogginess. sogginess. the This enables the rose to retain much of its

freshness not just up to the point of being delivered but for days in the vase thereafter. Enhancing Enhancing value value for for the the grower grower and and the the consumer. consumer.

Protecting

the protector
LICS POLICIES ARE PROTECTED IN PACKAGING BY YASH PAPERS When the Life Insurance Corporation of India needed a packaging solution for its insurance policies, it eventually zeroed in on material made by Yash Papers. For a specific reason. The executives at Indias largest personal insurance company recognised the strength behind the back-to-back pasting of two paper sheets with cross-cords between them. Repeated use demonstrated that these paper varieties resisted wear and tear even when subjected to heat and pressure. As a result, Yash Papers material has emerged as the preferred packaging across more than 5.8 million policies. Protecting the interests of policyholders.

Fighting

counterfeits
THE RIGHT COLOUR AND THE RIGHT GRAMMAGE FROM YASH PAPERS Some years ago, when bidi manufacturers in rural India began to be hit by a wave of counterfeit brands, they responded by enlisting the help of Yash Papers. In a specific kind of way. They worked with Yash Papers to customise a limited edition of different wrapper shades that could not be replicated in a hurry. As a result, while counterfeiters mastered the fine art of replicating the brand name and logo, they found the replication of the wrapper colour far more challenging. What transpired was this: the consumer conducted a careful examination of the wrappers colour and grammage, even a slight variation in which was enough for the brand to be pronounced as fake. As a result, the successful initiative of Yash Papers Research and Development team translated into a competitive difference in the marketplace. Protecting the wellbeing of its customers and their consumers.

Stability focus Specialisation focus

Stability focus In a cyclical business dependant on a high capacity utilisation, most companies invested in waste paper raw material as their insurance; Yash Papers invested in the agriculturally-derived bagasse. The Company reinforced this sustainability-enhancing decision by selecting to locate its manufacturing 4 facility in Faizabad, amidst more than 20 uninterrupted power availability as well as a power cost that continues to be one of the lowest in the industry. Specialisation focus In a volume-driven business, most companies prefer to make standard grades; Yash Papers singularly focused on the manufacture of grades customised around specific applications. The result: the Company commanded more than 50 per cent share of the low grammage unbleached kraft paper category, edging out its larger woodbased competitors. Substitution focus In a resource-intensive business, much of the business growth was derived from an investment in structural capital; Yash Papers preferred to invest in intellectual capital and enter new products. For instance, when the Company perceived that kraft was being imported due to the absence of a cost-effective wet-strength paper variety, it addressed the opportunity with product development. The result: a cost-effective customer solution and a first-mover advantage in a growing market. Cost-competitiveness focus In a narrow margin business, most manufacturers reduced costs to stay competitive; Yash Papers focused on value-for-money solutions to take its business ahead. This is reflected in its core strategy: the Company selected low cost and abundantly available bagasse as its principal raw material, integrated backwards into the captive generation of power and invested in multi-feed capability to circumvent unexpected raw material price increases. The result: protected profitability in cyclical markets.

Strategy focus

Costcompetitiveness focus

sugar mills within a radius of 200 kms. This abundant availability of raw material helped the Company achieve a high utilisation and make periodic increments in its installed capacity in exchange for better economies of scale. Yash Papers reinforced its raw material proximity with a 2.5 MW cogeneration investment when power was still easily available in UP in 1996. Eight years later, while competitors suffered from outages, Yash Papers enjoyed

In a narrow margin business, most manufacturers reduced costs to stay competitive; Yash Papers focused on value-formoney solutions to take its business ahead.

Substitution focus

Single product segment focus Application-based manufacturing focus Specialised product focus
AT YASH PAPERS, A TOP-DOWN APPROACH ENABLED IT TO DIRECT ITS RESOURCES TO A FOCUSED INDUSTRY SEGMENT, UNDERSTAND CUSTOMER NEEDS CLOSELY AND DEVELOP SOLUTIONS AROUND THEM. that they are present in; Yash Papers focused singularly on it, emerging as a specialist in the process. A number of companies delivered products; Yash Papers customised industrial and packaging solutions. More specifically, Yash Papers chose to specialise in the unbleached kraft paper segment, where Take for instance the persistent staining of car windows and windscreens during spray painting. Yash Papers developed a special quality of paper that, when applied, stayed impervious and retained its strength while wet. As a result, the application of the Company's products in Australia has helped it capture a growing share in the paints industry in that country. Single product segment focus A number of paper companies focused on the kraft segment as one of the many Application-based manufacturing focus A number of manufacturers preferred to make generic grades within their segments of presence; Yash Papers consciously concentrated on creating products around specific applications. To do so consistently, the Company collaborated closely with its end users to develop products based on their ongoing and emerging requirements. Over time, the larger players found it uneconomical to be present. Specialised product focus A number of manufacturers simply fed existing demand; Yash Papers redefined product applications and created new markets. Over time, the Company provided an alternative to imported wood-based paper, imparting needbased properties and exporting to new markets. As a result, Yash Papers became India's leading manufacturer of low grammage unbleached kraft paper, enjoying a market share of 50 per cent. the Company graduated to the manufacture of hard tissues (18-30 GSM), wrapping grades (30-60 GSM) and packaging /stationery grades (60-80 GSM), which not only delivered relevant consumer solutions but also delivered a stronger profitability over the commodity varieties.

Product focus

Over time, the Company provided an alternative to imported wood-based paper, imparting need-based properties and exporting to new markets.

AT YASH PAPERS, WHAT THE COMPANY DELIVERS IS DERIVED

in line with evolving customer requirements - and not vice versa - in a commoditised business. An on-time delivery dovetailed with the production schedule of the customer. An ongoing liaison with dealers and customers - compulsory feedback sought within two weeks of all despatches - to act upon their concerns. An understanding of dealer

knowledge leading to superior customer service. A marketing exposure to employees from various organisational functions. As a result, repeat business increased from 13088 MT in 2002 to 14548 MT in 2004; besides, not less than 13 per cent of the Company's income was derived from any single Indian geographical zone, indicating a broad national presence.

Service focus

THROUGH MANUFACTURE; HOW IT RETAINS CUSTOMERS IS ACHIEVED THROUGH BETTER SERVICE. The Company focuses not just on the creation of superior products, but their marketing and onward servicing, reinforced through the following: A willingness to customise products

The Company focuses not just on the creation of superior products, but their marketing and onward servicing.

AT YASH PAPERS, TRANSPARENCY IS REFLECTED NOT JUST IN THE WAY THE COMPANY SHARES PROFITS WITH THOSE WHO HELP

and accountability. A two-layered management hierarchy comprising operators and managers, which encourages direct problem solving and the elimination of unproductive delays and communication gaps. A participatory approach to decisionmaking at all organizational levels, resulting in the rapid development of inhouse managers. A fair appraisal system, which takes into account relevant information and allows every employee to recognize the parameters on which he or she has been evaluated.

A commitment to adhere to the applicable laws of the land. A blemishless debt servicing record, resulting in a sound relationship with financial institutions. The sharing of the production and sales data for the preceding day, incentivising enhanced performance. This commitment to conduct business the right way has translated into a fair credit assessment with banks leading to the sourcing of low cost Rs 5667 lacs of debt from financial institutions for its proposed expansion.

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Transparency focus

GENERATE IT, BUT ALSO IN AN ADHERENCE TO LAWS IN A BUSINESS WHERE MOST UNORGANISED PLAYERS ESCAPE IT. The Company's practices are designed to promote integrity and transparency through the following initiatives: A flat organisational structure that facilitates an unfettered information flow across all organizational tiers, resulting in a greater ownership of responsibility

A two-layered management hierarchy encourages direct problem solving and the elimination of unproductive delays and communication gaps.

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Strengthening reliability through quality Improving reliability through providing solutions

AT YASH PAPERS, WE DEVELOP PAPER GRADES IN THE KNOWLEDGE THAT NOT JUST OUR BUSINESS, BUT THAT OF OUR CUSTOMERS DEPENDS ON THE QUALITY BEING DELIVERED BY US. This is being amply demonstrated by the trend in the business of decorative laminates. To ensure that the transported sunmica sheets reach the user's end unscratched, a protective kraft sheet is inserted between. The stronger this sheet, the cleaner the laminate. Over the years, an increasing number of sunmica manufacturers have turned to Yash Papers' kraft products for reaching products to their customers just the way they had been manufactured. Strengthening reliability through quality Yash Papers does not see itself as a volume-led player, but a quality-directed one. So even as it concentrates on enhanced volumes, its primary source of competitiveness remains product quality, which translates into a price premium and repeat business. Improving reliability through providing solutions Yash Papers does not see itself as a vendor for its customers, but a partner. Customers can trust Yash Papers to create solutions around their precise requirements, derived from its deep understanding of the product structure and customer requirements. Cost effectiveness Yash Papers' R&D initiative is not only focused on product quality but a lower delivered cost. This 'double play' has helped it emerge as the partner of first recall among a growing community of customers.

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Reliability focus
Cost effectiveness

Even as Yash Papers concentrates on enhanced volumes, its primary source of competitiveness remains product quality, which translates into a price premium and repeat business.

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Yash Papers went into the manufacture of kraft paper with an annual installed capacity of 1,940 tons in 1983. Superior operational performance generated a surplus that was invested in successive modernisation and expansion.

YASH PAPERS WENT INTO THE MANUFACTURE OF KRAFT PAPER WITH AN ANNUAL INSTALLED CAPACITY OF 1,940 TONS IN 1983. SUPERIOR OPERATIONAL PERFORMANCE HELPED GENERATE A SURPLUS THAT WAS INVESTED IN SUCCESSIVE MODERNISATION AND EXPANSION. THIS GREW THE COMPANY'S CAPACITY TO 16,000

Improving employee competence At Yash Papers, innovative training programs - guru-shishya - facilitate a cross-breeding of competencies, helping to create a multi-skilled organisation. The Company also provides financial training for members in non-financial functions, creating a cost consciousness. This intellectual investment is helping create a motivated workforce, catalyzing performance and arresting attrition. Cost control Yash Papers was faced with two options when bagasse prices increased due to a poor sugarcane crop in 2003: restrict its production or change its raw material mix. The Company selected the latter; it reinforced bagasse with wheat straw, achieving a better quality at lower prices. Besides, it leveraged its cogeneration facility to reduce its dependence on the state electricity grid. Both initiatives translated into a better operating margin at a time when margins within the paper industry remained relatively flat. Controlling wastages and rejects Yash Papers has progressively implemented quality control mechanisms, reflected in an automated on-line quality control system (QCS) on

one of its paper machines. This quality control mechanism encompasses every manufacturing stage from raw material procurement and storage to the paper production and dispatch. This comprehensive coverage has helped minimize internal and external rejections, enhancing performance. Better dealer management Yash Papers has leveraged robust dealer relationships leading to regular and predictable offtake, timely payments and reduced bad debts. Fiscal discipline Yash Papers has demonstrated a tight financial control in a competitive business. For instance, it renegotiated the cost of its term loans and has reduced interest outflow from 3.6 per cent of turnover to 2.8 per cent (2004). Besides, it negotiated stronger trade terms and reduced expenses to efficiently manage its working capital. This performance focus translated into a sales CAGR of 6.68 per cent across five years and profits by 6.90 per cent over the same period. As a result, in 2004, even as sales increased only 8.1 per cent, pre-tax profit jumped 122 per cent.

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Performance focus

TPA (WITH AN EXPANSION PLAN EXPECTED TO TAKE IT TO 39100 TPA). This performance orientation is the culmination of a number of initiatives - a specialised product focus, the drive to serve dealers and customers and a motivation to provide superior customer solutions. These initiatives enabled the Company to carve out a niche for itself in a fiercely competitive segment. Incentivised performance Yash Papers created an incentive scheme to inspire every employee to deliver his best. The Company's production and sales figures form the basis of the performance against a preagreed target, ensuring that incentives are based on joint and not individual performance.

At Yash Papers, innovative training programs guru-shishya facilitate a cross-breeding of competencies, helping to create a multiskilled organisation.

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Executive vice-chairman's message

More than two decades ago, Yash Papers went into business with

segment within India and overcame the overhang of an unconventional and erratically available raw material through a commitment to the following priorities: Service mindset in a manufacturing environment Niche product focus Improving product development Aggressive people empowerment People management should probably have figured at the head of the list.

Because by training people, empowering them to fix targets, sharing knowledge and creating a challenging environment, the Company has grown faster than the industry average. In doing so, I am confident that we have laid the foundation for sustainable growth. 17

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We have laid the foundation for sustainable growth

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

limited capital, modest machinery, handful of people - and a dream. A dream to be recognised as a value player in a volume-based business. Consider the odds: automation was predominant, capital was scarce and there was an absence of adequate scale to influence success. However, Yash Papers graduated to become one of the largest players in its

K.K. Jhunjhunwala Executive Vice-chairman

Managing Directors review

Dear stakeholders,
I am particularly delighted with the improved performance of Yash Papers in an otherwise flat 2004 for the following reasons: 18 A 8.1 per cent growth in revenues despite a marginal decline in volumes and domestic realisations. An increase in EBIDTA margin from 14.6 per cent to 18.6 per cent following raw material switch, energy cost savings, lower interest outflow and increased exports. on employed capital from 7.38 per cent in 2003 to 9.36 per cent in 2004 and a growth in the market capitalisation by 101.98 per cent (from Rs 529.19 lacs on 31st December 2003 to Rs 1068.81 lacs as on 31st December, 2004). I have no hesitation in saying that this improvement provides a perfect launch for the most ambitious expansion in our history, leading to a stronger Company. Yash Papers is investing Rs 8,500 lacs in the daily manufacture of 70 tons of MG Poster Grade paper, which will treble our topline across three years. The Company has continuously The Company is installing a soda recovery unit, which will help recycle almost 88 per cent of all the chemicals used. The Company is setting up a 5 MW power plant to protect its selfexpanded from 1940 tonnes to the prevailing 16,000 tonnes across two decades. The Company has acquired a 50 per cent share in its chosen segments of presence. Ved Krishna Managing Director Besides, the overall expansion will strengthen our economies of scale, bargaining power and risk management capabilities, helping us emerge as a model agro residue-based paper plant in India. What gives me hope? Simply our excellent track record: Yash Papers has never suffered a cash loss in its history. sufficiency in power requirements. The Company is upgrading its environment management system to meet progressively stringent norms. The Company has graduated from being paper sellers to solutions providers. Looking ahead, the Company will extend its industry presence: trade in grades it does not presently manufacture, supply converted packaging to customers and possibly even sell its surplus power with the objective to maximise corporate value. In a business where nothing remains constant, Yash Papers will bring to it an opportunity-capitalising dynamism. Should you need any clarification, I will be happy to provide it. Simply write to me at ved@yash-papers.com. 19

Excellent track record gives me the optimism of accelerating growth

Ved Krishna reviews the performance of Yash Papers in 2004 and looks ahead

A prising of the market share from established wood-based paper mills who enjoyed domination for long. A growing goodwill as a speciality products Company in India and abroad. Not surprisingly, these improvements translated into superior business numbers: an improvement in the return

Managements discussion and analysis

Indian economic overview The offtake of paper is directly proportionate to a nation's - even the world's - economic 20 growth. To this extent, Yash Papers capitalised on India's economic growth during 2004. For instance, the Economic Survey 2003-04 estimated GDP growth for that fiscal year at 8.2 per cent (4 per cent in 2002-03) on account of a strong recovery in the agriculture, industry and service sectors. Industrial sector growth continued to be healthy (as per the Index of Industrial Production) at 6.9 per cent in 2003-04 (5.7 per cent in 2002-03). Since growth is expected to be around 6 per cent-plus on the conservative side over the medium-term, India is expected to emerge as one of the fastest growing global economies and a safe proxy for the paper industry.

Global paper industry The world paper and paperboard demand is expected to grow to 402 million tonnes by 2010, riding a CAGR of 2 per cent. Asian nations are expected outperform this growth with a 7 to 10 per cent annual growth (Source: Jaako Poyry estimates). Paper capacity shortage in Asia is expected to strengthen prices, based on which capacity additions are being planned. Paper & Paperboard Newsprint

The Indian paper industry The country's paper industry is fragmented across more than 500 producers who possess capacities from less than 1000 TPA to more than 100,000 TPA. The Indian paper, paperboard and newsprint industry (installed capacity almost 7.8 TPA) operated at an estimated 75 per cent utilisation in 2003-04

Writing & Printing

Maplitho Creamwove Art Paper Poster paper Light Weight Coated Paper (LWC)

Industrial
Coated Duplex Uncoated Duplex Chromo Triplex Boards Kraft

Speciality
Wallpaper Tissue Paper Electrical Grade Paper Food Grade Paper MICR

Standard

Glazed

The Indian paper, paperboard and newsprint industry (installed capacity almost 7.8 TPA) operated at an estimated 75 per cent utilisation in 2003-4.

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Indian paper industry: A snapshot

Status: India's paper industry is the fifteenth largest in the world. Segmentation: The wood-based segment accounts for 35 per cent while the non wood-based segment accounts for 55 per cent. Growth: India's paper industry has reported volume growth of 5.47 per cent CAGR over the last three years. Opportunity: The industry has created employment for 1.3 million individuals and contributed Rs 25 billion to the Indian exchequer. Paper Newsprint The Indian paper industry in 2003-04 Capacity 6.70 1.12 Production 5.26 0.59 (in million tones) Consumption 5.22 1.10

Industry challenges Rising raw material prices: Paper manufacturers are broadly classified into

than elsewhere: US$ 40-60 per tonne compared with US$ 20-25 a tonne in Indonesia. The lack of a foreseeable increase in hardwood availability and the absence of a policy on industrial forestry indicate that hardwood prices may increase at a CAGR of around 5 per cent. Bagasse, a sugar cane by-product, did not escape the general input inflation. Prices strengthened in 2004 due to a bad crop and the increasing diversion of bagasse for power generation by the sugar companies. Following the rise in wood pulp and bagasse prices, waste paper also became more expensive. Compliance with the new pollution control norms: By December 2008, the Indian paper industry will be required to comply with stringent pollution control norms laid down by the Pollution Control Board under the CREP charter. This compliance will require significant

investments that could affect smaller companies at a time when returns are modest, leading to their probable closure and creating customer acquisition opportunities. Imports: India is an attractive market for global manufacturers on account of a low customs duty (presently 20 per cent). Industry prospects In 2003-04, India's paper industry grew almost 6 per cent and according to IPMA, the industry's apex body, this growth could sustain for three more years. There is a huge opportunity for India given its low per capita consumption at 6 kgs (South Asia at 11 kgs and global average at 53 kgs respectively) where even a one kg increase in consumption could translate into a nationwide demand increase of a million tons of paper.

Economic growth, mirrored in the GDP, is the primary industry driver. Domestic demand is expected to rise at a CAGR of 6.1 per cent upto 2008-09 while capacity expansion is estimated at only 3.1 per cent over the period (Source: CrisInfac). India's education sector is expected to grow at four per cent on account of a rise in literacy levels. The Indian Government has committed six per cent

of the GDP towards education. India's writing and printing sector is expected to grow at 5.5 per cent compounded upto 2008-09 (Source: CrisInfac). An increasing use of industrial paper for the packaging of consumer goods and FMCG is expected to drive Duplex Board growth at 7.2 per cent and kraft at 8.0 per cent CAGR up to 2008-09

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There is a huge opportunity for India given its low per capita consumption at 6 kgs.

wood based, agri residue-based and wastepaper-based categories based on the nature of the raw material used. Wood-based units accounted for 35 per cent of the production, agri residuebased and wastepaper-based units accounted for 30 per cent and 35 per cent respectively. The large paper manufacturing units in India mostly use bamboo, hardwood and wood pulp while the medium and small units consume agri residues (bagasse, jute and straw) and waste paper. The industry has recently been plagued with cost increases due to a growing shortage of forest-based raw material (wood). Following the rise in paper demand, global wood prices increased considerably. In India, due to the absence of a plantations policy, pulpwood prices were generally higher

Drivers of growth

23 India's per capita consumption of corrugated boxes is a mere 1.5 kgs even as the global average is around 15 kgs and US average 80 kgs. About 95 per cent of all products are packed in corrugated boxes in the US, an indication of the latent potential. There is another area of optimism: the Jute Packaging Material Act 1987, which recommended the mandatory use of jute packaging across 90 per cent of all food grain and sugar as well as 15 per cent of all urea produced in India, is being relaxed, which is expected to increase the use of industrial paper as a preferred packaging medium. In view of buoyant industrial and agricultural production as well as exports, this segment of industrial paper is expected to grow at around 7 per cent CAGR in India. Besides, with FMCG companies looking at more innovative packaging, the offtake of industrial paper is likely to surpass growth in the printing and writing paper segments.

The industrial paper segment

vast potential that lies in this business. The industrial paper segment is expected to ride India's export growth. For instance, India's Agricultural and Processed Food Export Development Authority's product-specific strategy envisages annual agricultural exports of more than Rs 10,00,000 lacs across six agro commodities. The heartening point is that presently the consumption of corrugated boxes is less than 20 per cent of all packaging material used by India's food sector (corresponding global average is more than 35 per cent), which points to an attractive

2004 vs 2003 2004 was a favourable year for the Company. Although volumes declined marginally, revenue increased by 8.11 per cent. The Company posted an 81 per cent increase in net profit from Rs 87.49 lacs in 2003 to Rs 158.62 lacs in 2004; its highest in eight years. Production The Company's kraft production declined from 14795 tonnes in 2003 to 14762 tonnes in 2004, representing a capacity utilisation of 92 per cent (of its installed 24 capacity of 16000 TPA). Raw material management Yash Papers is an agri-residue based paper manufacturer. Bagasse, its principal raw material, accounted for around 12 per cent of its operating cost, any change in which can impact its profitability. As a de-risking initiative, the Company

selected to be strategically located in the Gangetic belt of eastern Uttar Pradesh (traditionally a sugarcane cultivating area) in proximity to 20 sugar mills within a radius of 200 kms. This location translated into a logistical convenience and the availability of bagasse at a competitive cost. In 2004, bagasse availability was lower due to the cyclical nature of the cane crop. The Company countered this shortage through the introduction of wheat straw in its raw material mix, a low cost alternative abundantly available. As a result, it was able to cap raw material cost increase to only 15 per cent to Rs 705.80 lacs in 2004 and the increase in the proportion of raw material in net sales from 26 per cent in 2003 to 27 per cent in 2004. Power and fuel As a resource-respecting organisation,

the Company made valuable savings in power and fuel costs in 2004, which strengthened operating margins. For instance, power and fuel expenses in quantum terms declined from Rs 488.72 lacs in 2003 to Rs 353.99 lacs in 2004, or from 20 per cent of net sales in 2003 to 14 per cent in 2004. When seen against the production, the decline was significant: from Rs 3303.28 per tonne of the final product in 2003 to Rs 2397.98 in 2004. The decline in power and fuel costs was on account of a good rice crop, which increased the availability of rice husk and reduced its price by 30 per cent. The Company also made an attractive saving following the installation of a variable frequency drive to arrest wasteful energy consumption. Other manufacturing expenses The other miscellaneous manufacturing

expenses incurred by the Company were generally around the previous level: 17.8 per cent of net sales in 2003 and 17.1 per cent in 2004, despite an increase in the price of consumable chemicals. Improvement initiatives The various improvements initiated by Yash Papers to enhance product quality in 2004 were: Raw material checks: Stringent quality checks minimised raw material wastage at the storage and production levels. As a precaution, the combustible bagasse was stocked safely but in open spaces to enable excess moisture evaporation. To protect the material from combusting, water pipes were installed around the stackyards. Power, fuel & water consumption: During 2004, the Company introduced variable frequency drives which maximised machine efficiency and resulted in a 30 per cent energy saving.

A new water tank was installed to re-use water, which reduced fresh inflow by 20 per cent. Following an energy audit, driving belts were changed, leading to efficient use. Installation, repairs and asset maintenance: In 2004, the Company conducted a 20 day preventive maintenance to prevent sudden breakdowns; it modified the MDC to reduce in-plant air pollution; it modified the boiler furnace, leading to lower downtime and increased fuel efficiency. This shutdown notwithstanding, the Company produced almost as much as in the previous year: 14,762 MT in 2004 compared to 14,795 MT in 2003. Among other initiatives, the installation of a scanner automatically identified deviations from the required quality, stalled production and corrected the output; more importantly, the scanner enabled the Company to database its

production, leading to efficient problem resolution. The installation of the variable frequency scanner resulted in a faster grade changeover and better speed control. Research and Development Research and Development represents the cornerstone of the Company's success, enabling it to customise varieties and manufacture specialised grades in line with emerging customer requirements. Towards its serious research intent, the Company invested in an adequately equipped laboratory, capable of captive multi-grade development, and an efficient team specialising in development and quality control based on customer requirements. In 2004, the key achievements of the R&D function comprised: Development of wet strength kraft paper.

The decline in power and fuel costs was on account of a good rice crop, which increased the availability of rice husk and reduced its price by 30 per cent.

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Parameters Production (MT) Sales (MT) Net Sales (Rs in lacs)

2004 14762 14548 2584.31

2003 14795 14878 2390.38

 Development of coloured kraft paper for the packaging/ stationery segment. Development of light shade kraft

accommodation/ recreational facilities. Besides, the Company introduced the following forward-looking work practices: Self-management teams: Employees worked in self-managing teams called Sanghs, which met periodically to discuss and resolve issues relevant to them, involving each worker in the decision-making process. These knowledge-exchanging Sanghs were headed by a representative called Pradhan who represented his department's concerns at a higher level called the Pradhan Sangh, wherein all team heads met once a month to discuss a broader agenda. The top management - Sangrakshak Sangh - discussed broad organizational issues and to which

Pradhan Sangh representatives were invited by rotation. Training and development: At the Company, the principal focus of people development and growth people was achieved through an intensive and innovative training. Trainers, both within the Company and outside it, trained employees regularly. The faculty also comprised machinery suppliers who trained employees on the correct machine use. Training in quality and cost consciousness was conducted by inhouse faculty and over time, the training extended to social and personal development. Employee appraisal: Employee progress was monitored through a

comprehensive appraisal system, revolving largely around self-appraisal and covering the performance in the designed job profile in addition to crossfunctional learning as well as attitude and motivational levels. Each worker set his own annual target, monitored quarterly. Appraisal was done at two levels, first by the Pradhan of the respective Sangh and then by an executive from the senior Marketing review Yash Papers markets products through two channels: a strong network of 35 nationwide dealers and 10 global dealers for its standardised grades, and its corporate plus existing network for the

specialised grades. In 2004, the Company sold 14548 MT of paper, a 2.2 per cent decline over the previous year attributed to a maintenance shutdown and a temporary decline in realisations serving as a disincentive. This flexible approach and increased exports - nearly 14 per cent of the total sales, the highest in the Company's history - translated into a revenue increase by 8.1 per cent. Company's product grades and applications The Company's products are used across a number of important applications, given in the table on the next page.

Prices and realisations In a competitive environment, the Company did not just manage to retain its realisations but actually grew them. The average price during the year was Rs. 17.76 per kg compared to Rs. 16.06 per kg in 2003. This rise of 10.58 per cent contributed significantly to the rise in revenue. The company's realisations grew from Rs. 2403.29 lacs in 2003 to Rs. 2599.54 lacs in 2004 and receivables declined from Rs 22.55 lacs to Rs 21.03 lacs, due to a tightening debtors policy and a strong collection discipline. Key marketing practices The Company's marketing objective is to sell with speed and at a premium over the competing brands. Over the years, 27

26

The average price during the year was Rs. 17.76 per kg compared to Rs. 16.06 per kg in 2003.

paper for a tobacco company despite the absence of a bleaching facility at the plant. Human resources The Company embarked on a number of initiatives to make it an invigorating workplace for its 150 employees. For one, the Company retained its flat management structure, with a number of responsibilities delegated to the shop floor, facilitated by a trusting and transparent communication process. To enhance a sense of ownership, the Company graduated employees into shareholders and provided

Yash's guru-shishya programme

At Yash Papers, the guru-shishya programme promoted employee multi-skilling in an interesting way. An employee voluntarily chose a person from any department as his guru (teacher) while the guru was responsible to train the shishya (student). The effectiveness of this cross-functional training was linked to employee remuneration, making it integral to organisational development.

the Company strengthened its position Product grade 32-42 GSM Production/ Sales (in MT) 4077 (P) 3976 (S) Uses Laminating sheets/ paper bag/ interleafing in sun mica sheets Food industry/ plywood Consumer industry Lamination industry/ packaging industry/ Sunmica packaging/FMCG industry/ industry Industry outlook Increase in construction and home improvement activity, together with rising consumer demand are driving growth. 43-64 GSM 7674 (P) 7518 (S) Bidi wrapping/ Tobacco pouch/ Gum tape/ paper bags/ note-book covering paper/ Bangle-wrapping 28 65 GSM and above 3013 (P) 3060 (S) paper PE Coating in mattress/ stationary/ tube light packaging/ Printing Mattress industry/ packaging industry/ Education sector Tobacco industry/ Adhesives/ FMCG industry/ Bangle industry/ Education sector Economy growth of the economy together with an impetus on education ensure rising demand for this segment. Increased focus on housing packaging are key drivers. as a specialised manufacturer within its niche and leveraged its credibility to protect it from the impact of short-term price troughs. As a stable initiative, the Company marketed products via dealers in diverse national and international locations through a relationship-driven approach. This was done by servicing dealer requirements on schedule and faithfully meeting their demanding requirements. As a relationship-strengthening initiative, the Company was engaged in an ongoing dialogue with its dealers to understand ground realities with clarity, leading to proactive initiatives. As a knowledge-enhancing initiative, dealers were regularly trained in the Company's The Company's major offtake was derived from the 43-64 GSM segment, accounting for nearly 51 of its revenues. products and applications. Besides, the Company's marketing representatives Company's regionwise sales Regions North India West India East India South India Export Total sales (in Rs Lacs) 879.10 641.58 396.87 372.24 290.80 2580.59 Per cent of total sales 34.07 24.86 15.38 14.42 11.27 100 accompanied dealers to customer locations and derived an insight into industry/ Real estate industry and a growing importance of

evolving preferences. As a forward-looking initiative, the Company's marketing team studied how existing paper uses could be substituted cheaper with kraft. Over the last few years, this initiative translated into the successful introduction of aluminiumcoated kraft, replacing conventional aluminium foil packaging. The Company now expects to drive growth through the introduction of newer kraft uses in giftwrapping, face tissues and stationery.

the Company bagged export orders for some specialised products from reputable customers with large requirements. The Company strengthened its international brand through the introduction of multi-colour options in kraft and specialty grades like wet strength kraft paper. Over the last four years, the Company's exported volumes evolved as per the table below. Encouragingly, there was a consistent

Exports The Company maintained its exports at 12 per cent of total sales, despite fierce competition. As an encouraging trend, Year 2001 2002 2003 2004

increase in the export of value-added grades, a trend that the Company expects to sustain through a change in the product mix towards these varieties Per cent of total sales 5 7 12 12

Quantity of paper (Tons) 633 947 1820 1735

The Company strengthened its international brand through the introduction of multi-colour options in kraft and specialty grades like wet strength kraft paper.

29

30

The Company will position itself more distinctively in the international market leading to a stronger brand recall and better realisations.

following the proposed expansion. The Company's R&D initiative is engaged in the creation of application-based products based on customer enquiries, hoping launch a number of these products during 2005. Outlook The outlook for a value-added manufacturer like Yash Papers is encouraging for a number of reasons: an increased focus on better packaging standards and the predominance of kraft for this purpose at the customer end. The Company is not only engaged in the creation and customisation of a number of specialised grades but is also evaluating the possibility of extending its service focus in two distinctive ways: starting a trading wing to provide wider customer solutions and tying up with converters to provide turnkey packaging solutions, which will accelerate the

Company's evolution into an end-to-end solutions provider. Concurrently, the Company will position itself more distinctively in the international market leading to a stronger brand recall and better realisations that will enable it to counter the price wars of a competitive market place. Financial review 2003 vs 2004 A marginal production decline notwithstanding, Yash Papers reported an 8.1 per cent increase in net sales at Rs 2584 lacs in 2004 (Rs 2390 lacs in 2003) while operating profit increased 46.4 per cent to Rs 451 lacs in 2004. The Company's operating margin of 13 per cent in 2003 increased to an impressive 17.5 per cent in 2004, due to robust domestic realizations, higher exports and substantial power/fuel cost savings. A lower interest outflow

ensured that pre tax profit rose 122 percent to Rs 266.18 lacs in 2004 and net profit by more than 80 per cent to Rs 158.62 lacs. Based on this improvement and optimistic outlook, the Board recommended a dividend of 12.5 per cent for 2004 (10 per cent in 2003). Cash flow management The Company generated a 75 per cent increase in its operating cash flow to Rs 314.02 lacs in 2004. In a capitalintensive business, Yash Papers was required to pay for raw material and overheads while awaiting reimbursement for the material sold by it. The Company strengthened its resource management through an ongoing monitor of cash movements, facilitated by daily reports. These reports detailed receipts, payments, LC limits used, bank guarantees utilised and unavailed finance facilities. Based on this, the

Key financial highlights Parameters Net sales (Rs lacs) Operating profit (Rs lacs) Operating margin (per cent) Pre tax profit (Rs lacs) Post tax profit (Rs lacs) Dividend (per cent) Company outlined a cash management strategy to put available cash to the most efficient use. Revenue The Company reported an 8 per cent growth in net sales to Rs 2584 lacs in 2004, a marginal decline in volumes notwithstanding, derived through stronger realizations from its various specialised products. Other income was Rs 30.92 lacs (Rs 40.94 lacs in 2003), 2004 2584.31 451.19 17.5 266.18 158.62 12.5 2003 2390.38 308.57 13 119.97 87.49 10 Per cent change over 2003 8.11 46.2 34.6 121.8 81.3 25 material mix to counter a price increase in bagasse, a lower price of rice husk and a 16.8 per cent reduction in interest costs over the previous year. Capital employed In a capital-intensive paper industry, the Company earned a 9.36 per cent return on its employed in 2004, which was better than 7.28 per cent in 2003 mainly on three counts: Lower energy costs.

generated largely from interest inflow on invested fixed deposits and export benefit (DEPB). Margins In a difficult business environment, the Company strengthened its operating margins from 17.5 per cent in 2003 to 13 per cent in 2004 and net margins from 3.20 per cent in 2003 to 6.20 per cent in 2004. This transpired as a result of a number of reasons: an altered raw

31

 Improved realisations. Better cash flow management. Reserves At the Company, reserves largely comprised accumulated profits earned over the years, the lowest cost of funds at its disposal. The Company's reserves stood at Rs 1029 lacs as on 31st December 2004. As reserves increased from Rs 925 lacs to Rs 1029 lacs in 2004, net worth grew to Rs 1868 lacs (Rs 1753 lacs in 2003). The Company did not have any revaluation reserves on its books during the year under review. 32 Loans and interest In a capital-intensive business, the management of the quantum and cost of borrowed funds influences profitability. Over the years, the Company has mobilised requisite funds at the right time at competitive rates and liquidated debt. Total loan funds declined from Rs 655.5 lacs in 2003 to Rs 607.4 lacs in

2004 and interest outgo declined from Rs 87.90 lacs to Rs 73.09 lacs, following the prepayment of an expensive term loan, renegotiation of interest rates and the swap of high cost advances with low cost foreign currency loans. As a result, debt-equity ratio improved from 0.37 in 2003 to 0.33 in 2004, average interest cost dropped from 13.4 per cent in 2002-3 to 12 per cent in 2004 and interest cover strengthened from 2.36 times to 4.64 times over the period. Inventory At Yash Papers, inventory management is a critical driver of working capital outlay for a number of reasons: The Company's principal raw material is available only for three months and has to be stored for the rest of the year. The finished goods are largely manufactured on order but certain generic grades also have to be manufactured in anticipation of demand

(export and domestic). The Company's prudent inventory management optimises the allocation of funds in raw material inventory, even as it maintains an optimum stock of consumables so that the production process is never affected. At the end of 2004, the Company's raw material inventory was Rs 133.85 lacs, reflecting 69 days of sales, while finished goods inventory was Rs 143.93 lacs, higher than in the previous year on account of the increasing shortage of bagasse. Debtors Generally, receivables management represents the last leg of the Company's transaction. A quicker recovery enables the Company to transact a larger volume of business with the same quantum of funds, strengthening fiscal efficiency. A delay, on the other hand, could inflate working capital requirements, raising

interest outflow. As a result of a strong product, excellent dealer relations and an incentivised early remittance, the Company negotiated a quick payment cycle. As a result, total debtors were Rs 225.50 lacs in 2003 and Rs 210.27 lacs in 2004 as receivables declined from 34 days of turnover in 2003 to 30 days of turnover in 2004. Creditors For Yash Papers, creditors' management was critical as principal raw materials (bagasse and wheat straw for paper and rice husk for cogeneration) needed to be purchased against cash. Chemicals and consumables were purchased on credit. On the overall, the Company's creditors' position was comfortable. Working capital At Yash Papers, working capital was Export growth Year 2001 2002 2003 2004

used to fund the purchase of raw material, stores, consumables, fund overheads, administrative expenses and maintain stock. Its management assumes significance when primary raw material suppliers must be paid immediately (inspite of raw material having to be stocked months in advance) and material must be sold on credit. Over the years, the Company strengthened its inventory, debtorcreditor management and product mix, which enabled it to improve its working capital outlay. As a result, the Company did not require its working capital limits from banks to be revised at any time during the preceding five years. Exports The quality of the Company's paper continued to be internationally

acclaimed, as a result of which exports increased considerably during the year under review. Tax The company provided Rs 95.75 lacs as provision for current tax and Rs 11.80 lacs as deferred tax for 2004, higher than Rs 39.55 lacs in current tax and a deferred tax credit of Rs. 7.07 lacs in 2003. This increase in tax provision was largely due to the fact that until last year, the company utilized its MAT credit available and set this off from the tax liability of the company. The increase in deferred tax provisions was on account of the increase in the net block over the written down value of fixed assets as per the provisions of the Income Tax Act, 1961.

Excellent track record gives me the optimism of accelerating growth.

33

Quantity of paper (Tons) 633 947 1820 1735

Per cent of total sales 5 7 12 12

Forex management

34

Forex management was strengthened by the availing of packing credit in foreign currency and onward liquidation through realisations.

At Yash Papers, forex management revolved around the timely receipt of payments and adequate protection from exchange rate fluctuations. Its management was strengthened by the availing of packing credit in foreign currency and onward liquidation through realisations, reducing the Company's exposure to foreign currency fluctuations. Looking ahead The Company's operations are set to go grow significantly following its proposed extension into the production of a kraft variety called MG Poster grade, which will extend the Company's consolidated capacity from 16000 MT to 39000 MT. Concurrently, the Company will control energy, raw material and direct costs, maximising profitability. In the specialised segment, the Company aims to emerge as a market leader in the niche specialised segment across the medium term.

The Company's operations are set to go grow significantly following its proposed extension into the production of a kraft variety called

MG Poster grade,
which will extend the Company's consolidated capacity from
35

16000 MT to 39000 MT.

36

How Yash Papers is making its operations truly sustainable

At Yash Papers, we believe that the successful conduct of business is as much about enhancing profitability as it is about minimizing the environmental impact. As a responsible manufacturer, Yash Papers embarked on the following initiatives: Environment management practices: In an environmentally sensitive business, Yash Papers minimised its environment impact through the selection of an environment-friendly raw material like bagasse. This agricultural by-product, derived from sugarcane, is more easily renewable than wood; besides, the Company produces unbleached kraft paper, which does not require the use of chlorine, a hazardous substance. As a significant step forward, the Company's expansion programme will be completely aligned to the norms of the Corporate Responsibility for Environment Protection (CREP) charter.

Going ahead, the Company will sensitise all employees towards the need for environment protection and implement an efficient waste segregation and disposable system (compost pits for biodegradable waste), ensuring a green factory. Effluent treatment plant: The effluents from the Company's plant could be potentially hazardous, if untreated. In line with the Corporate Responsibility for Environment Protection (CREP) inspired by the Central Pollution Control Board and Ministry of Environment and Forests, all paper mills 'must install a chemical recovery system or utilize the black liquor generated with no discharge from pulp mill within three years or switch over to waste paper'. Yash Papers has already commissioned an effluent treatment plant to treat and minimise the generation of effluents and now expects to upgrade it during the forthcoming modernisation programme.

Solid waste management: At Yash Papers, much of the solid waste that is generated during manufacture is either reused or processed into downstream products. Solid waste or sludge is used to produce sun-dried boards while the other solid waste is landfilled. Going ahead, the Company is planning to set up a soda-recovery plant that will recover chemicals, reduce the environmental impact and save costs. Air pollution: The Company's preventive maintenance initiative included the modification of its existing Mechanical Dust Collector to minimize gaseous emissions. Going ahead, the Company expects to install an additional mechanical dust collector attached to the proposed husk-fired boiler and an electro-static precipitator. Noise pollution: To mitigate the impact of noise in a paper mill from the operation of vacuum pumps, the Company commissioned special silencers.

At Yash Papers, we believe that successful business is as much about enhancing profitability as it is about minimising the environmental impact.

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Yash Papers is not just operating within its community, it is adding value to it. Over the years, the Company has been

in addition to recreational facilities and to education. Community concern: Yash Papers imparts meaningful education through a number of educational institutions that are run by various sponsored Trusts under the guidance of Manjula Jhunjhunwala, Director, and educationist. These include a CBSEaffiliated senior secondary school in Faizabad, acclaimed as one of the best institutions in the region, where the children of employees are given a preference in admissions and where their education is subsidised. The Company is also involved with a vernacular medium school in the vicinity of its operations that is accessible to the children of

employees. Students at these schools get the benefit of internship programmes at the Company to gain a functional knowledge of a working environment. The Company is sponsoring a vocational training institute to train and increase employability. It has also sponsored a training institute, where eminent educationists use modern methods to enhance teaching skills; it expects to convert this into a full-fledged college. A rural education programme imparts education to children from neighbouring villages. National commitment: Yash Papers is a law abiding corporate citizen, paying taxes and statutory dues on schedule.

38

How Yash Papers is looking after its community

a fair employer, supporter of families, responsible taxpayer and a protector of community interests. Employee responsibilities: With time, Yash Papers has multi-skilled, empowered and enriched its employees through training, a flat management structure and personality development opportunities. Family responsibilities: Yash Papers provides accommodation to employees and their families in a dedicated colony

Over the years, the Company has been a fair employer, supporter of families, responsible taxpayer and a protector of community interests.

39

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

How Yash Papers is managing its

40

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

Michael Porter's risk management grid

risks
and creating a stronger organisation
In any industry, competition is influenced by five competitive forces: threat from new entrants, the bargaining power of existing buyers, the bargaining power of existing suppliers, the threat of substitute products and the rivalry that exists among the existing players. It is only a collective pull of these competitive forces that determines the Intensity of rivalry Industry growth: The demand for paper in India will continue to grow at an attractive pace given its low penetration compared to the rest of the world. While this might seem an attractive entry ability of the Company to earn a return on its investment that is higher than the cost of its capital. prospect, the capital intensity of the industry will serve as a barrier for new entrants, protecting the interest of Yash Papers. Brand identity: In a largely commoditised business, branding is not yet critical to success, even though quality and service do influence customer loyalty. In the case of Yash Papers, which deals with specialised

41

products, the brand is visibly established, serving as a hedge against competitors. Exit barriers: Given the high asset investment and the resale value of assets, corporate exit is possible but capacity exit is not yet a reality due to the possibility of acquisition. Product differentiation: In the paper industry, product differentiation is not evident in generic grades, marked by 42 timely delivery and cost competitiveness. Yash Papers thrives on specialisation, product differentiation, Research and Development, an effective hedge. Entry barriers Economies of scale: As the minimum capacity required to break-even has gradually risen over the years, so has the entry barrier for new entrants, protecting long-term players like Yash Papers. The latter has succeeded with a relatively low capacity only due to a high level of specialisation. Capital requirement: In the capitalintensive paper industry, greenfield cost is approximately Rs 80,000 per tonne across a high installed capacity, calling for a large capital outlay. Additionally,

the industry is working capital-intensive with a long gestation period. IPMA estimates that average ROCE has been 11 per cent as against an average capital cost of around 15.5 per cent, protecting existing manufacturers like Yash Papers. Proprietary product difference: Though there is little differentiation in the basic product, specific applications influence offtake. Yash Papers enjoys a reputation for innovation around its applications, protecting itself from this threat. Access to distribution: Established manufacturers like Yash Papers possess a wide and deep distribution network, which helps their products being delivered just when the customer wants them, an effective entry barrier against intending industry entrants. Expected realisations: The paper industry is fiercely competitive with a number of players in the unorganised sector who evade taxes, enjoy an unfair advantage and can trigger a price war. This is a deterrent for new entrants and is also one of the reasons why the interest of companies like Yash Papers has been relatively protected.

Suppliers' bargaining power Substitutes: There are few substitutes for the raw material used in the manufacture of paper. However, a diverse vendor base insulates the Company against an excessive dependence on a single supplier. Also, the raw material is essentially a process waste for the suppliers who have no option but to dispose it at the available price. Product price: A rise in material prices is always a threat, given the fact that it depends on the vagaries of weather. However, Yash Papers possesses a multi-feed capability with the option of altering the raw material mix to counter any unreasonable hike in prices. Threat of forward integration by suppliers: A forward integration by suppliers would require a considerably large investment. This is unlikely as they are already in one manufacturing business (sugar manufacturing in case of bagasse manufactures) and would rather stick to their core competence, given the different market dynamics of the two industries. Substitutes Buyers' propensity to substitute: The

paper industry faces little risk of product substitution by buyers. The threat of plastics substituting paper packaging is also not serious because of environmental and aesthetic considerations. Buyers' power (bargaining leverage and price sensitivity) Buyer concentration: In an industry like paper, where the customer base is diverse and uses multiple, there is negligible risk of a buyer concentration / cartelisation. Brand identity: A well-protected brand identity ensures that the Company continues to earn a premium over average prevailing realisations. Product differences: An applicationbased manufacturing discipline ensures effective product differentiation, resulting in a growing market share and profitability. Economy risk Any economic downturn could affect the industry and Company in a negative way. Risk mitigation The Indian economy has demonstrated a sound recovery in 2004, with the GDP

growing at 8.2 per cent. This trend is expected to sustain over the coming years. However, even a slight decline in economic performance may not affect the paper industry materially due to a sufficient latent demand. Industry risk The Indian paper industry may not remain an attractive due to a high capital cost and long payback. Risk mitigation The growing industrialization, the low per capita consumption, increasing literacy and progressive unviability of imports indicate a fair profitability for existing manufacturers. Yash Papers has demonstrated an ability to be cost competitive, an effective hedge. Strategy risk In an environment where realities change rapidly and competition is intense, strategic errors could result in a loss of market share. Risk mitigation The Company has always made products that are differentiated, value-added and customised for specific applications. While it has manufactured a limited

product range, it has expanded the market through newer uses and the replacement of wood-based paper in specific segments. It has periodically expanded capacity, invested in the best available technology and adhered to environmental norms, strengthening a case for sustainability. Its proposed expansion will only strengthen this competitiveness and enhance value. Globalisation risk Due to an over-capacity in the West, there is a possibility that India may become a dumping destination. Risk mitigation India possesses a strong anti-dumping mechanism that protects domestic manufacturers. The Company caters to the niche low grammage segment, with high freight sensitivity, deterring imports. Raw material risk In an agri residue-based papermanufacturing unit, raw material availability could be excessively dependant on monsoons or the decision of sugar mills to use it for cogeneration purposes. 43

Risk mitigation Uttar Pradesh annually generates nearly 18 million tons of bagasse. Since the Company is located in this state, it is well placed for raw material requirements. The Company has mitigated the cyclicality risk through the use of other fibrous materials to compensate for the bagasse shortage, whenever it happens. Besides, the cogeneration option is costly for small sugar mills. As a prudent 44 de-risking, the Company is not dependant on any single mill for its bagasse supplies and is surrounded by a number of small manufacturers willing to supply bagasse to it. In addition, the expected power reforms era and private power projects promise power at a cheaper rate, discouraging even the larger mills from setting up such facilities.

operates is climatically stable. However, in the event that husk prices rise sharply, the Company will be able to shift to coal to fire its boilers without a significant capital outlay. The Company is also exploring the possibility of producing energy from gas. With large power plants being installed in the state, the energy crises will not affect it in the long run. Technology risk In a dynamic industrial environment, the Company faces the risk of its technology becoming obsolete. Risk mitigation The Company is consistently extending its technology expertise, which, post expansion, will only strengthen mitigating any latent risk of obsolescence. Productivity risk

upgradation. This enabled the Company to achieve a capacity utilization of more than 90 per cent for three successive years. Human capital risk Attrition at the senior management levels could erode the Company's knowledge base. Risk mitigation The Company's workplace environment and employee compensation compare favourably with the best in the industry. However, to counter any risk that attrition may pose, the Company is continuously training its second management tier to assume leadership positions.

investments in power co-generation have translated into significant savings. As a result, the Company is competing in markets traditionally dominated by wood-based manufacturers. Customer concentration risk An excessive dependence on a few large customers could pose a serious risk to the business in the event of customer attrition. Risk mitigation The Company enjoys a diversified customer base spread across the country in addition to a strong dealer base that empowers it to add new customers. Distribution risk

penetration. Geography risk The Company is located near its raw material sources but relatively far from its consumption markets, driving logistic costs. Risk mitigation Being one of the lowest cost producers of value-added kraft paper, the Company has the capability to absorb additional logistic costs that could arise from the transportation incurred to reach products across distant markets. Foreign exchange risk Currency fluctuations could adversely affect the Company's business.

The high cost of finance may affect profitability. It may not be able to compete in the marketplace with companies that have sourced cheaper funds. It may suffer from a liquidity squeeze. Risk mitigation Yash Papers has consistently improved its working capital and fund management practices. The Company strengthened its liquidity through various initiatives like accelerating receivables and shrinking inventory. It has liquidated expensive debt in favour of low cost foreign currency, arriving at a comfortable debt-equity ratio of 0.33. As a result, the Company's average cost of finance was 12 per cent in 2004 (13.4 per cent in 2003). A prudent fund management strategy will enable the Company to meet its financial obligations and fund its expansion (through borrowing of Rs 56 cr) at a competitive cost over the coming months. 45

Margins risk In a competitive industry, margins could thin, threatening the profitability of Yash Papers. Risk mitigation The Company has prudently increased its exposure to specialised grades, where competition is limited and margins are better. The Company also enjoys cost advantages due its economies of scale compared to smaller unorganised manufacturers. Besides, strategic

In a standardised segment, poor product visibility could impact product dispersal and distribution. Risk mitigation With a dedicated force of 35 dealers in India and 10 abroad, Yash Papers has gained a sizeable market presence. Frequent new product training, alternative uses and periodic dealer meets have strengthened the Company's dealer relationships leading to an extensive geographic presence and

Risk mitigation The Company exports almost 15 per cent of its annual production and this is expected to go up to 40 per cent following the proposed expansion. Prudent forex management practices and access to foreign currency packing credit will protect the Company from undue currency risks. Finance risk The Company may not be able to put together resources to finance its growth.

Energy consumption risk The Company's captive power generation facility is dependent on agricultural residues (rice/paddy husk) that are dependent on the monsoons and hence open to supply fluctuations. Risk mitigation The Gangetic belt in which the Company

In a capital-intensive business, productivity is critical to payback and profitability, a shortfall in which, however temporary, could affect margins. Risk mitigation The Company has invested in worker training to improve asset utilization, preventive maintenance and asset

3 Year Financial Summary

Balance Sheet
Particulars as on 31 December Sources of Funds Equity share capital Reserves & surplus Shareholders funds Long term loans Short term loans Total loans Deferred tax asset/(liability) Total liabilities Application of Funds Gross block Depreciation 46 Net block Capital WIP Net block+Capital WIP Investment Current Assets Inventories Debtors Cash & bank balance Loans & advances Total current assets Current Liabilities Creditors Other current liabilities Provisions Total current liabilities Net current assets Miscellaneous expenditure Total assets 2004 2003 Rs/lacs 2002

Profit & Loss Account

Particulars Net sales 2004 2584.31 30.92 32.59 2647.82 1591.07 574.64 2165.71 482.11 73.09 409.02 142.84 266.18 107.56 11.8 170.42 6.31 48.32 27.65 1068.81 2003 2390.38 40.94 4.46 2435.78 1589.83 496.44 2086.27 349.51 87.9 261.61 141.64 119.97 32.48 -7.07 80.42 4.83 38.66 13.69 529.19

Rs/lacs 2002 2238.25 40.93 49.48 2328.66 1226.1 553.82 1779.92 548.74 107.43 441.31 138.8 302.51 138.77 113.65 277.39 38.66 8.1 313.11 47

386.55 1028.98 1415.53 240.39 367.05 607.44 453.19 2476.16 3052.73 1215.47 1837.26 69.60 1906.86 0.06 504.75 210.27 36.20 53.98 805.2 140.97 94.99 235.96 569.24 2476.16

386.55 925.11 1311.66 317.41 338.14 655.55 441.39 2408.6 2946.44 1089.17 1857.27 40.94 1898.21 0.26 449.63 225.50 36.13 46.98 758.24 169.23 78.88 248.11 510.13 2408.6

386.55 914.44 1300.99 373.61 232.93 606.54 448.46 2355.99 2876.75 986.18 1890.57 53.89 1944.46 1.76 222.26 238.41 78.99 78.21 617.87 109.00 100.28 209.28 408.59 1.18 2355.99

Other income Increase/(Decrease) in stock Total income Cost of sales Overheads Deferred revenue expenditure Total cost PBDIT Interest PBDT Depreciation PBT Tax Deferred tax PAT Dividend tax on proposed dividend Equity dividend Year-end price (Rs) Market capitalisation
Note: The relevant figures for 2002 have been annualised.

Financial Ratios
Financial performance ratios
Particulars Other income/sales Cost of sales/net sales Overheads/net sales Interest/net sales PBDIT/net sales PBDT/net sales Depreciation/net sales Tax/PBT 48 PAT/net sales RONW (PAT/net worth) ROCE (PBDIT/capital employed) Capital output ratio (Net sales/capital employed) Net sales to gross block Net sales to working capital 0.85 4.54 0.81 4.69 0.78 5.48 2004 0.01 0.62 0.22 0.03 0.19 0.16 0.06 0.40 0.07 0.09 0.19 1.04 2003 0.02 0.67 0.21 0.04 0.15 0.11 0.06 0.27 0.03 0.05 0.15 0.99 2002 0.02 0.55 0.25 0.05 0.25 0.20 0.06 0.46 0.12 0.16 0.23 0.95

Balance Sheet Ratios

Particulars Debt-equity ratio Debtors turnover (days) Inventory turnover (days) Current ratio Asset turnover (Total income/Total assets) Growth ratios (%) Growth in total income Growth in net sales Growth in PBDIT Growth in PAT 8.71 8.11 37.94 111.91 4.60 6.80 (36.31) (71.00) 3.66 12.17 39.89 112.64 49 2004 0.13 30 116 2.48 1.07 2003 0.18 34 103 1.89 1.01 2002 0.21 39 66 1.56 0.99

Shareholder-related statistics
Particulars Dividend per share(%) Dividend payout ratio (%) Price/Earnings (times) Growth in market capitalisation (%) Earnings per share 2004 12.50 30.47 6.74 101.98 4.10 2003 10.00 44.18 6.06 69.00 2.26 2002 10.00 13.93 1.13 86.21 7.18

Dividend The Directors are pleased to recommend the dividend of Rs 1.25 per equity share or 12.5 per cent on an equity share with a face value of Rs 10 each. As a result, the Company's dividend payout for the year under review is Rs 48.32 lacs and To the members, tax payable on the aforesaid dividend is Rs 6.31 lacs. However, the dividend will be free of tax in the hands of shareholders. Financial Results (Rs in lacs) Year ended on 31st Dec., 2004 Profit before depreciation and taxation Less : Provisions for : Depreciation Current Tax Deferred Tax Profit after tax Prior Year Adjustments Balance of Profit Balance in Profit and Loss Account Balance available for appropriation Less: Appropriations: General Reserve Proposed dividend Tax on dividend Balance carried over to Balance sheet 50.00 48.32 6.31 259.36 25.00 38.65 4.83 205.4 Insurance Your Company's properties including 142.84 95.75 11.81 158.62 (0.12) 158.50 205.49 363.99 141.64 39.55 (7.07) 87.49 (4.74) 82.75 191.22 273.97 Exports The Company exported 1735 MT of paper during 2004 as against 1820 MT in 2003. During the year under review, exports accounted for 11.93 per cent of the total tonnage of paper sold. 409.02 Year ended on 31st Dec., 2003 261.61 Operations The Company achieved a production of 14,762 MT and sales of 14,548 MT during 2004 against a production of 14,795 MT and sales of 14,878 MT respectively in 2003. The Company achieved a gross turnover of Rs 2868.91 lacs in 2004 as against Rs 2679.86 lacs in 2003, an increase of 7.05 per cent. Your Directors have pleasure in presenting the 24th Annual Report together with the Audited Accounts for the year ended 31st December, 2004.

buildings, plant and machineries and stocks were adequately insured against various risks. Expansion Your Directors plan invest Rs 8500 lacs in more than doubling the manufacturing capacity from 16000 MT per annum by setting up an additional pulp and paper line along with a power plant and soda recovery unit. The commissioning of this proposed unit will enable your Company to produce quality speciality and poster paper grades, enhancing profits. The project will be financed by way of term loans (tied up in principle), issue of equity shares and internal cash accruals. Fixed deposits The Company was holding an aggregate sum of Rs 137.74 lacs on account of deposits from the public, employees and shareholders as on 31st December, 2004. The heirs of depositors did not claim their deposits amounting to Rs 0.08 lacs, which had matured during the previous years. Directors Shri G. N. Gupta and Dr. P. Banerjee, Directors, retire by rotation and, being

eligible, offer themselves for reappointment. Shri R. N. Chakraborty had resigned during the year. The Board places on record its appreciation for Shri R. N. Chakraborty for the valuable services rendered during his tenure. Directors' Responsibility Statement Pursuant to Section 217 (2AA) of the Companies Act, 1956, the directors hereby confirm: 1. That in the preparation of annual accounts, the applicable Accounting Standards have been followed; 2. That the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st December, 2004 and of the profit of the Company for the year ended on that date; 3. That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and 51

50

Directors' Report

detecting fraud and other irregularities; 4. That the directors have prepared the annual accounts on a going concern basis. Statement pursuant to listing The equity shares of the Company are listed with Kanpur, Ahmedabad and Mumbai Stock Exchanges and the listing fees have been paid. The equity shares are still listed at Ahmedabad Stock Exchange. However, the Company has applied to the Ahmedabad Stock Exchange for de-listing of equity shares and the confirmation is awaited. 52 The cash flow statement for the accounting year ended on 31st December, 2004 is also being sent with the annual accounts.

Industry Review on page 21. SWOT analysis Strengths: Market leader in the segment of low grammage unbleached kraft paper. Locational advantage in procuring raw materials and fuel (rice husk) at competitive prices. Uses bagasse as main raw material, which is cheaper than wood. Self-sufficiency in power. Amongst the lowest cost producers in the industry. Successful record in implementing expansion and modernization drives. Specialised product focus. Strong dealer network. Flat organisational structure. Weakness:

existing standard and specialised grades. Expansion will lead to tapping new exports markets. Growing environmental concern against use of plastics as packing materials. Due to implementation of mandatory pollution control norms, many of the small and medium enterprises will be forced to shut down. Expanding demand in the packaging/ lamination industry. Threats: The Company produces specialised grades that are need-specific thus have no ready market. Being a cost-sensitive industry, a price war by small players remains a threat. Risks & concerns Has been covered in the Risk review on page 41. Segment-wise or product wise performance The Company is a single product company and hence segment-wise or product wise performance is not given. Internal control systems and their adequacy In the views of the Director, the Company has adequate internal control

systems that commensurate with the structure and operations of the Company. The Company has an Audit Committee that regularly reviews the Internal Audit Report to ascertain their observations on financial reports and control concerns. The Management acts upon the Audit Committee's observations. The Company is also in the midst of developing and implementing ERP system to further strengthen internal controls as well as external by connecting its Dealer Management system through the internet. Discussion on Financial performance Has been covered under financial review on page 30. Discussion on operational performance Has been covered under operational review on page 24. Material developments in human resources/ industrial relations Has been covered under operational review on page 26. Other Information The particulars under Section 217(1) (e) of the Companies Act, 1956 read with Companies (Disclosure of particulars in

the report of Board of Directors) Rules, 1988 are given in Annexure and form part of this report. None of the employees are covered under Section 217 (2A) of the Companies Act, 1956 having gross receipt of Rs 24 lacs per annum or Rs 2 lacs per month. Auditors' observations The observations in the Auditor's Report are based on Note no. B-1 (b) of Schedule-17. The comments of the Board are as below: The Company is confident of favourable disposals of pending appeals, hence no provision is required at this stage. Auditors M/s Kapoor Tandon & Co., Chartered Accountants, Kanpur, retire at this Annual General Meeting and are eligible for re-appointment as Auditors. Personnel The relations with the employees continued to remain cordial.

its 'YASH' brand is recognised for its quality in the low grammage paper segment and the proposed expansion will only strengthen the Company's industry position, leading to better margins and faster growth. There was a significant increase in the Company's profitability during 2004 due to a rationalization in fuel costs and stronger realizations, a trend that is likely to sustain. Acknowledgements Your Directors acknowledge with gratitude the overwhelming cooperation and assistance received from the government, financial institutions, banks, investors and esteemed customers for their continued support to the Company. Your Directors also wish to place on record their appreciation for wholehearted commitment and contribution made by the entire 'Yash' family in attainment of consistent growth. 53

Corporate Governance A separate report on Corporate Governance pursuant to Clause 49 of the Listing Agreement is furnished as a part of the Directors' Report and the certificate from the Company's Auditors regarding compliance with the said code is annexed to the said report. Management's Discussion and Analysis Industry structure and developments This has already been provided under

Still small in terms of operations when compared to bigger mills, and is thus unable to extract maximum economies from scale. Uses agri-based raw materials, thus heavily dependent on good crop season and monsoon. Though proximate to the raw material source, it is far from consuming markets, resulting in increased logistic costs. Opportunities: Potentially large export market for

For and on Behalf

Outlook Yash Papers expects to benefit from the paper industry's annual growth of 6-7 per cent. The Company is well-placed:
Place: New Delhi Date: 22.1.2005

of the Board

K. K. Jhunjhunwala
Executive Vice-Chairman

Ved Krishna
Managing Director

D. TOTAL ENERGY CONSUMPTION AND ENERGY CONSUMPTION PER UNIT OF PRODUCTION AS PER PRESCRIBED FORM A. i. Power and fuel consumption Current Year (a) Electricity (i) Purchased Unit (lakhs) Total Amount (Rs.in lakhs) Rate / Unit (Rs.) (ii) Own generation Through Diesel Generator Unit (lakhs) Unit per litre of Diesel Oil Cost / Unit (Rs.) Through Steam Turbine Unit (lakhs) Unit per MT of fuel (Paddy husk) Cost / Unit (Rs.) INFORMATION PURSUANT TO THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988. 1. CONSERVATION OF ENERGY A. ENERGY CONSERVATION MEASURES TAKEN i. Installation of Capacitors for power factor improvement ii. Installations of fluid couplings. iii. Implementation of the energy audit proposals. iv. Optimization of electric motors at vaccum section. v. Installation of Variable frequency drive for part of boiler operation vi. Installation of few high efficiency pumps vii. Installation of water filtration system for recycling viii. Installation of energy monitoring devices. B. ADDITIONAL INVESTMENT AND PROPOSALS, IF ANY, BEING IMPLEMENTED FOR REDUCTION OF CONSUMPTION OF ENERGY i. Installations of Variable frequency drive for paper machine and balance of boiler operations ii. Further installation of high efficiency pumps C. IMPACT OF THE MEASURES OF THE ABOVE The implementation of the above measures for energy conservation by the Company will result in power & fuel saving and improvement in productivity. (c) Furnace Oil Quantity (Kilo litre) (d) Others (i) Paddy Husk Quantity (MT) Total Cost (Rs.in lakhs) Average Rate (Rs.) (ii) Bagasse/ Pith Quantity (MT) Total Cost (Rs.in lakhs) Average Rate (Rs.) 36081 315.64 875 2539 10.61 418 37713 443.14 1175 5092 16.27 320 Nil Nil Note: *Steam Turbine is extraction cum condensing type hence fuel allocation is on estimated basis. (b) Coal Quantity (MT) Nil Nil 168.06 889* 0.98 174.03 800* 1.47 2.42 3.54 5.35 2.22 3.50 5.30 55 Nil Nil Nil Nil Nil Nil Previous Year

Annexure to
54

Directors Report

ii. Consumption per unit of production of paper UOM Electricity Furnace Oil Coal Paddy Husk Bagasse Pith * Inclusive of consumption for operation of turbine equipments. 56 ** Bagasse pith is used alongwith the paddy husk as fuel for producing steam which is used for paper manufacturing and power generation hence consumptions are estimated. 2. TECHNOLOGY ABSORPTION EFFORTS MADE IN TECHNOLOGY ABSORPTION AS PER PRESCRIBED FORM B A. Specific areas in which R & D carried out by the company R & D centre is doing research in non-wood fibers under guidance of consultants. B. Benefits derived as a result of the above R & D Enhancement in quality and reduction in cost. C. Future plan of action To strengthen and continue improvement in quality through improvement of process control systems to reduce process time & wastage. To develop new grades of paper. D. Expenditure on R & D (Rs. in lacs) Current Year i. Capital 1.91l 0.74 2.65 0.09 ii. Recurring iii. Total iv. Total R & D Expenditure as a percentage of total turnover Previous Year Nil 0.44 0.44 0.02 Units Litre MT MT MT Current Year 1133* Nil Nil 1.25** 2.50** 1.25** 2.50** Previous Year 1171* Nil

E. Technology absorption, adaptation and innovation i. Efforts, in brief, made towards technology absorption, adaptation and innovation :Site training by consultants. ii. Benefits derived as a result of the above efforts e.g. Product improvement, cost reduction, product development, import substitution etc.:Improvement in existing process and product quality, performance, productivity and cost reduction. iii. Imported Technology (Imported during the last five years reckoned from the beginning of the financial year) None 3. FOREIGN EXCHANGE EARNING AND OUTGO A. Activities relating to exports; initiatives taken to increase exports; development of new export markets for products and services; and export plans; The company has continued thrust on exports. B. Total foreign exchange used and earned i. Used (Including Rs.2,00,22,999/- for repayment of FCNRB loan taken from SBI as part of working capital limits and interest thereon) ii. Earned Rs.2,01,77,660/For and on Behalf of the Board K. K. Jhunjhunwala Executive Vice-Chairman Place : New Delhi Date : 22.01.2005 Ved Krishna Managing Director Rs.3,07,11,579/57

Report on

Board Meetings During the period, Five Board meetings were held on 14th February, 2004, 17th April, 2004, 22nd May, 2004, 24th July, Name of Directors

2004 and 28th October, 2004. The Annual General Meeting was held on 22nd May, 2004.

Attendance of each Director, at the Board meetings and at the last Annual General Meeting is furnished hereunder:

Corporate Governance
Company's Philosophy of Code of Governance The Company firmly believes in and continues to practice good Corporate Governance. Accordingly, it follows the business practices which result in 58 enhanced shareholder value and enables it to fulfill its obligations to customers, the government, employees, lenders and to society in general. Board of Directors The Board consists of the Chairman, Executive Vice-Chairman, Managing Director, one Whole-Time Director and four other Non-Executive Directors. Hence, the composition of the Board is in conformity with the Listing Agreement, as not less than fifty percent of the total strength of the Board (i.e. Four) consists of Non-Executive Directors and one-third (i.e. three) of the Board comprises of independent directors (as the Chairman is NonExecutive). All directors except the Executive ViceChairman & Managing Director are liable to retire by rotation as per the provisions of the Companies Act, 1956.

Board Meetings Held Attended 4 5 5 3 5 4 5 4 5

Last Annual General Meeting attended Yes Yes Yes Yes Yes Yes Yes Yes Yes 59

Mr. G. Narayana Mr. K. K. Jhunjhunwala Mr. Ved Krishna Mrs. Manjula Jhunjhunwala Mr. A. K. Gupta Mr. R. N. Chakraborty* Mr. G. N. Gupta Dr. P. Banerjee Mr. D. S. Gandikota * Resigned w.e.f. 28th October, 2004

5 5 5 5 5 5 5 5 5

Composition and Category of Directors are as follows Category Promoter/ Executive Director Name of Directors Mr. K. K. Jhunjhunwala (Executive Vice-Chairman) Mr. Ved Krishna (Managing Director) Promoter/ Non Executive Director Non Promoter, Independent Executive Director Non Promoter, Non Executive, Independent Director Mrs. Manjula Jhunjhunwala Mr. A. K. Gupta (Director Finance) Mr. G. Narayana (Chairman) Mr. G. N. Gupta Dr. P. Banerjee Mr. D. S. Gandikota For information of the members there are no pecuniary relationships or transactions of Non-Executive Directors vis--vis the Company. Mr. K. K. Jhunjhunwala Mr. Ved Krishna Mrs. Manjula Jhunjhunwala Mr. A. K. Gupta Mr. G. N. Gupta Mr. G. Narayana Dr. P. Banerjee Mr. D. S. Gandikota Name of Directors No. of other Directorships and Committee Membership/Chairmanship Other Directorship Nil Nil 1 Nil 6 5 Nil Nil Nil Nil Nil Nil Committee Membership Nil Nil Nil Nil 1 Committee Chairmanship Nil Nil Nil Nil 2 Number of Directorship(s) and Chairmanship(s)/ Committee Membership(s) of each Director in Public Limited Companies other than in Yash Papers Limited:

Audit Committee The Company constituted an Audit Committee on 26th May, 2001. Audit Committee consists of three independent Non-Executive Directors and one Executive Director. The members of the committee are well versed in matters relating to finance, accounts, taxation, company law and general management practices. The Audit Committee was constituted in 60

accordance with the provisions of the Listing Agreement. The terms of reference of the Audit Committee were in accordance with the Listing Agreement with Stock Exchanges, which inter-alia includes: a. Oversight of the Company's financial reporting process and disclosure of its financial information to ensure the financial statement is correct, sufficient and credible.

b. Recommending the appointment of Statutory Auditor, Internal Auditor and fixation of their audit fee. c. Discussion with internal auditors with respect to significant findings, internal control systems and follow up there on. d. Review the Company's financial and risk management policies. e. Ensure the compliances of the Stock Exchanges.

The details of remuneration paid to all the directors during the year ended on December 31, 2004 are as follows: Name of Directors Service Contract/ Notice period Sitting Fees Mr. K. K. Jhunjhunwala Mr. Ved Krishna Mrs. Manjula Jhunjhunwala Mr. Arvind Kumar Gupta Mr. R. N. Chakraborty * Mr. G. N. Gupta Mr. G. Narayana Dr. P. Banerjee Mr. D. S. Gandikota Not to retire by rotation Not to retire by rotation Retire by rotation Whole time retire by rotation Whole time retire by rotation Retire by rotation Retire by rotation Retire by rotation Retire by rotation Total Resigned w.e.f. 28th October, 2004 Shri Ved Krishna and Smt. Manjula Jhunjhunwala are relatives of Shri K. K. Jhunjhunwala. Shareholders/Investors' Grievance Committee The Board of the Company has constituted an Executive Committee, which, amongst others, also looks after share transfers. The Committee, interalia, approves issue of duplicate share certificates and oversees and reviews all matters connected with the securities transfers. The Committee also looks into redressing of shareholders' complaints like transfer of shares, non-receipt of Annual Report, non- receipt of declared dividends etc. The Committee oversees the performance of the Registrar and Transfer Agent and recommends measures for overall improvement in the quality of investor services. Other disclosures relating to shareholder's aspect has been furnished in the Shareholder Information Section of the Annual Report. Nil Nil 14,000 Nil Nil 18,000 8,000 22,000 18,000 80,000 Remuneration Paid (in Rs) Salaries and perquisites 10,61,886 6,31,537 3,22,520 2,94,213 23,10,156 10,61,886 6,31,537 14,000 3,22,520 2,94,213 18,000 8,000 22,000 18,000 23,90,156 61 Total

The Composition of the Audit Committee and attendance of each member Director, at the Audit Committee Meetings held on 13th February, 2004, 17th April, 2004, 24th July, 2004 and 28th October, 2004 during the period is as under: Name of Directors Position Audit Committee Meetings Held Shri G. N. Gupta Shri Ved Krishna Shri D. S. Gandikota Dr. P. Banerjee Remuneration Committee The Company has constituted a Remuneration Committee of the Board to consider the remuneration of the Whole Time Directors, which is a part of non-mandatory requirement of the code. The Remuneration Committee comprises of Independent Directors viz. Shri G. N. Chairman Member Member Member Gupta, Shri D. S. Gandikota and Dr. P. Banerjee. The Remuneration Committee of the Board recommends the remuneration of the Executive Directors. The remuneration package is governed by the industry pattern and as per the provisions of the Companies Act, 1956. 4 4 4 4 Attended 4 4 4 3

The compensation of Non-Executive Directors is approved at Board Meeting. The sitting fee is not paid to the Executive Directors for the Board meetings or committee meetings thereof. The necessary approvals were obtained from shareholders, wherever required.

The Constitution of the Shareholders' Grievance Committee is as follows: Name of Directors Categor No. of meetings Held Dr. P. Banerjee Mrs. Manjula Jhunjhunwala Mr. Arvind Gupta Non Promoter, Non Executive Independent Director (Chairman) Promoter, Non Executive Director Non Promoter, Independent Executive Director 4 4 4 4 4 4 Attended

Disclosures a. The Company does not have related party transactions, which may have potential conflict with the interest of the Company at large. The statutory disclosure requirements Means of Communication Recommendation

relating to related party transactions have been complied with in the Annual Accounts (Schedule 18). b. The Company complied with the requirements of the Stock Exchanges/ SEBI/ Statutory Authorities on all

matters related to the capital market during the last 3 years. There were no penalties or strictures imposed on the Company by the Stock Exchanges or SEBI or any statutory authority relating to the above.

Compliance Published in leading newspapers. Amar Ujala (Kanpur edition), Business Standard/ Economic times (All editions) 63

The total number of complaints received during the year ended December 31, 2004 - 15 The number of complaints that were resolved to the satisfaction of the Shareholders during the year ended December 31, 2004 62 15 As on December 31, 2004, the number of pending share transfer was 9 for 1100 shares which was transferred in January, 2004 and 107 requests of 19400 shares were pending for dematerialization due to postal delay and electronic request missing. General Body Meetings The details of the last 3 General Meetings of the shareholders are as under: Date July 31, 2002 June 16, 2003 May, 22, 2004 Meeting 22nd AGM 23rd AGM 24th AGM Time 1:15 P.M. 1.15 P.M. 1.00 P.M. Location 'ULLHAAS', Rave 3, 6 Parbati Bagla Road, Kanpur-208 002 Hotel, The Landmark, The Mall, Kanpur-208 001 Hotel, The Landmark, The Mall, Kanpur-208 001

Quarterly Results Which newspapers normally published in

Any Website, where displayed

www.sebiedifar.nic.in SEBI's EDIFAR (Electronic Data Information Filing And Retrieval)

Whether it also displays official news releases and presentations made to institutional investors/analysts Whether management discussion and analysis is a part of Annual Report Whether Shareholder information section forms part of the Annual report Yes Yes No

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

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

SHAREHOLDERS' INFORMATION 1. Annual General Meeting Date and Time Venue 2. Financial Calendar (Tentative and subject to change) Wednesday, April 20, 2005 at 11.00 A. M. Hotel The Landmark, 10, The Mall, Kanpur-208001. January, 2005 - Audited results for the last quarter and year ended on December 31, 2004 April, 2005 - Unaudited Financial results for first quarter July, 2005 - Unaudited Financial results for second quarter October, 2005 - Unaudited Financial results for third quarter 3. Book Closure Date 4. Dividend Payment Date 64 5. Listing of Equity Shares on Stock Exchanges at: 09.04.2005 to 20.04.2005 (both days inclusive) Within 30 days from the date of AGM i.e. date of declaration of dividend 1. The Stock Exchange, Mumbai 2. U.P. Stock Exchange Association Ltd., Kanpur

12. Distribution of Shareholding as on December 31, 2004. 13. Shareholding Pattern as on December, 2004 Category A. Promoter's Holding 1. Promoters 2. Persons acting in concert Sub-Tota l B. Non-Promoter's Holding 3. Institutional Investors a. Mutual Funds and UTI b. Banks, Financial Institutions, Insurance Companies (Central/ State Government Institutions/ Non-Government Institutions) c. FIIs Sub-Total

Separately given

Per cent of Share Capital 40.523

No. of shares 1566434

40.523

1566434

0.026 0.538

1000 20800 65

Nil 0.564

Nil 21800

6. Payment of Annual Listing Fees to the Stock Exchanges

Listing Fee has been paid to Both the Stock Exchanges up to March 31, 2004. C. Others 1. Private Corporate Bodies 7.270 51.032 0.610 58.913 100.00 196776 1972628 23588 2277266 3865500 2. Indian Public 3. NRIs/ OCBs Sub-Total GRAND TOTAL 14. Dematerialisation of Shares

7. Stock Code 8. Market Price Data 9. Demat ISIN Numbers of Equity Shares in NSDL & CSDL 10. Registrar and Transfer Agent

BSE Code - 516030 Separately given INE 551D01018 Skyline Financial Services Pvt. Ltd. 123, Vinoba Puri, Lajpat Nagar - II, New Delhi - 110 024 Tel No.: (011) 29833777, 29847136 Fax No.: (011) 29848352, Email: admin@skylinerta.com

The Company has entered into a tripartite agreement with NSDL and CDSL. As per SEBI notification, trading in equity shares of the Company is permitted only in dematerialisation form. As on December 31, 2004, 16,47,796 equity shares have been demated, representing 42.62 per cent of the issued capital.

11. Share Transfer System

The Share transfers in physical form are presently processed and the Share Certificates returned within a period of 15 days from the date of receipt, if the documents being valid and complete in all respects.

Stock Prices (at Stock Exchange, Mumbai) Month January 2004 15. Outstanding GDR/ADR/ Warrants or convertible bonds, conversion date and likely impact on equity 16. Plant Locations NIL Yash Nagar, P.O. Darshan Nagar, Faizabad (UP) 224135 17. Addition to Equity Share Capital during the period ended on December 31, 2004 18. Address for Correspondence NIL Corporate Office YASH PAPERS LIMITED Yash Nagar, P.O. Darshan Nagar Faizabad -224 135 (U.P.) Ph. (05278) 258777, 258589; Fax. (05278) 258062 66 19. Website E-mail : info@yash-papers.com Auditors Certificate on Corporate Governance www.yash-papers.com To the members of Yash papers Limited We have examined the compliance of conditions of Corporate Governance by Yash Papers Limited for the year ended 31st December 2004 as stipulated in Clause 49 of the Listing Agreement of the said Company with stock exchange(s). The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the company has complied with the conditions of Corporate Governance as stipulated in the above-mentioned Listing Agreement. We state that no investor grievances pending for a period of one months against the Company as per the records maintained by the Company and presented to the Shareholder's/Investor Grievance Committee. We further state that such compliance is neither an assurance as to the future viability of the Company nor of the efficiency or effectiveness with which the management has conducted the affairs of the Company. Note: The Company has got its shares delisted voluntarily from the Stock Exchange, Ahmedabad w.e.f. 28.01.2005. Distribution of Shareholding as on December 31, 2004 No. of equity share held Number Upto 250 251 - 500 501 - 1000 1001 - 2000 2001 - 3000 3001 - 4000 4001 - 5000 5001 - 10000 10001 and above TOTAL 8587 916 295 116 31 4 21 20 39 10024 Shareholders Per cent to total 85.664 9.138 2.943 1.107 0.309 0.046 0.209 0.200 0.389 100.000 Equity share held Number 973819 372831 249278 161611 76855 15322 102144 148684 1764956 3865500 Per cent to total 25.193 9.645 6.449 4.181 1.988 0.396 2.642 3.846 45.659 100.00 67 February 2004 March 2004 April 2004 May 2004 June 2004 July 2004 August 2004 September 2004 October 2004 November 2004 December 2004 High (Rs.) 15.80 13.50 12.98 12.70 14.84 11.50 12.73 14.44 14.55 14.45 23.50 25.25 Low (Rs.) 11.77 11.01 10.25 10.53 10.61 9.53 8.55 12.02 12.20 11.25 13.75 19.20

For Kapoor Tandon & Co., Chartered Accountants

Camp: Date:

Rajesh Parasramka Partner Membership No. 74192

68

Auditors' Report

To The Members of Yash Papers Limited We have audited the attached Balance Sheet of Yash Papers Limited as at 31st December, 2004 and also the annexed Profit and Loss Account and the Cash Flow Statement for the year ended on that date. These financial statements are the responsibility of the management of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. 1. We conducted our audit in accordance with auditing standards generally accepted in India. These Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts

and disclosures in the financial statements. An audit also includes, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. 2. As required by the Companies (Auditors' Report) Order, 2003 issued by the Central Government of India in terms of Section 227(4A) of the Companies Act, 1956 (the Act), we annex hereto a statement on the matters specified in paragraphs 4 and 5 of the said Order. 3. Further to our comments in the annexure referred to in paragraph 2 above, we report that : a. We have obtained all the information and explanations which, to the best

of our knowledge and belief, were necessary for the purposes of our audit; b. In our opinion, proper books of accounts as required by law have been kept by the Company so far as appears from our examination of these books; c. The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; d. In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the applicable Accounting Standards referred to in Section 211 (3C) of the Act; e. As per the representation made by the Company and all its directors, none of the director is disqualified as on 31st December, 2004 from being appointed as director under Section 274 (1)(g) of the Act. f. We draw reference to: Note no. B-1 (b) of Schedule-17 regarding pending litigation in respect of Trade Tax and Excise Duty and non provision of demands in respect thereof.

g. In our opinion and to the best of our information and according to the explanations given to us, the said accounts, read together with the Notes thereon, give the information required by the Act, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:i. in the case of the Balance Sheet, of the state of affairs of the Company as at 31st December, 2004 ; ii. in the case of the Profit and Loss Account, of the Profit of the Company for the year ended on that date ; and iii. in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

69

For Kapoor Tandon & Co., Chartered Accountants Camp : New Delhi Date : January 22, 2005 Rajesh Parasramka Partner Membership No. 74192

Annexure to

Auditors Report
1 (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of its fixed 70 assets. (b).There is regular programme of physical verification, which in our opinion is reasonable, having regard to the size of the Company and the nature of fixed assets. No material discrepancies have been noticed in respect of the assets physically verified during the year. (c). The Company has not disposed off substantial part of fixed assets during the year. 2 (a) The inventories of the Company have been physically verified by the management during the year. In our opinion, the frequency of verification is reasonable. 3 (b).In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business. (c) The Company is maintaining proper records of inventories. The discrepancies noticed on verification between physical inventories and book records were not material in relation to the operations of the Company. (a) The Company has not granted any loan, secured or unsecured, to companies, firms or other parties listed in the register maintained under Section 301 of the Act. Hence sub clauses (b) to (d) of clause (iii) are not applicable. (b) The Company has taken interest free unsecured loan from director(s), except this the Company has not taken any loans, secured or unsecured, from companies, firms or other parties listed in the register maintained under Section 301 of the Act. The maximum amount involved during the year was Rs. 23 Lacs and the year-end balance of loan taken from director(s) was Rs. 12 Lacs. (c) In our opinion, the terms and conditions on which loans have been taken from director(s) are, prima facie, not prejudicial to the interest of the Company. (d) The Company is regular in repaying the principal amount. 5 4 In our opinion and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the Company and nature of its business for the purchase of inventory, fixed assets and for the sale of goods and services. Further, on the basis of our examination and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weaknesses in the aforesaid internal control system. (a) In our opinion and according to the information and explanations given to us, particulars of contracts or arrangements referred in Section 301 of the Act have been entered in the register required to be maintained under 7 6 that section. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time. In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of Section 58A and 58AA of the Act and the rules framed there under for the deposits accepted from the public. In our opinion and according to the information and explanations given to us, the Company has an internal audit system commensurate with the 9 8 size of the Company and nature of its business. We have broadly reviewed the books of account and records maintained by the Company pursuant to the Rules framed by the Central Government for the maintenance of cost records under Section 209(1)(d) of the Act and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the said accounts and records with a view to determine whether they are accurate or complete. (a) According to the information and explanations given to us and books and records produced and examined by us, in our opinion, the Company is generally regular 71

the financial year and it has not incurred any cash losses in the current financial year and in the in depositing undisputed Statutory dues including Provident Fund, Investors 72 Education and Protection Fund, Income Tax, Sales/Trade Tax, Wealth Tax, Custom Duty, Excise Duty, Cess, Service Tax and other material Statutory dues as applicable with the appropriate authorities and no undisputed statutory dues in respect of Income Tax, Wealth Tax, Custom Duty and Excise Duty were outstanding at the end of the year for a period of more than six months from the date they become payable. (b) According to the information and explanations given to us, there are no dues of Sales Tax, Income Tax, Custom Duty, Wealth Tax, Excise Duty, Cess and Service Tax which have not been deposited on account of any dispute given below. 10 The Company does not have accumulated losses as at the end of immediately preceding financial year. 11 Based on our audit procedure and according to the information and explanations given to us by the management, we are of the opinion that the Company has not defaulted during the year in repayment of dues to any financial institutions or banks. 12 According to the information and explanations given to us, the Name of the Statute Central Excise Act, 1944 Sales Tax Laws Nature of the dues Penalty (i) Purchase Tax on Paddy Husk (ii) Exemption for New Unit 60.05 Amount (Rs. in Lacs) 0.17 14.61 Year(s) to which the relates 1995-96 1989-90 to 1995-96 1982-83 to 1988-89 High Court, Allahabad CEGAT, New Delhi 13 In our opinion and according to the High Court, Allahabad information and explanations given to us, the nature of activities of the Company does not attract any special statute applicable to chit fund and nidhi / mutual benefit fund / Forum where pending Company has not granted any loans and/or advances on the basis of security by way of pledge of shares, debentures and other securities.

societies. 14 In our opinion and according to the information and explanations given to us, the Company is not a dealer or trader in securities. 15 According to the information and explanations given to us, the Company has not given any guarantees for loans taken by others from banks or financial institution. 16 During the year, the Company has not raised any new Term Loan. 17 Based on the information and explanations given to us and on an overall examination of the Balance Sheet of the Company, in our opinion, there are no funds raised on a short term basis which have been used for long term investment. 18 The Company has not made any preferential allotment of shares during the year to parties and

companies covered in the register maintained under Section 301 of the Act. 19 The Company has not issued any debentures during the year. 20 The Company has not raised any money by public issue during the year. 21 Based on the audit procedures performed and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year. 73

For Kapoor Tandon & Co., Chartered Accountants (Rajesh Parasramka) Partner Membership No. 74192 Camp : New Delhi Date : January 22, 2005

YASH PAPERS LIMITED

YASH PAPERS LIMITED Amount in Rupees 2003

Balance Sheet
As at 31st December Schedule I. SOURCES OF FUNDS 1. Shareholders' Funds a. Capital b. Reserves and Surplus 2. Loan Funds a. Secured Loans b. Unsecured Loans 3. Deferred Tax Liability (See note no.B-8 of Schedule 17) Total II. APPLICATION OF FUNDS 1. Fixed Assets a. Gross Block b. Less: Depreciation c. Net Block d. Capital Work in Progress 2. Investments 3. Current Assets,Loans and Advances a. Inventories b. Sundry Debtors c. Cash and Bank Balances d. Loans and Advances Total 'A' Less: Current Liabilities and Provisions a. Liabilities b. Provisions Total 'B' Net Current Assets (A-B) Total Significant Accounting Policies and Notes on Accounts The Schedules referred to above form an integral part of the Balance Sheet. As per our report of even date attached. For Kapoor Tandon & Co. Chartered Accountants K. K. Jhunjhunwala Rajesh Parasramka Executive Vice Chairman Partner Membership No. 74192 D. S. Gandikota Camp: New Delhi Director January 22, 2005 2004

Profit and Loss Account

For the year ended 31st December Schedule 1. INCOME a. Gross Sales Less: Excise Duty on Sales b. Other Income c. Increase/(Decrease) in Stocks Total 'A' EXPENDITURE a. Raw Material Consumed b. Manufacturing, Administrative, Selling and Distribution Expenses c. Depreciation on Fixed Assets Total 'B' PROFIT BEFORE TAX (A-B) Provision for Taxation - Current Tax - Deferred Tax PROFIT AFTER TAX Income Tax relating to earlier year Credit/(Debit) Balance of Profit Balance brought forward from Previous Year PROFIT AVAILABLE FOR APPROPRIATION Appropriations Transfer to General Reserve Proposed dividend Tax on proposed dividend Balance Carried to Balance Sheet Earning per Share Net Profit Weighted average no. of equity shares Basic and Diluted Earning per share (Nominal value of Rs.10 per share) Significant Accounting Policies and Notes on Accounts 13 14 2004 286,891,389 28,460,343 258,431,046 3,091,965 3,258,905 264,781,916 70,579,524 153,300,393 14,284,390 238,164,307 26,617,609 9,575,000 1,180,533 15,862,076 (11,775) 15,850,301 20,548,625 36,398,926 5,000,000 4,831,875 631,466 25,935,585 15,862,076 3,865,500 4.10 17

Amount in Rupees 2003

1 2 3 4

38,655,000 102,898,085 45,777,465 14,966,300

141,553,085

38,655,000 92,511,125 47,790,753 17,764,148 44,138,531 240,859,557

60,743,765 45,319,064 247,615,914

267,985,682 28,947,252 239,038,430 4,093,758 445,502 243,577,690 61,484,295 155,932,680 14,163,708 231,580,683 11,997,007 3,955,000 (707,440) 8,749,447 (474,464) 8,274,983 19,122,330 27,397,313 2,500,000 3,865,500 483,188 20,548,625 8,749,447 3,865,500 2.26

2.

5 305,273,309 121,546,736 183,726,573 6,959,552 6 7 8 9 10 50,475,201 21,027,232 3,619,546 5,397,728 80,519,707 14,096,902 9,498,951 23,595,853 56,923,854 247,615,914 17 294,644,485 108,916,961 185,727,524 4,093,723 189,821,247 25,935 44,963,005 22,550,376 3,612,700 4,697,888 75,823,969 16,923,143 7,888,451 24,811,594 51,012,375 240,859,557

15 16

3.

190,686,125 5,935

74

4.

75

5.

11 12

For and on behalf of the Board Ved Krishna Managing Director G . N. Gupta Director

A. K. Gupta Director Finance

Deepak Nathani Company Secretary

The Schedules referred to above form an integral part of the Profit and Loss Account. As per our report of even date attached. For Kapoor Tandon & Co. Chartered Accountants K. K. Jhunjhunwala Rajesh Parasramka Executive Vice Chairman Partner Membership No. 74192 D. S. Gandikota Camp: New Delhi Director January 22, 2005

For and on behalf of the Board Ved Krishna Managing Director G . N. Gupta Director

A. K. Gupta Director Finance

Deepak Nathani Company Secretary

YASH PAPERS LIMITED

YASH PAPERS LIMITED

Schedules forming part of Annual Accounts

As at 31st December 2004

Amount in Rupees 2003

Schedules forming part of Annual Accounts

Schedule-3 SECURED LOANS (Contd.)
Amount in Rupees Note: 1. Term Loans repayable during next 12 months are Rs.60 lacs (Rs.94.50 lacs) 2. Working Capital Loan from SBI include FCNR(B) Demand Loan of USD 4,00,000 (USD 4,00,000) Details of Security given Against Loans A. To Banks For Working Capital Loans Secured against hypothecation of book debts, stocks of raw materials, finished goods, stock in process, consumable stores & spares and other current assets and Second Charge over entire fixed assets (Present & Future) in consortium ranked pari-passu and personal guarantee of two Directors. B. To Financial Institutions Secured against equitable mortgage of fixed assets and hypothecation of all moveable assets and personal guarantee of two Directors. As at 31st December 2004 2003

Schedule-1 SHARE CAPITAL

Authorised 2,60,00,000 (40,00,000) Equity Shares of Rs.10/- each 4,00,000 (3,00,000) Preference Shares of Rs.100/- each Total Issued, Subscribed and Paid up 38,65,500 Equity Share of Rs.10/- each fully paid up Of the above : 568,000 Equity Shares have been alloted as fully paid up Bonus Shares by capitalisation of reserves Total 260,000,000 40,000,000 300,000,000 38,655,000 40,000,000 30,000,000 70,000,000 38,655,000

38,655,000

38,655,000

Schedule-2 RESERVES AND SURPLUS

A. Capital Reserve Balance as per last Account B. Securities Premium Balance as per last Account C. General Reserve Balance as per last Account Add: Transferred from Profit and Loss Account D. Profit and Loss Account As per Account annexed Total 6,087,500 25,875,000 40,000,000 5,000,000 37,500,000 2,500,000 6,087,500 25,875,000

Schedule-4 Unsecured Loans

A. Fixed Deposits [Repayable within one year Rs.29,27,342/- (Rs.40,22,848/-)] B. Other Loans From a Company From Director(s) Total 13,766,300 11,564,148

76

1,200,000 14,966,300

5,000,000 1,200,000 17,764,148

77

45,000,000 25,935,585 102,898,085

40,000,000 20,548,625 92,511,125

Schedule-5 Fixed Assets

Sl. No. Description of Assets As at 31.12.2003 GROSS BLOCK Additions Sales/ discarded As at 31.12.2004 Upto 31.12.2003 DEPRECIATION For the Deduction/ year Adjustment As at 31.12.2004 NET BLOCK As at As at 31.12.2004 31.12.2003

Schedule-3 SECURED LOANS

A. From Banks I. Working Capital Loans (a) State Bank of India (b) Canara Bank II. Term Loans Canara Bank B. From Financial Institutions Term Loans Industrial Development Bank Of India (IDBI Ltd.) (a) Equipment Finance Scheme Loans (b) Term Loan Total
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

24,208,874 3,568,591

20,135,206 205,547 1,250,000

18,000,000 45,777,465

2,200,000 24,000,000 47,790,753

Tangible Land Free Hold 3,912,261 697,248 4,609,509 Land Lease Hold 496 496 Building Factory 27,633,465 1,556,664 29,190,129 9,161,561 977,583 Building Non Factory 11,001,984 11,001,984 1,215,605 178,803 Plant and Machinery 216,811,282 10,132,708 3,253,959 223,690,031 82,405,777 10,974,430 Electric Installation and Fittings 20,594,981 868,365 128,604 21,334,742 8,612,634 951,453 Furniture & Fittings 2,370,056 64,543 53,854 2,380,745 1,357,374 130,800 Office Equipment 4,651,726 424,259 616,728 4,459,257 2,780,365 432,567 Vehicles 7,668,234 596,101 57,919 8,206,416 3,383,645 632,179 Intangible Computer Software 400,000 400,000 6,575 Total 294,644,485 14,739,888 4,111,064 305,273,309 108,916,961 14,284,390 Previous Year 287,674,866 18,960,710 11,991,091 294,644,485 98,618,214 14,163,708 Capital Work in Progrees (Including Rs. 30.75 lacs (Rs. 30.75 lacs) towards advances for capital expenditure).

896,592 86,695 48,941 580,794 41,593 1,654,615 3,864,961

10,139,144 1,394,408 92,483,615 9,477,392 1,439,233 2,632,138 3,974,231 6,575 121,546,736 108,916,961

4,609,509 3,912,261 496 496 19,050,985 18,471,904 9,607,576 9,786,379 131,206,416 134,405,505 11,857,350 11,982,347 941,512 1,012,682 1,827,119 1,871,361 4,232,185 4,284,589 393,425 183,726,573 185,727,524 185,727,524 6,959,552 4,093,723

YASH PAPERS LIMITED

YASH PAPERS LIMITED

Schedules forming part of Annual Accounts

Amount in Rupees As at 31st December 2004 2003

Schedules forming part of Annual Accounts

Amount in Rupees As at 31st December 2004 2003

Schedule-6 INVESTMENTS (Non Trade)

LONG TERM INVESTMENTS Quoted Pudumjee Pulp & Paper Mills Ltd. 100 Equity Shares of Rs.10/- each fully paid up Rana Mohindra Papers Ltd. 100 Equity Shares of Rs.10/- each fully paid up Mukerian Papers Ltd. 100 Equity Shares of Rs.10/- each fully paid up Rama Newsprint & Papers Ltd. 100 Equity Shares of Rs.10/- each fully paid up Total 'A' Unquoted Fortune Constructions Pvt. Ltd. Nil (200) Equity Shares of Rs.100/- each fully paid up Total 'B' Total 'A+B' Total cost of quoted investments Total cost of unquoted investments Aggregate Market value of quoted investments Details of Investment written off during the year Fortune Constructions Pvt. Ltd. 200 Equity Shares of Rs.100/- each fully paid up

Schedule-8 SUNDRY DEBTORS (Unsecured - considered good)

Over six months Other debts Total 4,400 380 600 555 5,935 4,400 380 600 555 5,935 881,693 20,145,539 21,027,232 1,347,963 21,202,413 22,550,376

Schedule-9 CASH AND BANK BALANCES

A. Cash Balances i. Cash in hand ii. Stamps/Cheque in hand B. Balance With Scheduled Bank on i. Current Accounts ii. Fixed Deposit Accounts iii. Unpaid Dividend Accounts [Including amount kept in Fixed Deposit account Rs.1,51,274/- (Rs.1,50,000/-)] Total 1,051,119 260,361 35,221 1,741,084 531,761 1,311,480 306,730 1,120,716 27,474 1,667,057 490,723 1,427,446

78

2,308,066 3,619,546

2,185,254 3,612,700 79

5,935 5,935 8,674

20,000 20,000 25,935 5,935 5,111

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

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

20,000

Schedule-11 LIABILITIES
A. Sundry Creditors [Include amounts payable to capital goods supplier Rs. 6,84,952/- (Rs.15,38,651/-)] B. Advance from Customers C. Other Liabilities D. Interest accrued but not due E. Investor Education and Protection Fund (No amount is due for transfer) i. Unclaimed Dividend ii. Unclaimed matured Deposits iii. Interest accrued on unclaimed matured Deposits Total 5,751,919 1,069,639 5,226,868 1,502,690 533,342 8,000 4,444 14,096,902 6,377,493 1,855,196 6,413,244 1,771,753 493,013 8,000 4,444 16,923,143

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

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

YASH PAPERS LIMITED

YASH PAPERS LIMITED

Schedules forming part of Annual Accounts

As at 31st December 2004 Amount in Rupees 2003

Schedules forming part of Annual Accounts

For the year ended 31st December 2004 Amount in Rupees 2003 2,445,610 4,831,875 631,466 1,590,000 9,498,951 1,989,293 3,865,500 483,188 1,550,470 7,888,451

Schedule-12 PROVISIONS
For Income Tax less Advance Income Tax For Proposed Dividend For Tax on Proposed Dividend For Excise Duty Total

Schedule-16 MANUFACTURING, ADMINISTRATIVE, SELLING AND DISTRIBUTION EXPENSES

Salary, Wages and Bonus Contribution to Provident and Other Funds Workmen and Staff Welfare Manufacturing Expenses Power and Fuel Consumption of Stores and Spares Rent Printing and Stationery Rates and Taxes Postage, Telegram and Telephone Repairs to : Machinery Building Others Insurance Excise Duty provided on stocks - increase/(decrease) Legal and Professional Charges Payment to Statutory Auditors : Audit Fee Consultancy on Taxation matters Other Professional Services Reimbursement of Expenses Cost Audit Fee Bank Charges Interest on: Term Loan and Fixed Deposits Others Directors' Remuneration Travelling and Conveyance Subscription and Donation Commission on Sale Rebate and Discount on Sale Packing and Forwarding Advertisement Exchange Fluctuation Miscellaneous Expenses Loss on Fixed Assets sold/discarded Loss on Investment sold/written off ETP Operation Expenses Wealth Tax Share Issue Expenses written off Total 16,052,666 1,488,234 1,238,512 44,195,895 35,398,786 8,932,334 339,335 590,416 849,826 963,932 4,278,370 682,954 1,196,575 2,531,292 556,114 1,005,340 15,418,501 1,594,907 1,027,516 42,532,942 48,872,483 6,093,555 318,313 547,533 182,750 1,096,824

Schedule-13 OTHER INCOME

A. Miscellaneous Income B. Interest on Fixed Deposit & Others [Including TDS Rs. 1,31,275/- (Rs. 1,17,098/-)] C. Profit on Fixed Assets sold/discarded D. Self Consumed E. Export Incentive (DEPB) F. Exchange fluctuation G. Rent H. Dividend on investment (Non trade) I. Bad debts recovered Total 1,746,549 759,076 45,592 23,838 504,810 100 12,000 3,091,965 1,698,007 1,347,143 180,177 25,795 474,356 197,180 34,000 100 137,000 4,093,758

80

6,157,899 1,130,967 39,530 483,989

4,092,746 1,067,904 (378,279) 386,576

81

Schedule-14 INCREASE/(DECREASE) IN STOCKS

A. Stock at Commencement i. Finished Goods ii. Work In Process Total 'A' B. Stock at Close i. Finished Goods ii. Work In Process Total 'B' Increase/(Decrease) 'B-A' 11,158,038 431,475 11,589,513 14,392,888 455,530 14,848,418 3,258,905 10,794,706 349,305 11,144,011 11,158,038 431,475 11,589,513 445,502

59,400 38,000 24,504 170,633

292,537 21,600 578,934

59,400 28,630 54,573 87,440

230,043 18,900 731,404

5,780,337 1,528,539

Schedule-15 RAW MATERIAL CONSUMED

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

7,308,876 2,170,714 2,797,100 205,500 3,161,989 1,452,697 14,189,772 462,207 458,927 1,167,454 346,500 20,000 790,964 12,301 153,300,393

7,467,846 1,321,755

8,789,601 1,902,791 2,746,620 249,094 2,337,697 773,912 10,625,581 385,146 1,156,383 2,590,957 376,464 45,796 118,020 155,932,680

YASH PAPERS LIMITED

YASH PAPERS LIMITED

Schedules forming part of Annual Accounts

Schedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS
A. SIGNIFICANT ACCOUNTING POLICIES 1. System of Accounting The accounts are prepared on accrual basis under the historical cost convention and to comply in all material aspects with applicable accounting principles in India, the Accounting Standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956. 2. Fixed Assets Fixed Assets are stated at cost of acquisition/construction, as the case may be, including borrowing costs upto the date of commissioning of related assets and all direct and indirect expenses related thereto. (Also refer Para A-8 & A-12 on borrowing costs and CENVAT) 3. Depreciation / Amortisation i. Depreciation on fixed assets is provided on Straight Line Method at the rates specified in Schedule XIV to the Companies Act, 1956. Fixed assets costing below Rs.5,000/- are fully depreciated in the year of addition. Depreciation is provided on pro-rata basis with reference to the date of addition/deletion in respect of addition to/deletion from fixed assets. ii. Leasehold Land is not amortised. iii. Computer Software being intangible asset is amortised over a period of 5 years on Straight Line Method. 82 4. Capital work in Progress Capital work in progress comprises cost of fixed assets not yet commissioned, incidental pre-operative expenses, borrowing costs and advances for capital expenditure. 5. Investments Investments are stated at cost. A provision for diminution is made if in the opinion of the management, the diminution is other than temporary. 6. Inventories i. Raw materials and paddy husk are valued at cost (weighted average). ii. Work in process is valued at estimated cost. iii. Finished goods are valued at lower of cost or net realisable value and for this purpose, cost is determined on direct cost basis. iv. Stores (excepting paddy husk), spares and loose tools are valued at cost (FIFO basis). v. Scraps are valued at estimated realisable value. vi. Import entitlements/licence (DEPB) at estimated realisable value. 7. Foreign Currency Transactions Outstanding foreign currency assets and liabilities, other than those covered by Forward Exchange Contract, are translated at the exchange rate prevailing as on Balance Sheet date. Foreign Exchange asset / liability covered by Forward Exchange Contract are translated at the rate prevailing at the date of transaction as increased or decreased by the proportionate difference between the forward rate and exchange rate on the date of transaction, such difference having been recognised over the life of contract. Gains or loss on these assets and liabilities relating to the acquisition of fixed assets are adjusted to the cost of such fixed assets and those relating to other accounts are recognised in the Profit and Loss Account. 8. Borrowing Costs Borrowing costs that are attributable to the acquisition/construction of qualifying assets are capitalised as part of cost of such assets. A qualifying asset is an asset that

Schedules forming part of Annual Accounts

Schedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)
requires a substantial period of time to get ready for its intended use. All other borrowing costs are recognised as an expense in the year in which they are incurred. 9. Taxes on Income Provision for tax on income for the year (i.e. Current Tax) is made after considering the various deductions/relief admissible under the Income Tax Act, 1961. Provision for tax effect of timing difference (i.e. Deferred Tax) is made in accordance with the provisions of the Accounting Standard 22, Accounting for Taxes on Income (AS-22) issued by the Institute of Chartered Accountants of India. 10. Sales Sales are recognised on despatch of goods to customers. Sales includes Excise Duty and does not include Sales Tax. 11. Retirement Benefits Contributions are made to approved gratuity, superannuation and provident fund. In respect of gratuity, the company has adopted a cash accumulation scheme with the Life Insurance Corporation of India. The company has made premium contributions towards the gratuity scheme as called for by LIC. 12. CENVAT credit availed in respect of capital goods is adjusted from cost of assets and in respect of other items is adjusted from related expenses 13. Prior period items, if material, are shown separately. B. NOTES 1. Contingent Liability not provided for: a. Estimated amount of capital commitments (Net of advances) b. Claims against the Company not acknowledged as debts : i. Excise duty Rs. 0.17 lacs (Rs. 0.17 lacs) Rs.182.67 lacs (Rs.183.46 lacs) 83

ii. Trade Tax, Appeals pending with Hon'ble High Court, Allahabad iii. Others c. Guarantee given by Banks

Rs. 74.66 lacs (Rs. 74.66 lacs) Rs. 12.50 lacs (Rs. 12.50 lacs) Rs. 21.77 lacs (Rs. 21.77 lacs)

2. Additional informations as required under paragraphs 3, 4C and 4D of Part II of Schedule VI to the Companies Act, 1956 are as under:a. Details for each class of goods manufactured, sold and stocks during the year (as certified by the management) i. Capacity Product Kraft, Writing Printing and other uncoated paper Unit MT MT Licensed Capacity 27500 (27500) Installed Capacity 16000 (16000)

YASH PAPERS LIMITED

YASH PAPERS LIMITED

Schedules forming part of Annual Accounts

Schedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)
i. Production, sales and stocks of finished goods: Class of Goods Unit Opening Stock Quantity Value (Rs.) 707.0002 (791.8914) 1,11,58,038 (1,07,94,706) Production Quantity 14,761.9310 (14,795.2276)

Schedules forming part of Annual Accounts

Schedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)
c. Value of material consumed Imported value Rs. i. Raw Material 1,16,12,703 (1,27,49,587) ii. Stores & Spares* 2,96,111 (Nil) Value (Rs.) 28,68,91,389 (26,79,85,682) * Include interalia Wire, Felt and Chemicals grouped under manufacturing expenses. d. CIF Value of Imports i. Capital Goods Rs. Rs. 5,40,000/99,21,927/Nil (Rs. 7,41,754/-) 85 % 16.45 (20.74) 0.56 (Nil) Rs. 5,89,66,821 (4,87,34,708) 5,28,32,118 (4,86,26,497) Indigenous value % 83.55 (79.26) 99.44 (100.00)

Kraft paper

MT

Quantity 3.1921 (2.2559)

Self Consumed Value(Rs.) 23,838 (25,795)

Quantity 917.5228 (707.0002)

Closing Stock Value (Rs.) 1,43,92,888 (1,11,58,038)

Sales Quantity 14,548.2163 (14,877.8629)

84

b. Raw material consumed Quantity MT Bagasse Wheat Straw Old Gunny/Jute Good Corrugated Cartons Imported Waste Paper/Pulp 13,169.724 (26,079.400) 9,225.083 (Nil) 4,558.200 (4,207.000) 1,308.733 (434.220) 1,008.400 (1,158.000) Value Rs. 2,13,54,284 (3,17,41,802) 1,40,63,817 (Nil) 1,58,61,286 (1,47,03,288) 76,87,434 (22,89,618) 1,16,12,703 (1,27,49,587) 7,05,79,524 (6,14,84,295)

ii. Raw Materials and consumables e. Remittance in Foreign Currency on account of Dividend f. Earnings in Foreign Exchange FOB Value of Exports g. Expenditure in Foreign Currency i. Travelling

(Rs. 92,57,876/-) (Nil)

Rs. 2,01,77,660/-

(Rs. 1,09,47,519/-)

Rs. Rs. Rs.

1,71,964/9,91,499/54,688/-

(Rs. (Rs. (Rs.

72,823/-) 5,99,522/-) 35,799/-)

ii. Interest on Working Capital Loans iii. Others

3. In the opinion of the Board and to the best of their knowledge and belief the value on realisation of the current assets, loans and advances, if realised, in the ordinary course of business would not be less than the amount at which they are stated in the Balance Sheet. The provisions for all known liabilities are adequate and not in excess of amount considered reasonably necessary. 4. Fixed deposit receipts for Rs.30,000/- (Rs.30,000/-) are pledged with the Assistant Commissioner, Trade Tax (Assessment), Faizabad as security, Rs.25,629/(Rs.25,000/-) with Canara Bank, Overseas branch, Kanpur as margin money against foreign letter of credit and fixed deposit receipts for Rs.7,55,000/- (Rs. 7,55,000/-) are pledged with the banks against the Guarantees given to the following parties:-

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

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YASH PAPERS LIMITED

Schedules forming part of Annual Accounts

Schedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)
FDR Amount Rs. a. Hon'ble High Court, Allahabad Lucknow Bench, Lucknow b. Commissioner, Customs, Mumbai/Raigarh 5. Directors Remuneration: a. Salary b. Contribution to Provident Fund c. Sitting fee d. Value of perquisites Total 2,80,000 (2,80,000) 4,75,000 (4,75,000) Value of Guarantee Rs. 2,77,414 (2,77,414) 19,00,000 (19,00,000)

Schedules forming part of Annual Accounts

Schedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)
12. Related parties disclosures as required under Accounting Standard AS-18 Related Parties Disclosure issued by the Institute of Chartered Accountants of India are given as below: a. List of related parties with whom transactions have taken place during the year: i. Key management personnel (Directors) Mr. G. Narayana, Mr. K. K. Jhunjhunwala, Mrs. Manjula Jhunjhunwala, Mr. Ved Krishna, Mr. G. N. Gupta, Dr. P. Banerjee, Mr. R. N. Chakraborty (Resigned w.e.f. 28.10.2004), Mr. A. K. Gupta and Mr. D. S. Gandikota

86

Rs. 20,55,169/Rs. 35,545/Rs. 80,000/Rs. 21,70,714/Rs. 2,54,987/Rs. 24,25,701/-

(Rs. 17,86,553/-) (Rs. 36,238/-) (Rs. 80,000/-) (Rs. 19,02,791/-) (Rs. 2,54,444/-) (Rs. 21,57,235/-)

ii. Relatives of Key management personne Mr. Yash Krishna, Mrs. Shailja Krishna, Mr. Indroneel Banerjee, Mr. D. B. Banerjee, Mrs. Chhaya Banerjee, Mrs. Rupa Chakraborty, Ms. Charu Chakraborty, Ms. Manoshi Chakraborty, Mrs. Manju Gupta, Master Mayank Gupta, Ms. Deepali Gupta and Mr. Rajiv Kumar Gupta iii. Entities & Associates Megha Agro Products Limited, M/s Namrata Mill Board Industries, M/s Jingle Bell Nursery School Society and M/s K. K. Jhunjhunwala (HUF) b. Transactions with related parties i. Key management personnel and their relatives Rent paid Fixed deposits received Fixed deposits repaid Interest paid on fixed deposits Fixed deposits at the Balance Sheet date Accrued interest at the Balance Sheet date Legal and Professional charges Dividend paid Other advances at the Balance Sheet date Unsecured loan at the Balance Sheet date Sale of goods and assets Rs. 48,000/Rs. 9,06,123/Rs. 17,39,978/Rs. 2,39,888/Rs. 18,17,593/Rs. 2,38,022/RS. 40,000/Rs. 5,14,538/Nil Rs. 12,00,000 /Rs. 3,385/(Rs. 48,000/-) (Rs. 12,91,362/-) (Rs. 79,712/-) (Rs. 2,20,615/-) (Rs. 26,86,448/-) (Rs. 3,13,927/-) (Nil) (Rs. 4,92,460/-) (Rs. 53,909/-) (Rs. 12,00,000/-) (Rs. 3,83,040/-) 87

Contributions made to LIC Group Gratuity Cash Accumulation Scheme has not been considered since the amount is not ascertained individually. 6. Income tax assessment has been completed upto the assessment year 2002-03. 7. Fixed deposits includes Rs.12,93,123/- (Rs. 24,18,978/-) from directors. 8. The Deferred Tax Liability comprises of tax effect of timing differences on account of: As at 31st December Deferred Tax Assets Items covered u/s 43 B Deferred Tax Liabilities Excess of net block over written Down Value as per the provisions of the Income Tax Act, 1961 Net Deferred Tax Liabilities Net increase in liability debited to Profit and Loss Account 2004 Amount in Rupees 2003

57,484 4,53,76,548 4,53,19,064 11,80,533

Nil 4,41,38,531 4,41,38,531

9. Interest on term loan includes Rs. 1,87,231/- (Rs. 1,84,963/-) paid to Directors on fixed deposits. 10. The advances recoverable in cash or in kind includes, the amount due from directors Nil (Rs. 53,909/-) and from a firm in which a director is interested as a partner Nil (Rs.1,04,726/-) The maximum amount outstanding at any time during the year from such directors Nil (Rs.4,08,395/-) and from such firm Nil (Rs.2,39,108/-). 11. As the companys business activity falls within a single segment viz. Paper, the disclosure requirements of Accounting Standard 17 Segment Reporting issued by the Institute of Chartered Accountants of India is not applicable.

ii. With related entities & associates Megha Agro Products Limited Paid for vehicle hire charges Dividend paid Amount payable at the Balance Sheet date M/s Namrata Mill Board Industries Received for services and sale of goods Interest received Amount receivable at the Balance Sheet date

Rs. 1,44,000/Rs. 9,68,640 /Nil Rs. Rs. 2,72,996/5,657/Nil

(Rs. (Rs. (Rs. (Rs. (Rs. (Rs.

1,23,225/-) 9,68,640/-) 24,000/-) 3,53,380/-) 26,938/-) 1,04,726/-)

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YASH PAPERS LIMITED

Schedules forming part of Annual Accounts

Schedule-17 SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS (Contd.)
M/s Jingle Bell Nursery School Society Fixed deposits received Fixed deposits repaid Interest paid on fixed deposits Fixed deposits at the Balance Sheet date Accrued interest at the Balance Sheet date Salary reimbursement of teaching staff Sale of goods and services M/s K. K. Jhunjhunwala (HUF) Rent paid Dividend paid Rs. 36,32,846/Rs. 18,57,742/Rs. 4,85,574/Rs. 44,07,846/Rs. 3,88,297/Rs. 4,58,662/Rs. 29,515/Rs. Rs. 1,50,000/16,000/(Rs. 1,25,000/-) (Rs. 5,00,000/-) (Rs. 4,84,376/-) (Rs. 26,32,742/-) (Rs. 8,45,515/-) (Rs. 4,37,750/-) (Rs. 1,61,372/-) (Rs. (Rs. 1,38,000/-) 16,000/-)

Annexure to the Notes to the Accounts Balance Sheet Abstract and Companys General Business Profile
(Information pursuant to Part IV of Schedule VI of the Companies Act, 1956)
I. Registration Details Registration No. 0 5 2 9 4 Balance Sheet Date 3 1 1 2 2 0 0 4 State Code 2 0

II. Capital Raised during the year (Amount in Rs. Thousands) Public Issue Bonus Shares N N I I L L Right Issue Private Placement N N I I L L

III. Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands) Total Liabilities Sources of Funds Paid-up Capital Secured Loans Deferred Tax Liability Application of Funds Net Fixed Assets Net Current Assets Accumulated Loosses 1 9 5 0 6 6 9 N 8 2 I 6 4 L Investments Miscellaneous Expenditure N I 6 L 3 4 4 8 5 5 6 7 3 5 7 1 5 8 9 89 Reserves and Surplus Unsecured Loans 1 0 1 2 4 8 9 9 6 8 6 2 4 7 6 1 6 Total Assets 2 4 7 6 1 6

88

Note: a. Details of remuneration to directors are given in note 5 above. b. No amounts pertaining to related parties have been written off or provided for as doubtful assets, excepting Rs.20,000/- being cost of 200 equity shares of Fortune Constructions Pvt. Ltd., written off during the year c. The transactions have been considered for the period during which such relationship exist. 13. Sundry Creditors in schedule 11 of Liabilities includes Rs. 16,75,262/- (Rs. 2,30,717/-), the amounts due to Small Scale Industrial Undertakings. The name of Small Scale Industrial Undertaking to whom the company owes and is outstanding for more than 30 days, as at December 31, 2004 is as under: Amar Alum & Allied Chemicals Pvt. Ltd Cardinal Chemicals Pvt. Ltd Fine Core Pipe Pvt. Ltd M/s Sharda Industries The above information regarding Small Scale Industrial Undertaking has been determined to the extent such parties have been identified on the basis of information available with the Company. 14. Balances with Scheduled Bank includes Rs.2,67,576/- being the proportionate amount held with Bank Of Baroda on amalgamation of The Benares State Bank Limited. The amount will be released on proportionate basis from surplus of realisation of NRR (Not Readily Realisable Assets) as per the scheme of amalgamation. 15. Figures in bracket pertains to previous period and have been regrouped/rearranged wherever necessary. 16. The Balance Sheet Abstract and Companys general business profile as required by Part IV of Schedule VI to the Companies Act, 1956 are given in the annexure attached. Signature to Schedules 1 to 17 For KAPOOR TANDON & CO. Chartered Accountants Rajesh Parasramka Partner Membership No. 74192 Camp: New Delhi January 22, 2005 K. K. Jhunjhunwala Executive Vice Chairman For and on behalf of the Board Ved Krishna Managing Director G . N. Gupta Director

IV. Performance of the Company (Amount in Rs. Thousands) Total Income Profit before Tax Earnings per Share ( In Rs.) 2 6 2 1 6 4 5 6 . 2 1 1 3 8 0 Total Expenditure Profit after Tax Dividend rate @ % 2 3 1 1 4 5 2 9 8 . 0 6 5 5 2 0

V. Generic Names of three Principal Products of the Company (as per monetary terms) 1. Item Code No. (ITC Code) Product Description 2. Item Code No. (ITC Code) Product Description 480431.00 Kraft Paper in rolls or sheets 480255.90 Paper weighing 40gsm but less than 150gsm

D. S. Gandikota Director

A. K. Gupta Director Finance

Deepak Nathani Company Secretary

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YASH PAPERS LIMITED

Cash Flow Statement for the year ended 31st December, 2004
(Pursuant to Clause 32 of the Listing Agreement)
2004 A Cash Flow from Operating Activities : Net profit before tax Adjustment for:Depreciation Profit on Sale of Fixed Assets Interest Income Interest Expenses Others (Miscellaneous Expenditure written off) Loss on Sale of Fixed Assets/Investments Operating Profit before Working Capital changes Adjustment for:Inventories Trade and Other Receivables 90 Trade Payable and Other Liabilities Income Tax Paid (Including tax on dividend) Cash generated from operations Interest Received Net Cash from operating activities B Cash Flow from Investing Activities: Purchase of Fixed Assets (Including CWIP) Sale of Fixed Assets Sale of Investments Net Cash used in investing activities (17,606) 2,156 (15,450) (17,665) 5,715 150 (11,800) (5,512) 823 (2,827) (9,614) (17,130) 30,643 759 31,402 (22,737) 599 5,439 (2,859) (19,558) 16,575 1,347 17,922 14,284 (46) (759) 7,309 367 21,155 47,773 14,164 (180) (1,347) 8,790 118 2,591 24,136 36,133 26,618 11,997 (Rupees in thousand) 2003

Cash Flow Statement for the year ended 31st December, 2004
(Pursuant to Clause 32 of the Listing Agreement)
2004 C Cash Flow from Financing Activities Interest Paid Proceeds from Working Capital Borrowings Proceeds of Short Term Borrowings Repayment of Long Term Borrowings Dividend Paid Net Cash (used in)/from Financing Activities Net increase/(Decrease) in Cash and Cash equivalents Cash and Cash equivalents (Opening Balance) Cash and Cash equivalents (Closing Balance) (7,309) 7,437 (2,798) (9,450) (3,825) (15,945) 7 3,613 3,620 (8,790) 15,715 5,785 (16,599) (3,660) (7,549) (1,427) 5,040 3,613 2003

Note: The above cash flow statement has been prepared under the 'Indirect Method' as set out in the Accounting Standard-3 on Cash Flow Statements, issued by the Institute of Chartered Accountants of India. 91 As per our report of even date attached. For Kapoor Tandon & Co. Chartered Accountants K. K. Jhunjhunwala Rajesh Parasramka Partner Membership No. 74192 Camp: New Delhi January 22, 2005 D. S. Gandikota Director A. K. Gupta Director Finance Deepak Nathani Company Secretary Executive Vice Chairman Ved Krishna Managing Director G . N. Gupta Director For and on behalf of the Board

YASH PAPERS LIMITED

Corporate Information
BOARD OF DIRECTORS G. Narayana, Chairman K K Jhunjhunwala, Executive Vice Chairman Ved Krishna, Managing Director A K Gupta, Director Finance Mrs. Manjula Jhunjhunwala, Non Executive Director G N Gupta, Non Executive Director D S Gandikota, Non Executive Director DR. P Banerjee, Non Executive Director BANKERS State Bank of India Canara Bank AUDITORS Kapoor Tandon & Co., Chartered Accountants Kanpur. REGISTERED OFFICE 47/81, Hatia Bazar Kanpur-208001 WORKS & CORPORATE OFFICE Yash Nagar PO. Darshan Nagar Faizabad-224135 Uttar Pradesh Phone No: 05278-258777; 258589 Fax:05278-258062 Web: www.yash-papers.com E-mail: info@yash-papers.com REGISTRAR AND TRANSFER AGENT Skyline Financial Services Pvt. Ltd. 123, Vinoba Puri, Lajpat Nagar-II New Delhi-110024 Phone No.: 011-29833777 29847136 Fax No.:011-2984 8352 E-mail:admin@skylinerta.com

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