1. S TAR P APER A part of the Duncan Goenka Group of companies Raising the bar

2. An overview One of India’s large paper companies. Integrated pulp and paper manufacturer. Manufacturer of industrial/ writing/ printing paper. Production of 71106 tonnes in 2004-5. Located in Saharanpur, UP.

3. What we achieved in 2004-5

4. What we achieved over the years

5. How Star’s performance compares with its industry peers The highest pre-interest margin among the leading paper companies in India. The second highest RONW among the leading paper companies in India. Source: Capital Market magazine (11 April 2005) 2003-4

6. Intra-industry comparison, 2003-4 Intra-industry comparison, 2004-5

7. Share price performance: Market outperformer

8. Improving results but poor discounting Improving results but poor discounting Cash flow of Rs 28.52 cr, 2004-5. Market capitalisation of Rs 107 cr (closing price Rs.71, Mumbai Stock Exchange, 4 June 2005). Cash flow discounted around a mere 4 times. contd.

9. Improving results but poor discounting Improving results but poor discounting Net earnings discounted a little over 5 times for 2004-5 results. Lower than peer discounting on retrospective results. Almost half the industry P/E of 11 (source: Capital Market, 11 April 2005).

10. Star: Indian paper industry’s attractive growth proxy Total income (Rs cr) Profit after tax (Rs cr) Cash flow (Rs cr)

11. Enhancing shareholder value Positive EVA for two years leading to 2004-5. Increasing ROCE for each of three years leading to 2004-5. 44 per cent of cash flow ploughed back into assets, 11 per cent paid out as dividend. Payout ratio of 17.5 per cent in 2004-5, a balance between reinvestment and payout. contd.

12. Enhancing shareholder value Return on average capital employed (%) Return on net worth (%) Dividend (Rs per share) Book value* (Rs) *Net of revaluation reserve

13. Backed by a strong market presence 60 per cent of industrial paper output sold within a radius of 250 kms. Flexibility in production capability between industrial and writing- printing paper varieties in response to demand situation. Dominant presence all over India for virgin kraft and industrial posters. Large number of stocking points even in B and C grade cities in North India, enabling the company to serve even small customers. One of the few Indian paper companies to have established a web-enabled indenting and web- enabled order processing system. contd.

14. Distribution and reach Retail customers serviced through 50 nationwide distributors, Star’s primary customers; 8% increase in dealer throughput in 2004-5. Presence in 13 Indian states through the dealer network. 85 per cent of the company’s distributors have been the company’s channel partners for at least 10 years. Some distributors represent the fourth generation working with the company.

15. Eclectic customer mix. Some of the key customers/users HLL Eveready ITC Limited Thomson Press Gopson Papers Pearson Education Replica Press Master cote Manu Cote Surya Cote Meghdoot Laminates Novino Batteries Waterproof corporation Sri Kaleswari Fireworks Standard Fireworks Speciality Coatings Sri Krishna Paper Century Lamination Marino Panels Greenply Industries Bloom Decor

16. Operational excellence Increasing output every single year for the last seven years through capacity de-bottlenecking, equipment balancing and technology upgradation. Output of 71106 MT in 2004-5, the highest in the company’s history. A swing capacity, enabling the company to make a variety of grades on more than one machine. Investment of Rs 39cr in capex in the last three years; Production (MT)

17. Prudent raw material management A decline in raw material cost as a proportion of turnover from 26% in 2001-2 to 16.6% in 2003-4 to 15.7% in 2004-5. The development of clones in the R&D center with the objective to increase productivity by nearly 100%, enhancing farmer income and sustainable availability of raw material. Raw material cost as a percentage of gross sales

18. Estimated generation of wood vs Star’s own requirement Wood Generation (MT ) Wood Consumption (MT)

19. Raw material scenario: Increasing use of social forestry resources in Star Raw material scenario: Increasing use of social forestry resources in Star Government wood Social forestry wood

20. Prudent energy management Decline in energy consumption per ton of production from 1310 kwh in 2001-2 to 1202 kwh in 2004-5. Use of agro-residues as an alternative to coal in power generation: from 1.95% of fuel used in 2003-4 to 10.2% in 2004-5. Awarded a ‘certificate of merit’ in January 2005 by the Indian Paper Manufacturers Association for prudent energy management. Rated as the most energy efficient mill by Centre for Science and Environment. Highest free energy generation from by products in the industry. Power consumed per ton of paper manufactured (kwh)

21. Better working capital management Replacement of bank borrowings for working capital with internal accruals from Rs 12.6 cr in 2002-3 to Rs 3.6 cr in 2004-5. Reduction in fixed deposits and other unsecured loans from Rs 12 cr in 1999-2000 to Rs 0.70 cr in 2005. Reduction in net current assets from Rs 39 cr in 1999-2000 to Rs 27 cr in 2004-5 in the face of a rising turnover.

22. Better working capital management Net Current Assets Receivables (days)

23. Enhanced people productivity Productivity increased by 24% in 2004-5 in comparison to 2002-03. Team working approach comprising 17 quality circles of seven members each across departments, aggregating all points of view in speedy problem-solving. The workmen are involved in several quality circles and the team has won awards in regional presentations.

24. Better fiscal management At 28.06%, among the highest ROCE in India’s paper industry (2004-5). A plough back of 44 per cent of the cash flow in debt repayment. Decline in debt from Rs 99 cr in 2001-2 to Rs 45 cr in 2004-5. Decrease in working capital, in spite of an increase in raw material inventory.

25. Better fiscal management Decline in interest as a proportion of turnover from 6.25 per cent in 2001-2 to 2.97 per cent in 2004-5. Increase in EBIDTA margin from 13.68 per cent in 2001-2 to 21.19 per cent in 2004-5. Increase in net margin from 3.81 per cent in 2001-2 to 9.52 per cent in 2004-5. Declining cost of debt coupled with an increasing ROCE resulting in a better fiscal position.

26. Better fiscal management Interest cover Net profit margin (%) EBITDA margin* on net sales (%) Debt equity ratio *Before extraordinary items

27. Responsible safety, health and environment management Uninterrupted accident-free period (days) Person days lost due to accidents Decline in water consumption( m³ /ton)

28. Looking ahead: Rs 85 cr modernization cum expansion Investment of Rs 85-cr in asset modernization, de-bottlenecking and co-generation. Investment in an increase in installed capacity from 71,350 TPA to 75,000 TPA. Investment in a 5 MW multi-fuel boiler to increase flexibility to switch to cheapest fuel.

29. Looking ahead: Rs 85 cr modernization cum expansion Investments dovetailed with a complete cash payback within about four years(approx). Phase One of these projects will be fully commissioned by July 2005, and the rest in phases by the end of 2006. Brief interruptions to integrate the projects staggered performance in the last quarter of 2004-5 and first quarter of 2005-6. CREP impact likely to result in capacity decline due to a number of small players unable to meet the new environment regulations. Increase in brownfield capacity to be offset by the projected decline in capacity as a result of the CREP impact.

30. Low capacity investments and the emergence of a demand gap to lead to increased realisations. One of the few truly demand recession- neutral industries. Consistent year-on-year demand growth. Influenced by price variations, but no significant demand variations. Speedy demand growth even in the face of emergence of substitutes from time to time. Increase in literacy level in India from 52.21 % in 1991 to 65.38 % in 2001(taken from Census) – now expected to accelerate as a result of the levy of 2 % as education cess. Low capacity additions. The Indian paper industry: basis for optimism

31. Star: points of optimism Effective backward linkages with farmers to secure increasing raw material availability. Prudent positioning in the industrial grades due to relatively low regional competition – only major paper mill in India in these grades. Industrial grades a strong proxy of the growing consumer and industry boom in India. Largely compliant with CREP requirements (2008), so no large capex foreseen on this account.

32. Star: points of optimism Demonstrated a resistance to industry cyclicality through a profit increase in every single year across the last four years. Modernisation cum expansion programme to reduce costs in a significant way and enhance production to 75,000 TPA from the second quarter of 2005-6. Erstwhile cash flow allocation towards debt reduction to be increasingly allocated towards capacity building and cost reduction.

33. Star: points of optimism Prospect of attractive growth in 2004-5 on account of three reasons: higher production, increased realisations. (increase announced in April and June 2005) and decline in production costs as a result of the modernisation. Prospect of sustained profit growth over the foreseeable future.

34. For any clarification, you may contact Mr. Pankaj Virmani (Company Secretary) Tel : 0132-2727731-35, 2731731-35