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Faced with a continuous rise in raw material cost squeezing their profit margins, paper manufacturers have increased the area under pulpwood cultivation over recent years.
The cumulative area under pulpwood rose 17 per cent in 2012-13 and 56 per cent over four years. A study by Emkay Research says total sowing by leading paper producers was reported at 315,127 hectares in 2012-13 as compared to 268,246 ha the previous year and 202,284 ha in 2009-10. With massive expansion plans by paper mills, the industry is going to bring more area under pulpwood plantations, as the current one is only 12 per cent of the total requirement.
“The industry requires around 2.5 million ha of land for pulpwood plantation to fully meet the requirement. Therefore, government support is required,” said Yogesh Agarwal, president of the Indian Paper Manufacturers Association and managing director of Ballarpur Industries Ltd (Bilt).
Between FY10 and FY12, raw material cost as a percentage of sales rose from 28 per cent to 42 per cent for large companies; Bilt saw the highest rise. After peaking in 2012, the costs moderated marginally in FY13. Some more moderation in this is expected due to increased availability. JK Paper, West Coast Paper, Tamil Nadu Newsprint and Papers and AP Paper have cumulatively planted 50,920 ha with saplings. The benefits of these initiatives will help moderate cost-push pressures, said Rohan Gutap, an analyst with Emkay Global.
“In the past, the profitability of paper manufacturers suffered primarily on a significant rise in domestic wood prices, while a weakening rupee also increased import cost for raw materials such as pulp and coal. With increased farm forestry efforts and lower incremental demand, raw material availability in the domestic market should improve,” said Chandan Sharma, an analyst with India Ratings & Research.
As wood-based raw material has a dominant share of the writing and printing paper segment, the rise in capacities of this segment needs to match the increase in availability of raw material. Since the supply of wood-based raw material is inelastic, the increased capacity additions have put pressure on the input cost material. Over the past five years, the paper industry in India has invested around Rs 20,000 crore towards capacity enhancement, technology upgradation and various acquisitions. The average cost of various raw materials between 2002-03 and 2010-11 reveals average wood prices rose at a compounded annual rate of 10 per cent, compared with six and seven per cent for wood pulp and waste paper, respectively.
