– Capex cycle turns towards packaging paper segment: ICRA.
The paper industry is witnessing a paradigm shift from the demand perspective, with demand for newsprint papers (NP) and printing writing papers (PWP) dwindling, given the rising impact of digitisation. At the same time, the packaging paper (PP) segment is witnessing a rise, with growing demand for packaging from e-commerce, food and food products, FMCG and the pharmaceutical sector. ICRA expects the healthy demand for packaging papers to drive growth for paper manufacturing companies in the medium term.
Mr. Suprio Banerjee, Vice President & Sector Head, ICRA says: “The domestic paper manufacturing industry is currently at a juncture where the newsprint papers (NP) and printing& writing papers (PWP) segment is gradually losing out to the packaging paper segment. The installed capacity levels in packaging paper is seen picking up progressively, aided by the capex incurred in the recent past over FY2017 to FY2022, along with the capex planned over the next two fiscals till FY2024. For the sample set of entities under study the installed capacity in packaging paper division is expected to be largely at par with non-packaging paper (NP+PWP) capacity by FY2023 and notably surpass the installed capacity by FY2024. On the earnings front, rising raw material prices largely driven by rising waste paper prices and elevated fuel prices (primarily coal),may keep the margin under check in the near term.”
The Y-o-Y revenue growth for the paper industry plummeted in FY2021 owing to pandemic-induced disruptions in the form of factory lockdowns, curtailed demand for NP/PWP segment due to close of schools/colleges and offices working in hybrid modes. However, with the continued demand from FMCG, pharma and e-commerce sectors, particularly for packaging paper, the sector is expected to grow in the range of ~30-31% in FY2022, albeit on a lower base of FY2021. The growth is expected to be in the range of 7-8% in the next two fiscals supported by demand from packaging segment.
One major near-term concern for the paper industry has been rising wood pulp and wastepaper prices and elevated fuel costs, given that the industry also relies on imported coal largely, wherein the prices have risen substantially over the last one year. Though the industry is managing these challenges by passing on such rises to the final customer as well as absorbing, wherever possible, on an aggregate basis the long-term demand potential for the India paper industry remains intact, given the rising penetration of different forms on paper in daily livelihood and is tilting towards the packaging paper segment.
ICRA Limited was set up in 1991 as an independent and professional investment Information and Credit Rating Agency. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.