India's paper demand to rise 53% by 2020

Investment worth Rs 20,000-cr in five years to lower cost of production and improve demand for manufacturers

Despite the continued focus on digitisation, India’s demand for paper is expected to rise 53 per cent in the next six years, primarily due to a sustained increase in the number of school-going children in rural areas.

Growing consumerism, modern retailing, rising literacy (continued government spending on education through the Sarva Shiksha Abhiyan) and the increasing use of documentation will keep demand for writing and printing paper buoyant. “Though India’s per capita consumption is quite low compared to global peers, things are looking up and demand is set to rise from the current 13 million tonnes (mt) to an estimated 20 mt by 2020,” said Harsh Pati Singhania, vice-chairman and managing director of JK Paper.

An India Ratings report estimates India’s per capita paper consumption at nine kg, against 22 kg in Indonesia, 25 kg in Malaysia and 42 kg in China. The global average stands at 58 kg.

“This indicates there is a lot of headroom for growth in India. From a demand point of view, every one kg incremental per capita consumption results in additional demand of more than one mt a year. Besides, policy factors also have a key role to play in the growth of the domestic paper industry in India. The government’s sustained focus on literacy, increased consumerism and expansion in organised retail are expected to positively affect paper consumption and demand in India,” said Yogesh Agarwal, managing director and chief executive of Ballarpur Industries.

  Digital media has a lot of ground to cover, at least as far as penetration is concerned, primarily in rural areas. Paper is an established business and its consumption is being encouraged. What was heartening was though there were challenges, the packaging side of the segment continued to grow, Agarwal added. In the last five years, the Indian paper sector has invested about Rs 20,000 crore on capacity enhancement, technology upgrade and acquisitions. Now, companies in the sector are seeking to improve their balance sheets. While the sector is eager to expand capacity further, decisions in this regard will depend on how soon companies can improve their financials.

The India Ratings report in 2014-15, said paper companies would achieve higher profitability and free cash flows due to lower capital expenditure, and this would help in deleveraging. This is because the debt levels of these companies have peaked and cost benefits will accrue from backward integration (due to capital expenditure) and a larger scale of operations.

“The capacity expansion that took place in the industry through the last few years is now being absorbed due to the rising demand for paper in India. The sector, which faced challenge from rising input (wood) costs, is now better placed due to a renewed thrust on agro-forestry and softening of pulp costs,” Singhania said.

Commissioning of several state-of-the-art pulp and paper machines such as that seen in the case of JK Paper last year will result in lower operating costs and improved quality.