Moderation in the packaging paper segment, offsetting the healthy demand observed in the PWP sector: ICRA

Moderation in the packaging paper segment, offsetting the healthy demand observed in the PWP sector: ICRA

-The Indian paper industry's revenue growth is expected to slow down significantly in FY2024 due to lower volume growth and price corrections, despite healthy demand in the PWP segment

The Pulp and Paper Times | 10th Jan. 2024

In the fiscal year 2023, the domestic paper industry experienced robust growth of 42 per cent in revenue, primarily propelled by augmented realisations, notably within the printing and writing paper (PWP) segment. However, as the industry navigates through FY2024, shifts in market dynamics have prompted a reassessment of expectations.

According to rating agency Icra analysis, the industry's volume growth is estimated to diminish to a range of two to five per cent in FY2024, a notable slowdown from the approximately seven per cent witnessed in FY2023. This deceleration is chiefly attributed to a moderation in the packaging paper segment, offsetting the healthy demand observed in the PWP sector.

Suprio Banerjee, Vice President and Sector Head, Corporate Ratings, Icra emphasised the anticipated contraction in revenues for FY2024, projected to hover between seven to 10 per cent. This decline is underpinned by a substantial correction in realisations, coupled with a modest two to five per cent growth in volumes.

The report further stated that the PWP segment, which accounts for approximately 25 per cent of the total demand, demonstrated strong performance in the first half of FY2024 and maintained healthy operating margins. However, a decline in realisations during the second half of the fiscal year caused a downturn in margins.

Conversely, the packaging paper segment, constituting over 60 per cent of the overall demand, faced pressures arising from softening realisations, intensified competition, and fluctuating input prices. Although signs of stabilisation emerged in the latter part of Q3 FY2024, the margins remained under strain, particularly within Kraft paper, a segment sensitive to raw material price fluctuations.

Further, the report stated that these challenges have impacted the industry's EBITDA/tonne, which peaked in FY2023 and the long-term demand outlook remains positive. Factors such as the adoption of the New Education Policy (NEP) and increasing usage of specialised and conventional packaging across various sectors indicate a sustained demand trajectory.

Also, the industry faces persistent challenges, including the ongoing shift towards digitisation, sustainability concerns regarding the supply of wood pulp, and ensuring cost-effective energy supplies. Moreover, environmental risks stemming from pollution the need for stringent waste management and labour-related social risks persistently feature on the industry's horizon.

Further, Banerjee highlighted the industry's vulnerability to environmental and social risks, necessitating a focus on mitigating air, land, and water pollution concerns while ensuring the well-being and work-life balance of its labour force.

Looking ahead, the paper industry is poised for a rebound in FY2025, propelled by the commercialisation of new capacities, especially in the packaging segment, and an anticipated improvement in demand conditions. However, near-term challenges in FY2024 might linger, influencing the industry's debt levels and profitability metrics.
 

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