The paper industry has had an excise break that not many would have anticipated. This is, however, not likely to have any beneficial impact on their profitability. Nor is this move likely to boost volumes, as demand for writing and printing paper tends to be locked in low single-digit territory. The excise cut does not alter our fundamental view of the paper sector; its fortunes are likely to be driven more by the international price trends. The price cycle is now favourable to the industry to an extent, but such cycles change rapidly in this industry. The reduction in peak rate to 15 per cent will not have an adverse bearing now; it could, however, test the competitiveness and profitability if the paper price cycle takes a turn for the worse. This need not be a worry for at least the next six-to-twelve months.

BL Research Bureau

(This article was published in the Business Line print edition dated March 1, 2006)
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