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Page turns for paper companies as sales improve, demand picks up

Business Standard:  February 22, 2019

Mumbai: Improved market conditions have improved sales and profitability of paper mills in the December quarter with expectations of a sharp increase in demand ahead of the new academic year that will begin in Q1, FY 20.

Market leader JK Paper posted a 72 per cent jump in December quarter profit to Rs 120.26 crore this year, compared to Rs 69.81 crore in the corresponding quarter last year. International Paper and West Coast Paper reported 179.16 per cent and 57.28 per cent growth in their December quarter profit. Also, Tamil Nadu Newsprint (TNPL) reported 17.4 per cent and 83.36 per cent jump in their December quarter sales and net profit respectively.

The improvement in paper mills’ financial performance during the December quarter indicates a turnaround after a brief drawdown. During the quarter, paper mills’ raised their products’ prices and cut their cost concurrently which yielded helped improve their profit margins. The positive sentiment is likely to continue in coming quarters, as paper mills see room for a price increase of certain grades.

“Improved market conditions helped growth in sales realisation across the board. Better operating efficiencies and lower finance cost due to deleveraging have contributed to improved performance on a quarter to quarter basis. The Company continues its focus on farm plantation in close proximity to the mills resulting in lower logistics cost,” said Harsh Pati Singhania, Vice-Chairman and Managing Director, JK Paper.

JK Paper is the market leader in branded copier paper and amongst the top producers of coated paper and packaging boards in India with increased focus on value added products like copier, bond paper, security paper, coated paper, virgin fibre packaging boards and high end maplitho paper.

TNPL, meanwhile, reported 6 per cent increase in its paper production at 113,526 tonnes during October–December ’18 quarter compared to 106,558 tonnes in the corresponding quarter last year. The company’s packaging board output also surged to 47,489 tonnes for October – December quarter 2018 versus 43588 tonnes for the same quarter last year.

During the December quarter, domestic paper mills benefitted from stagnant raw material prices also. Industry sources said that average wood pulp prices remained unchanged at $875 a tonne which helped Indian paper mills strategize their business plans in a profitable manner.

“Indian paper mills face stiff competition from imports. During the last few months, India’s paper import has moderated which helped domestic companies to boost their sales throughout the period between April – December,” said Rohit Pandit, secretary general, Indian Paper Manufacturers Association (IPMA).

Meanwhile, specialty paper manufacturer Yash Papers Ltd plans to invest Rs 200 crore to expand their production capacity by 30 per cent to 150 tonnes per day and also doubling its paper products’ manufacturing capacity to 20 tonnes from the existing 10 tonnes. The commercial production on these plants with expanded capacity is set to commence in March 2020.

A Care Ratings report said that India’s share in global demand is growing as domestic market increases, while demand is developed nations is muted. The domestic demand of paper and paper products grew from 9.3 million tonnes in FY 08 to 17.1 million tonnes in FY 18 at a compounded annual growth rate (CAGR) of 6.3 per cent.

The domestic per capital consumption is little over 13 kg, below the global average of 57 kg. The growth triggers include rising income levels, growing per capita expenditure. The capacity utilisation levels and projected demand have caused companies to start building out additional production capacity. The paper industry, however, continues to face challenges such as access to quality and cost competitive raw material and competition from imports.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.