Consolidation possible in paper industry: Yogesh Agarwal

Interview with President of Indian Paper Manufacturers' Association and MD & CEO of Avantha's Ballarpur Industries

Paper manufacturers have invested heavily in building capacity over the last four years. Time has come to reap the benefit, says Yogesh Agarwal, president of Indian Paper Manufacturers’ Association and MD & CEO of Avantha’s Ballarpur Industries Ltd, in an exclusive interview with Dilip Kumar Jha. Edited excerpts:

What has led to the rebound in fortunes of the paper industry?

India’s per capita paper consumption compares poorly with global standards. So, while the per capita consumption of paper in India is only 10 kg, the world average is much higher at 54 kg. This indicates there is a lot of headroom for growth in India.

From the demand point of view, every one-kg incremental per capita consumption results in additional demand of more than one million tonnes per annum. Besides this, the government’s sustained focus on literacy, increased consumerism and expansion in organised retail are all factors, which are expected to positively affect paper consumption and demand in India. So, the Indian paper market is poised for growth but how much of that will actually benefit paper companies will be decided to a large extent by the enabling policies provided by the state, apart from the individual competitiveness of the companies themselves.

Will the growth in digital media and the trend of going “paper less” not affect paper consumption?

Well, digital media has a lot of ground to cover at least as far as penetration is concerned, especially in the hinterlands. Paper is an established business and product, and its further consumption is being encouraged, thanks to government-led initiatives on the literacy front such as Sarva Shiksha Abhiyan. What is also heartening is that though there are challenges, the packaging side of paper continues to grow. In this context, it would be interesting to share with you that Newsweek, a very renowned weekly magazine in the US had actually ceased to print and was available only in the digital medium.

However, they came back to paper, which tells you a lot about acceptability of paper as a medium even in a developed market like the US.

Is the Indian paper industry heading for consolidation, mainly looking at acquisitions?

Consolidation in the Indian paper industry is a definite possibility. But if you are talking consolidation, the phenomenon will not be limited to just the paper industry but would apply to major players across industries.

What will be paper manufacturers’ strategy, especially with drying up of investments and  low capacity utilisation?

I would not like to term it as “drying up of new investments” because even now there are projects, which are under progress. At an Industry level, over the last five years, the Indian paper industry has invested around Rs 20,000 crore towards capacity enhancement, technology upgradation and various acquisitions.

Now, the industry is in balance sheet improvement mode. The future investment cycle, however, would depend on how soon the companies in this sector are able to improve their balance sheets.

How would the industry protect margins between high raw materials and low realisations?

Raw material prices are cyclical in nature. So, volatility in raw material costs for the paper sector was primarily due to reduced availability of wood in the domestic market. However, the Indian paper industry has been working on alternative solutions like import of wood chips.

However, as far as pulp is concerned, there are new capacities coming on stream in the international market and that I believe will put pulp prices under pressure. If not, they will at least be maintained at the current levels.