Companies

Covid-19 crumples paper industry, says CRISIL

Our Bureau Hyderabad | Updated on May 20, 2020 Published on May 20, 2020

40-45% of paper mills are in Covid-19 red zones

The extended lockdown to check the spread of the Covid-19 pandemic has dealt a nasty blow to the highly fragmented paper industry in the country, according to rating agency CRISIL.

Around 80 per cent of the nation’s paper capacity of 25 million tonnes (mt) (750-800 mills) is clustered around six States that account for half of India’s gross domestic product. They are also major consumption hubs.

The problem, according to the note, is that 40-45 per cent of these mills are in Covid-19 red zones and another 40-45 per cent in orange zones.

Low demand

The industry is grappling with weak demand, shortage of raw material and limited availability of labour, which are affecting capacity utilisation. CRISIL Research expects demand for paper and cardboards to contract 10-15 per cent on-year, affecting all categories of products.

The shutdown of schools, colleges and majority of offices has crimped demand for writing and printing (W&P) paper. Industrial paper usage has also rumpled because of weakness in the FMCG, consumer durables and apparel segments, which account for 50-60 per cent of such demand. To boot, exports have fallen.

Consequently, the financials of paper-makers, especially the small- and mid-sized ones (because of high fragmentation), will be materially affected.

In the financial dispersion analysis for a set of 125 companies that account for 35-40 per cent of the total installed capacity and had a total debt of ₹20,370 crore as of FY2019, 25 firms with ₹10,777-crore debt burden have an interest coverage ratio of 2, and so are at high risk. The debt/Ebitda ratio is 3 for almost half of the sample set, and almost a quarter of the sample set might face issues in meeting short-term obligations as the current ratio is less than 1.

In the report, titled ‘Covid Corollaries’, CRSIL stated that the bulk of the capacity in the top six States are at risk. Almost half of the installed capacity of paper mills is in the red zones in the top six States which account for 80 per cent of installed capacity.

Published on May 20, 2020

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.