Paper industry may continue to grow at 6-8%: ICRA

Says the preparation for general elections will provide further fillip to paper demand in FY14

Rating agency ICRA today said the paper industry is likely to continue growing at 6-8% due to rise in literacy levels, growth in print media and higher government spending on the education sector.

 

"The long-term demand outlook for the paper industry remain favourable driven by increasing literacy, growth in print media (particularly in the vernacular languages), higher government spending on education, changing urban lifestyles and economic growth," ICRA said in its study on the paper industry.

 

"Given that these factors are likely to be sustained, the industry may continue to grow at 6-8% although there maybe aberrant years given the cyclical nature of the industry," it said.

 

In addition, the preparation for general elections will provide further fillip to paper demand in FY14, ICRA said.

 

The low per capita consumption of paper provide huge potential for growth in paper demand, according to ICRA.

 

Further, the capacity addition programme has now come to an end and there has been a considerable slowdown in new project announcement and completion.

 

With the recent capacity additions coming to completion any fresh announcements is unlikely in the near term and with gestation period of 24-30 months for new capacities, supply side pressures have started easing.

 

ICRA expects 0.35 million tonne of capacities to be added during FY14 and 0.3 million tonne in FY15, compared to the current capacity of 13 million tonne.

 

The rating agency thinks the market would expand by 0.7 million tonne annually, which would be sufficient to absorb the new capacities that will come up in the next 2-3 years.

 

However, the favourable demand-supply dynamics may not immediately translate into higher profits for paper companies, it added.