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The Pulp and Paper Times Magazine : Volume 6, Issue 1
The Pulp and Paper Times Magazine : Volume 5, Issue 6
The Pulp and Paper Times: Volume 4, Issue 6
The Pulp and Paper Times : Volume 3, Issue 6
The Pulp and Paper Times: Volume 2 Issue 5
The Pulp and Paper Times, Volume 1, Issue 3
The Pulp and Paper Times, November 2016 Issue
-W&P paper margins set to rise 150 bps as wood costs soften, efficiencies sharpen
-Better realisations and steady demand to lift revenue; credit profiles to remain stable
The Pulp and Paper Times
India’s writing and printing (W&P) paper industry is expected to see a year of measured but meaningful improvement: operating margins are set to expand about 150 basis points this fiscal as a post-pandemic hardwood plantation cycle eases a key input cost. Further, efficiency-led investments will protect profitability in a structurally low-growth market facing rising digitisation.
Capex as a result may remain modest and along-with stable working capital should keep credit profiles resilient.
Our analysis of 13 W&P paper makers, accounting for ~70% of industry revenue, indicates as much.
Says Shounak Chakravarty, Director, Crisil Ratings, “The margin story this fiscal is not being driven by pricing alone. A favourable hardwood cycle is the bigger swing factor. With plantation acreage added after the pandemic now entering harvest, domestic hardwood prices should soften further after declining last fiscal. Since wood is central to pulp costs, accounting for 50-55% of operating costs, increased supply at lower costs will directly aid profitability. Coupled with tighter process controls, operating margins should improve to ~13.5% this fiscal from ~12% last fiscal.”
Realisations should also improve 2-3%, helped by higher landed cost of imported paper amid elevated freight rates and rupee depreciation. This should partly absorb inflation in logistics, employee and other fixed costs.
Demand, however, will remain steady rather than buoyant. Education-related consumption, including from coaching institutes, and usage by banking and judiciary segments should support 3-4% volume growth. But increasing digitisation will keep manufacturers cautious on large greenfield capacity additions over the medium term.
Capex is therefore expected to rise only marginally, by about 5% on-year to around Rs 2,500 crore this fiscal, with spending directed more towards cost and yield improvement than scale expansion.
Investments will focus on backward integration into wood pulp, recovery and reuse of in-process chemicals, optimisation of ash and moisture levels, and greater adoption of renewable power — all aimed at strengthening operating resilience.
Says Pallavi Singh, Associate Director, Crisil Ratings, “Credit profiles of W&P paper players should remain stable because the industry’s improvement is cash-accrual led. Even with marginally higher efficiency capex, incremental borrowing is expected to be limited. We expect debt-to-Ebitda1 and interest cover to improve to around 1.7 times and 4.6 times this fiscal, respectively, from around 1.9 times and 4.2 times last fiscal.”
Key monitorables will be any reversal in realisations if import costs ease, and any unexpected firmness in hardwood prices that could constrain the expected margin expansion.
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