Companies

Covid-hit paper industry on consolidation mode

V Rishi Kumar Hyderabad | Updated on August 14, 2020

AS Mehta, President of Indian Paper Manufacturers Association and President of JK Paper   -  Business Line

Expects couple of quarters to get back to normalcy

Having taken a major hit due to the Covid-19 lockdown, the country’s ₹80,000-crore domestic paper industry is on a consolidation mode and expects the business to get back to its normal rhythm by next year.

AS Mehta, President of Indian Paper Manufacturers Association and President of JK Paper, said “due to the Covid-19 pandemic situation since March, both inward and outward supply chains of the paper industry have been totally disrupted, and are yet to fully recover. There has also been a severe demand compression due to the lockdown and closing down of educational institutions, commercial establishments and downstream printers, publishers, converters, stationery services among others.”

“Even after the lifting of the lockdown, the situation has not improved much with only a small pick-up in demand. The country’s paper industry is currently operating at less than 50 per cent capacity utilisation due to the sever demand compression and cheap imports flooding into the country,” he told BusinessLine.

Challenging conditions

The paper industry is operating under extremely challenging conditions which have been compounded by substantial quantities of paper being imported into the country at significantly lower costs, especially due to the Free Trade Agreements such as India-ASEAN FTA and Indo-Korean CEPA and other trade agreements like Asia Pacific Trade Agreements, which includes China.

“The country’s paper sector, which registered a growth of about 5-6 per cent last fiscal ended March 31, 2020, is likely to see a de-growth this financial year with poor sales volumes in the first quarter and the ongoing second quarter, where the situation has not improved much. However, the business may take at least couple of more quarters. In a fair assessment, things may get back to normalcy by next year,” Mehta said.

“Among various business segments within the paper industry, the packaging industry has fared well across segments - pharma sector, FMCG and growth of the e-commerce business. However, the education, office and commercial segments have been adversely hit,” he said.

The imports of paper and paperboards, barring the newsprint into the country, have been steadily increasing. In the last nine years, imports have risen at a CAGR of 11.34 per cent in value terms from ₹3,411 crore in 2010-11 to ₹8,972 crore in 2019-20. The imports as per estimates are growing at a very high rate as compared to the increase in domestic production rate with underutilisation of domestic installed capacity.

However, the biggest hope for the industry is the potential for the per capita paper consumption going up from the present 14 kg to about 17 kg by 2024-25. The global average per capita consumption is about 57 kg.

The industry is hoping that the Covid-19 pandemic fades away and business gets back to normalcy with schools, educational institutions, commercial establishments functioning normally within couple of months, so that it would trigger industry volume growth again.

Published on August 14, 2020

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