Paper industry revenue may dip 8-10% in FY24 despite volume gains: Crisil

Paper manufacturers' revenue may decline 8-10 per cent in the current fiscal despite gains in volume, as the average realisations are likely to soften on lower raw material prices and intense competition, rating agency Crisil said in a report.

For FY24, the industry's total volume is expected to rise 5-7 per cent, similar to the last fiscal, and the operating margin will remain healthy at 18 to 19 per cent, ensuring a stable cash flow generation, it added.

Moreover, modest capex spending undertaken -- mostly for debottlenecking and routine modernisation -- will help sustain credit risk profiles, as per the report.

The Indian paper industry had reported revenue growth of 30 per cent a year before in FY23.

"Indian paper manufacturers could see revenue decline of 8-10 per cent this fiscal, compared with a steep 30 per cent growth last fiscal, with average realisations expected to soften in keeping with lower raw material prices, and given intense competition," it said.

The report is based on an analysis of 87 paper makers, which account for about half of the sector's revenue.

The packaging paper segment dominates sales in India with a share of 55 per cent, followed by writing and printing (W&P) paper at 30 per cent. The rest is with newsprint and speciality paper.

Packaging paper, mainly comprising kraft paper and duplex board, is used to pack pharmaceuticals, e-commerce goods, consumer durables, fast-moving consumer goods (FMCG) and ready-made garments. The education sector and corporates are the major consumers of W&P paper.

"Crisil Ratings expects packaging paper volume to grow 6-8 per cent this fiscal, supported by demand from the pharmaceutical and FMCG sectors. W&P paper volume is seen up a modest 3-5 per cent amid increased digitalisation, and despite being supported by government spending on education and the implementation of the New Education Policy," it said.

Besides, demand for W&P paper is expected to rise ahead of the general elections in 2024.

Over the operating margin, Crisil said it will remain healthy at 18-19 per cent this fiscal, slightly lower than last fiscal, but better than the pre-pandemic average of 17 per cent, as price corrections have mainly been because of lower input costs.

"Margins should also benefit from a moderation in the prices of imported coal," it added.