Is the Paper Sector on the Path of Recovery?

Shares of paper and paper products companies were in focus, rising up to 5% in intra-day trade today on the BSE on expectation of higher demand.

Impacted by the first and second waves of the Covid pandemic, the country's paper sector expects a revival of demand from the current half of the calendar year 2021.

Financial snapshot of listed paper companies in India

The paper industry has seen a recent surge of investment interest. Part of this is a natural consequence of investments in the packaging industry, which is doing well. Investors expect the paper cycle to also remain strong as a result.

However, unlike in the packaging sector, the financial position is less clear in the paper industry.

Approximately 20-25% of the revenues of the paper industry are generated by listed companies, with the rest coming from smaller mills.

In quarter four of 2020-21, a sample of 21 listed companies saw their revenues up 16% year on year (YoY) at Rs 52.4 bn versus Rs 45.2 bn in the same quarter last year.

Operating Profits were up 19% YoY at Rs 9.5 bn vs Rs 8 bn a year ago.

Profits after tax (PAT) were down 5% at Rs 427 crore versus Rs 4.5 bn. Tax paid was up 241% at Rs 1.6 bn vs Rs 460 m. Financing and interest costs were down 29% at Rs 1.2 bn.

The higher revenues are a good sign but this hasn't translated into profits.

The industry had to cope with demand destruction in some segments due to schools and colleges being shut down.

It also had to survive supply chain issues apart from coping with production during lockdowns, so this is actually a decent performance.

In the last fiscal, supply of waste paper for recycling dried up due to lack of transport facilities with the shipping industry hit by global lockdowns. China also became a big buyer of waste paper and pulp, pre-empting supply to Indian mills.

India depends on waste paper pulp imports for close to 65% of all raw material supply.

This is especially important for the packaging industry. This is due to the fact that the US/ Europe have per capita paper consumption of about 55-60 kg/ year versus India's per capita consumption of 15 kg.

How big is the paper and print industry in India?

India's paper and print Industries show large potential. Demand for paper is growing due to an increase in demand for packaged products.

Resources for the paper market are limited, but domestic production is increasing. The paper industry of India provides employment to 4 lakh people directly and 1.5 m indirectly.

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Paper consumption in India is approximately 15 m tonnes per annum. In addition, it's expected to reach 23.5 tonnes per annum by 2025.

The print market in India is growing as well. This is mainly because of the growing demand for high-quality products. In fact, the print machinery production registered a year on year growth of 20% in the last few years.

The value of the print industry across the country was US$4.3 bn as of the fiscal year 2019. Further, this is expected to go up to almost US$5.8 bn by the fiscal year 2024.

An overview on the industry

Going forward, the industry is hoping for better demand as educational institutions re-open.

Bans on plastics could also be a driver since paper is a natural replacement in many cases.

As such, long-term growth in paper consumption is around 6-7% compound annual growth rate (CAGR) in India, whereas demand for paper is flat in the first world.

According to many market analysts, the industry is expected to start consolidating.

Larger, financially stronger players are likely to take over capacity as under-capitalised smaller mills cannot find the resources to upgrade technology.

The top three listed players in India account for about 10% market share whereas they hold 20% in China and around 65% in the US. So, a trend of consolidation is likely.

Economies of scale are considerable in the industry since it's a commodity. It's a capital-intensive industry with high fixed assets and working capital requirements.

The industry could also face competition from big international players who might explore the possibility of opening production facilities within India.

However, there might be scope to increase efficiencies all along the value chain.

How the paper stocks are performing today

JK Paper surged 3% to Rs 230 in intra-day trade today.

Among other stocks, Orient Paper & Industries, Seshasayee Paper & Boards, Ganga Papers, Astron Paper & Board Mill, West Coast Paper Mills, and Ruchira Papers were up in the range of 0.5% to 5%.

Ballarpur Industries and Tamil Nadu Newsprint ended the day up by 0.6% and 0.3%, respectively.

Here's a list of paper stocks and their performance...

Within the paper sector, the top gainers were JK Paper (up 1.4%) and Orient Paper (up 0.8%). On the other hand, Tamil Nadu Newsprint (down 1.3%) was the top loser.

For more detailed updates, check the latest Paper sector results.

You can also compare paper stocks on our website.

JK Paper vs Ashutosh Paper

Tamil Nadu Newsprint vs Astron Paper & Board Mill

Orient Paper vs South India Paper

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