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Worst is over for paper producers as raw material prices drop

With greater focus by govt on education and uptick in macro economy, paper industry is set to grow at 7% CAGR over next 5 years

Dilip Kumar Jha  |  Mumbai 

Worst is over for paper producers as raw material prices drop

in India are likely to see a turnaround in the near term, on account of a revival in demand from consumer industries and softening of raw materials prices, including pulp and Thus, the worst is over for paper manufacturers in India.

The latest study by shows that credit risk profiles of in the (P&W) segment and segment in India to improve over medium term on the back of increased demand, softening raw material and lower prices.



As compared to 58 per cent in the financial year 2015, actual cost of raw materials declined to 56 per cent of their turnover in the financial year 2016. Similarly, paperboards players have paid 60 per cent of their turnover in 2016 as compared to 62 per cent in the previous financial year. Raw materials contributed to 35 per cent of writing and printing paper producers’ turnover in FY 2016 as against 37 per cent in FY 2014.

“The worst is over for its rated players in the writing and printing paper segment with softening of wood prices and will largely maintain stable credit risk over the near to medium term. This will largely be due to cost pressure subsidizing and expected improvement in domestic demand and export opportunities. Packaging and paperboard segment will benefit from higher growth while newsprint segment will continue to face pressure from newsprint imports,” said Ajit Upadhye, analyst,

The Indian paper industry, with approximately 13 million tonnes of capacity, accounts for about three per cent of global paper production.

According to Indian Association (IPMA), the domestic consumption of paper in India during 2014-15 stood at 13.9 mn tonnes, y-o-y growth of 6 per cent. The per capita consumption of paper in India stands at approx 11 kg, which is relatively lower compared to other developed and developing countries. With increasing focus by government on education and general uptick in macro economy, Indian would witness a compounded annual growth rate (CAGR) of 7 per cent over the next five years to about 20 million tonnes. The growth will be largely driven by printing and writing and packaging and paper board segment.

The major cost heads for players are raw material (constituting about 50 per cent of net sales) and power and fuel cost (constituting about 16 per cent of net sales). The operating margins of the paper were in the range of 14 per cent during FY09 to FY11 due to lower costs and better price realizations backed by good demand growth.

However, during FY12 to FY14, the operating margin trend showed a declining trend with increase in raw material prices and power and fuel cost largely during FY13. Also, with capacity expansion during FY09 to FY11, players could not increase the prices and faced import threat. Due to this the operating margin declined to about 11 per cent during FY12 to FY14. The fall in margin was arrested in FY15 and H2FY16 witnessed improvement in margins due to declining raw material, power and fuel costs.

Within the paper industry, P&W players operating margins improved to 20 per cent in Q4FY16 from a low of 10 per cent in Q2FY14. During FY16, key players increased prices by Rs 2 per kg in December. Also, the benefitted from lower domestic wood prices and prices impacting power and fuel cost. Agro forestry initiatives taken by players yielded results.

By contrast, however, credit profiles of newsprint segment may continue to be impacted by lack of pricing power given threat of imports and dependence on imported raw material i.e. wastepaper. Paper across segments faced margin pressure during FY13–H1FY16 largely due to raw material cost increase amid stable paper pricing.
 

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Worst is over for paper producers as raw material prices drop

With greater focus by govt on education and uptick in macro economy, paper industry is set to grow at 7% CAGR over next 5 years

With greater focus by govt on education and uptick in macro economy, paper industry is set to grow at 7% CAGR over next 5 years in India are likely to see a turnaround in the near term, on account of a revival in demand from consumer industries and softening of raw materials prices, including pulp and Thus, the worst is over for paper manufacturers in India.

The latest study by shows that credit risk profiles of in the (P&W) segment and segment in India to improve over medium term on the back of increased demand, softening raw material and lower prices.

As compared to 58 per cent in the financial year 2015, actual cost of raw materials declined to 56 per cent of their turnover in the financial year 2016. Similarly, paperboards players have paid 60 per cent of their turnover in 2016 as compared to 62 per cent in the previous financial year. Raw materials contributed to 35 per cent of writing and printing paper producers’ turnover in FY 2016 as against 37 per cent in FY 2014.

“The worst is over for its rated players in the writing and printing paper segment with softening of wood prices and will largely maintain stable credit risk over the near to medium term. This will largely be due to cost pressure subsidizing and expected improvement in domestic demand and export opportunities. Packaging and paperboard segment will benefit from higher growth while newsprint segment will continue to face pressure from newsprint imports,” said Ajit Upadhye, analyst,

The Indian paper industry, with approximately 13 million tonnes of capacity, accounts for about three per cent of global paper production.

According to Indian Association (IPMA), the domestic consumption of paper in India during 2014-15 stood at 13.9 mn tonnes, y-o-y growth of 6 per cent. The per capita consumption of paper in India stands at approx 11 kg, which is relatively lower compared to other developed and developing countries. With increasing focus by government on education and general uptick in macro economy, Indian would witness a compounded annual growth rate (CAGR) of 7 per cent over the next five years to about 20 million tonnes. The growth will be largely driven by printing and writing and packaging and paper board segment.

The major cost heads for players are raw material (constituting about 50 per cent of net sales) and power and fuel cost (constituting about 16 per cent of net sales). The operating margins of the paper were in the range of 14 per cent during FY09 to FY11 due to lower costs and better price realizations backed by good demand growth.

However, during FY12 to FY14, the operating margin trend showed a declining trend with increase in raw material prices and power and fuel cost largely during FY13. Also, with capacity expansion during FY09 to FY11, players could not increase the prices and faced import threat. Due to this the operating margin declined to about 11 per cent during FY12 to FY14. The fall in margin was arrested in FY15 and H2FY16 witnessed improvement in margins due to declining raw material, power and fuel costs.

Within the paper industry, P&W players operating margins improved to 20 per cent in Q4FY16 from a low of 10 per cent in Q2FY14. During FY16, key players increased prices by Rs 2 per kg in December. Also, the benefitted from lower domestic wood prices and prices impacting power and fuel cost. Agro forestry initiatives taken by players yielded results.

By contrast, however, credit profiles of newsprint segment may continue to be impacted by lack of pricing power given threat of imports and dependence on imported raw material i.e. wastepaper. Paper across segments faced margin pressure during FY13–H1FY16 largely due to raw material cost increase amid stable paper pricing.
 
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Business Standard
177 22

Worst is over for paper producers as raw material prices drop

With greater focus by govt on education and uptick in macro economy, paper industry is set to grow at 7% CAGR over next 5 years

in India are likely to see a turnaround in the near term, on account of a revival in demand from consumer industries and softening of raw materials prices, including pulp and Thus, the worst is over for paper manufacturers in India.

The latest study by shows that credit risk profiles of in the (P&W) segment and segment in India to improve over medium term on the back of increased demand, softening raw material and lower prices.

As compared to 58 per cent in the financial year 2015, actual cost of raw materials declined to 56 per cent of their turnover in the financial year 2016. Similarly, paperboards players have paid 60 per cent of their turnover in 2016 as compared to 62 per cent in the previous financial year. Raw materials contributed to 35 per cent of writing and printing paper producers’ turnover in FY 2016 as against 37 per cent in FY 2014.

“The worst is over for its rated players in the writing and printing paper segment with softening of wood prices and will largely maintain stable credit risk over the near to medium term. This will largely be due to cost pressure subsidizing and expected improvement in domestic demand and export opportunities. Packaging and paperboard segment will benefit from higher growth while newsprint segment will continue to face pressure from newsprint imports,” said Ajit Upadhye, analyst,

The Indian paper industry, with approximately 13 million tonnes of capacity, accounts for about three per cent of global paper production.

According to Indian Association (IPMA), the domestic consumption of paper in India during 2014-15 stood at 13.9 mn tonnes, y-o-y growth of 6 per cent. The per capita consumption of paper in India stands at approx 11 kg, which is relatively lower compared to other developed and developing countries. With increasing focus by government on education and general uptick in macro economy, Indian would witness a compounded annual growth rate (CAGR) of 7 per cent over the next five years to about 20 million tonnes. The growth will be largely driven by printing and writing and packaging and paper board segment.

The major cost heads for players are raw material (constituting about 50 per cent of net sales) and power and fuel cost (constituting about 16 per cent of net sales). The operating margins of the paper were in the range of 14 per cent during FY09 to FY11 due to lower costs and better price realizations backed by good demand growth.

However, during FY12 to FY14, the operating margin trend showed a declining trend with increase in raw material prices and power and fuel cost largely during FY13. Also, with capacity expansion during FY09 to FY11, players could not increase the prices and faced import threat. Due to this the operating margin declined to about 11 per cent during FY12 to FY14. The fall in margin was arrested in FY15 and H2FY16 witnessed improvement in margins due to declining raw material, power and fuel costs.

Within the paper industry, P&W players operating margins improved to 20 per cent in Q4FY16 from a low of 10 per cent in Q2FY14. During FY16, key players increased prices by Rs 2 per kg in December. Also, the benefitted from lower domestic wood prices and prices impacting power and fuel cost. Agro forestry initiatives taken by players yielded results.

By contrast, however, credit profiles of newsprint segment may continue to be impacted by lack of pricing power given threat of imports and dependence on imported raw material i.e. wastepaper. Paper across segments faced margin pressure during FY13–H1FY16 largely due to raw material cost increase amid stable paper pricing.
 

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Business Standard
177 22