Indian paper mills look out for better prospects

Fall in bamboo price, shorter plantation cycle and cost curbs to improve margins

Indian paper manufacturers are expecting a positive outlook this year, after four years of a challenging business environment because of various measures adopted for improving their efficiencies.

Mills have invested around Rs 20,000 crore over the past four years in capacity expansion, green technology and energy efficiency to meet government norms. While some non-profitable plants have been shut, mills ramped up the capacities of efficient units.

Coinciding with a marginal decline in raw material prices, the realignment of production facilities has started yielding results. Production costs have started moderating in the last few quarters.

“Paper mills were under tremendous pressure. Wood prices had more than doubled due to acute supply shortage. On the process front, the government made the regulation more stringent for effluent discharge, which needed a lot of investment in green technology. Also, the Bureau of Energy Efficiency made paper mills achieve mandated energy savings. All these involved process optimisation,” said Rohit Pandit, secretary-general, Indian Paper Manufacturers’ Association (Ipma).

“Also, cheap imports via free trade agreements from Asean countries forced local paper mills to compete. But the sentiment has improved in the last few quarters with a marginal decline in bamboo prices. The trend is likely to continue in the coming quarters as well,” he added.

Data compiled by Ipma showed paper imports, including newsprint, at 2.6 million tonnes in 2015-16 worth Rs 12,284 crore, up from 2.35 million tonnes in 2014-15 worth Rs 12,351 crore.Paper imports have grown annually by 7.9 per cent and 11.4 per cent, respectively, in volume and value terms over the six years.

During April-September 2016, imports were 1.4 million tonnes, valued at Rs 6,658 crore.

Faced with a six per cent decline in the cost of raw materials from the preceding quarter, JK Paper posted a 6.2 per cent rise in sales at Rs 666 crore in the December quarter from Rs 627 crore in the corresponding one a year ago.

The company reported a 173 per cent increase in net profit at Rs 35.9 crore during the quarter. 

“At seven per cent, India will easily be the fastest growing paper market in the world. However, India-made paper is threatened by cheaper imports,” said Harsh Pati Singhania, vice-chairman and managing director, JK Paper.

 

 

Indian paper consumption is 15 million tonnes per annum now and by 2024-25 is projected to rise to 23.5 million tonnes per annum and production to 22 million tonnes per annum. 

About one million tonnes per annum of integrated pulp, paper and paperboard capacity is needed to be set up every year to meet rising demand. 

The industry is trying to lower the plantation cycle from 54 to 42 months. 

“Such investments will have a multiplier effect on the economy. If the investments are not made, the growing demand will be met through imports,” said Sanjay Singh, chief executive officer, paperboards and speciality paper division, ITC.

Ballarpur Industries continues to face headwinds, including delays in asset monetisation, resulting in deterioration of its operational performance. 

A company spokesperson, however, denied any possibility of fundraising to meet working capital requirements.