65938038 Paper Industry Analysis

7/31/2019 65938038 Paper Industry Analysis

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SAPM CIA-1

INDUSTRY ANALYSIS OF PAPER

INDUSTRY

Submitted By:

RAUNAK DOSHI

1021327

4th MBA M

INDIAN PAPER INDUSTRY


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The Indian Paper Industry is a booming industry and is expected to grow in the years to come.

The usage of paper cannot be ignored and this awareness is bound to bring about changes in the

paper industry for the better. It is a well known fact that the use of plastic is being objected to

these days. The reason being, there are few plastics which do not possess the property of being

degradable, as such, use of plastic is being discouraged. Excessive use of non degradable plastics

upsets the ecological equilibrium.

The Indian Paper Industry accounts for about 1.6% of the worlds production of paper and

paperboard. The estimated turnover of the industry is Rs 25,000 crore (USD 5.95 billion)

approximately and its contribution to the exchequer is around Rs. 2918 crore (USD 0.69 billion).

The industry provides employment to more than 0.12 million people directly and 0.34 million

people indirectly.

Introduction

The Rs. 25,000-crore Indian paper industry accounts for about 1.6% of the worlds paper and

paperboard production even though the country accounts for nearly 16% of the global

population. The Indian paper industrys market size has been estimated at Rs.321 billion,

growing at a CAGR of 10.5% from around Rs. 195 billion in 2003-04 to Rs. 321billion in 2008-

09. In 2009-10, the country produced 9.18 million tons of paper, growing at an average 6-7%compared with 2% growth in developed countries (Source: Assocham).The paper industry

growth is forecast at 8.4% annually, touching 11.5 million tons in 2011-12and 15 million tons by

2015 (Source: Business Line, 7 May, 2010).

In India, paperboard accounts for nearly 47.3% of the total market size, followed by writing and

printing paper (29.6%), newsprint (19.5%) and speciality paper (3.6%) according to CRISIL

Research.

India is among the worlds fastest growing paper markets; an increase in consumption by one kg

per capita can potentially increase annual paper demand by a million tons. Indias paper

production is forecasted to grow at a CAGR of 8.4% while consumption is pegged at a CAGR of

9% till 2012-13 on account of a growing demand for tissue paper, tea bags, filter paper, light


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weight online coated paper and medical grade coated paper(Source: Business Line, 7 May,

2010).

Positive macro triggers : Low per capita consumption: Indias per capita paper consumptiongrew 10.6% in2009-10 (from 8.3 kg in 2008-09 to 9.18 kg) compared with 42 kg in China and

350 kg in developed countries (Source: Assocham), implying a large scope for correction.

Export opportunity: A number of European and US paper mills are shutting down owing to

overcapacity and cost issues, an attractive export opportunity for Indian paper mills. Besides,

Indian paper manufacturers, utilising agriculture-based raw material, possess a sustainable

growth opportunity on account of growing environment consciousness.

Packaging industry: The Rs. 77,570-crore Indian packaging industry (as on April 2010)grewaround 15% year-on-year(Source: Indianpackagingshow.com). The paper board market size was

about Rs. 120 billion in 2009; demand grew at a 3.4% CAGR from 3.7 million tons in 2004 to

4.4 million tons in 2009 (Source: CRISIL Research), riding a growth in the pharmaceutical,

cigarettes, textile, FMCG, consumer durable and retail segments.

Changing lifestyles: With improving domestic living standards, demand for speciality paper

(tissue paper, fine art paper, business card paper and greeting card paper) is expected to increase

at around 8% CAGR

Paper type Uses Varieties Demand drivers

Writing and

printing

paper

Writing, printing,

stationery

Cream wove,

map litho,

paperboard,

copier and

coated paper

Population growth, level of

literacy, public and private

spending on education, level of

business activity, increasing

presence of modern retail

formats and growth in the

printing industry

Paperboard Industrial purpose Kraft paper,

recycled board

and virgin board

Growth in the packaging

industry, industrial production

and development in packaging


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technology and substitution by

other materials

Speciality

paper

Tissue paper, fine art

paper, paper for

specialized industrial

usages such as steel

mill kraft, insulation

grades, etc

Duplex, grey

and white board

and MG posters

Consumption of this paper

variety is linked to the standard

of living as well as per capita

income

Newsprint

paper

Printing of

newspapers and

magazines

Glazed and

standard paper

Growing economy, growing

circulation and readership

MAJOR PLAYERS IN THE INDUSTRY

Ballarpur industries

Hindustan paper corp

ITC

Tamil nadu news print

JK paper

Khanna paper mills

West coast paper mills

Rama newsprint & paper mills

Andhra Pradesh paper mills

Orient paper & ind

Star paper mills


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Demand and supply:

Domestic paper demand grew steadily at a CAGR of 6.5% from6.8 million tons in 2003 to 9.3

million tons in 2009 (Source: CRISIL Research).With rising economic growth, share of the

paperboard segment in total demand has increased. The paperboard segment accounts for around

47% of demand, while the writing and printing, newsprint and speciality paper segment accounts

for nearly 30%, 20% and 3%respectively. It is expected that by 2014, paperboard demand will

grow at a 7% CAGR due to a healthy growth in industrial production and recovery in the

consumer goods sector. Demand for writing and printing paper is expected to grow 6.5% CAGR,

driven by the governments thrust on education and overall economic growth.


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Estimated paper demand

Paper demand statistics 2005 2006 2007 2008 2009 2010 2011E

Per capita consumption (Kg) 7 7.3 7.8 8.3 9.18 9.4 10

Growth (%) in per capita

consumption

4.20

%

6.80

%

6.40

%

10.60

%

3.20

%

6.30%

Indian population (mn) 1,09

6

1,114 1,131 1,147 1,164 1,182 1,199

Growth (%) 1.60

%

1.50

%

1.40

%

1.40% 1.50

%

1.50%

Total paper demand (mn MT) 7.7 8.1 8.8 9.5 10.2 10.2 12

Growth (%) 5.80

%

7.80

%

8.10

%

8.10% 8.10

%

8.10%

Source: Census 2001, National Sample Survey Organisation, IPMA, Karvy estimates

Production: The Indian paper industry is fragmented; the top five producers accounting for

around 20-22% of the total Indian paper capacity. In 2009, the annual operating capacity was 9.1

million tons and annual production was 7.4 million tons, and with currently undertaken

expansions, another 15 lac tons is expected to be added by 2012 (Source: CRISIL Research).

Consumption: As paper consumption is linked to economic development, India has emerged as

one of the worlds fastest growing paper markets. Per capita consumption increased from 8.3 kg

during 2008-09 to 9.18 kg in 2009-10, a growth of 10.6% (Source: Assocham),even though this

is low compared with Japans 250 kg, Koreas 170 kg, Chinas 45 kg, world average per capita

consumption of 56 kg and Asian average of 46kg.

Price: Raw materials and power constitutes the major cost, accounting for around 55-60%of the

total costs. The paper industry faces a demand-supply mismatch, resulting in price rise. The cost

of pulp has been rising after the global slump, reaching an all time high of USD 974 per ton as


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on 2009 (Source: CMIE). Moreover, an earthquake in Chile recently disrupted pulp supplies of

about three million tones, resulting in an increase in price of pulp globally.

Further, the US government withdrew a subsidy of USD 125-150 per ton for the treatment of

black liquor (generated during pulp manufacturing), which is a harmful effluent and by-product

of kraft paper manufacture. The withdrawal of the subsidy discouraged wood use for pulp

manufacture, boosting the demand for its alternative waste paper.

As per CRISIL estimates, the domestic prices of paper are expected to increase over2010-11 and

2011-12. The manufacturers are increasing capacity significantly, adding about1.5 to 2 million

tons between 2008 and 2012, most of which are in the writing and printing segment. Paperboard

prices are likely to increase by 10-12%, owing to lower capacity additions and higher demand

growth.

THE INDUSTRY REGULATION

Government has completely delicensed the paper industry with effect from17th July, 1997. The

entrepreneurs are now required to file an Industrial Entrepreneur Memorandum with the

Secretariat for Industrial Assistance for setting up a new paper mill or substantial expansion of

the existing mill in permissible locations. Foreign participation is permissible. Most of the paper

mills are in existence for a long time and hence present technologies fall in a wide spectrum

ranging from oldest to the most modern.

Import-export


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India imports about two million tonnes of pulp (soft wood and hardwood) and waste paper (sack

waste for unbleached grades, envelopes waste, cup stock for white grades and magazine waste)

for newsprint.

The following prime grades of paper are imported from USA, Europe, Dubai and Singapore:label stock, wet strength papers, tea bag tissue, soft tissue, filter paper, insulation kraft,

extensible kraft, decorative laminates, overlay tissue, thermal papers, digital papers, coated

papers/boards and some specialities. Stock lots of all grades totaling about 200,000 tonnes arrive

every year mostly from USA and Europe. These are imported by traders in major metro cities of

Mumbai, Chennai, Cochin, Bengaluru and Delhi.

India has surplus to export some grades. It exports following grades of papers to Middle East,

South Eastern countries, Eastern Europe and USA: A4 copiers, wood-free (mostly from bamboo

and agro waste by several small mills), MG varieties (from small agro based mills), coated

duplex (mostly recycled fibre) and large quantity of converted products like stationery items,

calendars, books, magazines, childrens play books and comics.

Capacity, Production and Raw material

There are, at present, about 515 units engaged in the manufacture of paper and paperboards and

newsprint in India. The country is almost self-sufficient in manufacture of most varieties of

paper and paperboards. Import, however, is confined only to certain specialty papers. To meet

part of its raw material needs the industry has to rely on imported wood pulp and wastepaper. At

present about 60.8 per cent of the total production is based on non-wood raw material and 39.2

per cent based on wood.

Performance of the industry has been constrained due to high cost of production caused by

inadequate availability and high cost of raw materials, power cost and concentration of mills in

one particular area.

Several policy measures have been initiated in recent years to remove the bottlenecks of

availability of raw materials and infrastructure development. To bridge the gap of short supply of

raw materials, duty on pulp and waste paper and wood logs/chips have been reduced. The
http://www.economywatch.com/business-and-economy/paper-industry.htmlhttp://www.economywatch.com/business-and-economy/paper-industry.htmlhttp://www.economywatch.com/business-and-economy/paper-industry.htmlhttp://www.economywatch.com/business-and-economy/paper-industry.html


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capacity utilization of the industry is low at 60%. About 194 paper mills, particularly small mills,

are sick and /or lying closed. Several policy measures have been initiated in recent years.

Cost structure

Main costs for a paper manufacturer are raw materials, power and fuel, and chemicals.Transportation and employee costs also account for a substantial part of total cost. Over the last

few years, most input costs, especially raw material costs, have been on the rise, due to higher

demand and lower availability. Going forward, with further growth in demand, CRISIL Research

expects input costs to increase in the medium term.

Raw material Forecast

Domestic manufactures use three types of raw materials in the manufacture of paper- forest

products(wood and bamboo), agri-residues (bagasse, straw, cotton, etc.) and wastepaper

(recycled paper). In 2006-07, wood accounted for 30 per cent of production, agri-residues for 32

per cent and domestic waste paper for 17 per cent. Imported wastepaper accounted for 15 per

cent of production and imported pulp for 6 per cent. However, over the next 5 years, with

production expected to increase at a CAGR of 6.7 per cent, demand for raw materials is also

expected to increase correspondingly. However, domestic supply will not be able to keep pace

with demand, and this will result in higher consumption of imported raw materials. As indicated


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by our research, imported raw materials will cater to around 27 per cent of the domestic

production by 2011-12.

Raw Material

(i) For Wood Based industry

Revision of forest policy so that plantation can be raised by industry/Cooperatives of

farmers/State Government. De-graded forest land to be made available to the industry for raising

plantations.

(ii) For Waste Paper based Industry

Import of waste paper at minimum import duty. Introduction of eco labeling system where in

products made from recycled fibre are rated higher than the products made from virgin fibre.

Introduction of modern and effective collection and grading system.

(iii) For Agro Based Industry

Funds to be made available for technology upgradation for handling & processing of agro

residue fibre, in small & medium scale industries.

Domestic paper industry

The domestic paper industry is estimated at around 10 million tonnes yearly. Of this, the writing

and paper segment accounts for 3.8 mt, the packaging grade paper segment is around 4.5 mt and

the newsprint industry about 1.7 mt.

The domestic yearly per capita consumption of paper is only 9.2 kg, much lower than many

other developing economies. The figure in China and Indonesia is estimated at 42 kg and 23 kg,

respectively. However, all segments of the industry are growing at eight to nine per cent or

above.

Forecast:

Growth in Indian paper industry is expected to accelerate.

CRISINFAC estimates the growth at 7.6% in the next 5 years.

Branded copier, coated paper and duplex board segments will grow at a faster pace


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GROWTH DRIVERS

Economic growth

Targeted growth of 12% for manufacturing sector

Increasing literacy rate

Increasing government spending on education

Population growth

Changing demographics

Higher urbanization (2.5% growth)

Higher proportion of young adults

Increasing living standards

Demand for high quality magazines

Lifestyle changes & media growth

Increase in advertising and direct mailers

Growth Pangs


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The increasing demand for paper brings with it new challenges of economies of scale, efficientusage of resources, need to develop and expand sustainable use of fibre, and value chainmanagement, etc. Despite the fact that the Indian Paper Industry holds its importance to thenational economy, unfortunately it stands fragmented.

Paper sector is dominated by small and medium size units; number of mills of capacity 50000tons per annum or more is not more than 25. Less than half a dozen mills account for almost90% production of newsprint in the country. There is a growing need to modernize the Indianmills, improve productivity and build new capacities.

CAPACITY ADDITIONS

Paper industry to witness large scale capacity additions over the next 3 years

Around 2.5 million tones of capacity is expected to come on stream over the next 5 years, withmost large and medium scale players adding capacities. The total capital expenditure is estimated

at Rs 120-150 billion.

CRISIL Research expects the total supply to grow at a CAGR of 6.5 per cent over the next 5

years. Although incremental demand is expected to absorb the growth in capacity over the

medium term, capacity additions in the short term (3-4 years) are expected to be higher than the

incremental production, resulting in an increase in supply.

Medium term projections say that the demand will continue to be above supplies. Paperboard

capacity addition announced 2 lac tpa, mostly in lower end recycled boards.

RATIO ANALYSIS

RETURN RATIOS Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

On Net worth

PBIT Net of P&E/Avg. net worth 4.795429 5.756688 6.325320 5.968650 5.155530 3.826939

PAT/Avg. net worth 1.255359 3.062713 3.613002 3.169735 2.327752 1.091774

On Capital Employed

PBIT Net of P&E/Avg. capital

employed 2.544345 3.240451 3.55066 3.237181 2.590499 1.848033

PAT Net of P&E/Avg. capital employed 0.652654 1.229887 1.56969 1.210630 0.819515 0.197190


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On Total Assets

PBIT Net of P&E/Avg. total assets 1.455027 1.856325 2.12883 1.999266 1.646212 1.185568

PAT Net of P&E/Avg. total assets 0.37323 0.704553 0.94112 0.747678 0.520786 0.126503

No. of Cos. 210 215 215 211 197 179

PROFITABILITY RATIOS Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

On Total Income

PBDTA/Total Income

7.919945

4

11.41641

2

12.22571

6

11.66394

7

9.807782

1

8.521078

6

PBT/Total Income

3.162667

5 6.414481

7.964042

2

7.542479

2

5.182955

9

3.306757

3

PAT/Total Income

1.841971

9

4.582344

6

5.750816

5

5.406462

7

4.026134

4

2.016056

7

On Sales

PBDTA Net of P&E/Total Income Net of

P&E

7.976029

7

10.28931

7 11.0991

10.26966

1

8.736893

9

7.369883

9

PBT Net of P&E/Total Income Net of

P&E 3.162524

5.195171

9

6.769833

3

6.064274

2

4.039879

8

2.075960

8

PAT Net of P&E/Total Income Net of

P&E

1.826218

8

3.329258

8

4.521504

4

3.884765

3

2.865001

7

0.765556

4

No. of Companies 210 215 215 211 197 179


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Capital investments of the industry in the past few years

The Indian paper industry is expected to attract Rs 10,000 crore investments in three to five years

for setting up green field projects as well as capacity expansion of the existing plants

Among others, ITC is setting up one large paper mill. Seshasayee is also almost doubling its

paper production from the present 120,000 tonne per year to 250,000 tonne in three years with an

investment of Rs 350 crore.

Sree Sakthi Paper Mills, the Kochi based paper mill company is investing Rs. 180 million to

expand its production capacity to 85,000 tpa. The company which produces Kraft paper for

packaging and duplex board has two production units one at Chalakkudy and another in Edyar in

Kerala. It has invested high speed pressure formers to improve the quality of duplex board. The

expansion programme was completed by end of April 2010.

GROWTH OF THE INDUSTRY IN THE PAST YEARS

Larger players may shift to use waste paper for raw material. Indian paper industry is struggling

to get raw materials at effective price as there is no government policy to favour paper industry

for forestation and also at importing pulp. Though quality of final product remained a concern

till few years had been sorted out with advanced technology. Among the larger mills, TN

Newsprint and Century Pulp and Paper already have recycled fibre. Internationally, recycled

paper forms 30% of the component as raw materials.

OUTLOOK

The demand for upstream market of paper products, like, tissue paper, tea bags, filter paper, light

weight online coated paper, medical grade coated paper, etc., is growing up. These developments

are expected to give fillip to the industry.

Indian paper industry needs the following for being globally more competitive.


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i. Sustained availability of good quality of raw materials (forest based) and bulk import of

waste paper to supplement the availability of raw materials.

ii. Adequate modernization of the manufacturing assets.

iii. Improvement of the infrastructure.

iv. Quality improvements and reduction in cost of production

v. Import policy conducive for import of material, equipment, instruments, raw materials &

technologies which are bearing of the quality and environment.

DEVELOPMENTAL CHALLENGES

Enhancing Industrys competitiveness to face global competition

Economies of scale

De-fragmentation of industry

Modernization of mills

Building new capacities

Meeting incremental demand of paper

Productivity/quality improvement

Creation of robust raw material base

Environmental upgradation and green technologies

Setting mechanism for collection, sorting, grading and utilisation of recyclable waste

paper

ISSUES AND CONCERNS

The Indian paper and paperboards industry has potential and also capabilities to service thegrowing demand in domestic and international market and also to create huge employmentavenues in the rural-India through agro/production forestry and at mills, provided thecompetitiveness of the value chain is encouraged by the government.

Wood: Indias wood resources are limited therefore, cost of wood is much higher in global

comparison. Since there is conspicuous absence of Government enabling policies favouring

industrial/production plantation, securing future wood supplies will be Industrys biggest

challenge.

Bagasse/ Straw: Though annual availability of agro residues is large yet, this may not be able to

sustain the future growth of the Industry, taking due account of quality of paper required,


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environmental issues involved, etc. Moreover, bagasse is increasingly used by sugar mills for co-

generation of power and no more easily available to the paper mills as raw material.

Energy Cost: The Government of India has recently withdrawn core sector status hitherto

enjoyed by the paper industry. Cost of coal is escalating and prospect of availability of quality

coal is diminishing. The imported coal price had crossed USD 100/MT; such steep price rise hadresulted in escalation of cost of production of those mills which happened to be dependent on

imported coal for generation of steam/power. Also, power purchased from the grid is proving

expensive for the industry.

Top line and bottom line of the industry

Paper, Newsprint & PaperProducts

Rs. Crore (Non-Annualised) Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10

Sales 13187.14 14753.8 16789.68 18100.75 19384.52 19276.43

Industrial sales 12781.04 14514.61 16611.05 17816.51 19087.43 18940.42

PAT 248.34 697.53 992.22 1015.83 802.01 399.15

REFERENCES:

Industry data from PROWESS DATABASE

http://industrytracker.wordpress.com/2011/04/19/paper-industry/
http://industrytracker.wordpress.com/2011/04/19/paper-industry/http://industrytracker.wordpress.com/2011/04/19/paper-industry/


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http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-

svs/paper-/-wood-/-glass/-plastic/-marbles/production-capacity-to-up-nearly-50-with-

new-plant-jk-paper/articleshow/7932244.cms

http://www.business-standard.com/india/news/indian-paper-industry-could-attract-

rs-10000-cr/398440/

http://www.ipma.co.in/paper_industry_overview.asp

http://www.business-standard.com/india/news/indian-paper-industry-could-attract-

rs-10000-cr/398440/

http://paper.industry-focus.net/

http://www.economywatch.com/world-industries/paper/indian.html

http://www.ipma.co.in/percentage_share.asp
http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/paper-/-wood-/-glass/-plastic/-marbles/production-capacity-to-up-nearly-50-with-new-plant-jk-paper/articleshow/7932244.cmshttp://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/paper-/-wood-/-glass/-plastic/-marbles/production-capacity-to-up-nearly-50-with-new-plant-jk-paper/articleshow/7932244.cmshttp://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/paper-/-wood-/-glass/-plastic/-marbles/production-capacity-to-up-nearly-50-with-new-plant-jk-paper/articleshow/7932244.cmshttp://www.business-standard.com/india/news/indian-paper-industry-could-attract-rs-10000-cr/398440/http://www.business-standard.com/india/news/indian-paper-industry-could-attract-rs-10000-cr/398440/http://www.ipma.co.in/paper_industry_overview.asphttp://www.business-standard.com/india/news/indian-paper-industry-could-attract-rs-10000-cr/398440/http://www.business-standard.com/india/news/indian-paper-industry-could-attract-rs-10000-cr/398440/http://paper.industry-focus.net/http://www.economywatch.com/world-industries/paper/indian.htmlhttp://www.ipma.co.in/percentage_share.asphttp://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/paper-/-wood-/-glass/-plastic/-marbles/production-capacity-to-up-nearly-50-with-new-plant-jk-paper/articleshow/7932244.cmshttp://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/paper-/-wood-/-glass/-plastic/-marbles/production-capacity-to-up-nearly-50-with-new-plant-jk-paper/articleshow/7932244.cmshttp://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/paper-/-wood-/-glass/-plastic/-marbles/production-capacity-to-up-nearly-50-with-new-plant-jk-paper/articleshow/7932244.cmshttp://www.business-standard.com/india/news/indian-paper-industry-could-attract-rs-10000-cr/398440/http://www.business-standard.com/india/news/indian-paper-industry-could-attract-rs-10000-cr/398440/http://www.ipma.co.in/paper_industry_overview.asphttp://www.business-standard.com/india/news/indian-paper-industry-could-attract-rs-10000-cr/398440/http://www.business-standard.com/india/news/indian-paper-industry-could-attract-rs-10000-cr/398440/http://paper.industry-focus.net/http://www.economywatch.com/world-industries/paper/indian.htmlhttp://www.ipma.co.in/percentage_share.asp

65938038 Paper Industry Analysis

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