SAPM CIA-1

INDUSTRY ANALYSIS OF PAPER

INDUSTRY

Submitted By:
RAUNAK DOSHI
1021327
4th MBA M

INDIAN PAPER INDUSTRY

The Indian Paper Industry is a booming industry and is expected to grow in the years to come.
The usage of paper cannot be ignored and this awareness is bound to bring about changes in the
paper industry for the better. It is a well known fact that the use of plastic is being objected to
these days. The reason being, there are few plastics which do not possess the property of being
degradable, as such, use of plastic is being discouraged. Excessive use of non degradable plastics
upsets the ecological equilibrium.
The Indian Paper Industry accounts for about 1.6% of the worlds production of paper and
paperboard. The estimated turnover of the industry is Rs 25,000 crore (USD 5.95 billion)
approximately and its contribution to the exchequer is around Rs. 2918 crore (USD 0.69 billion).
The industry provides employment to more than 0.12 million people directly and 0.34 million
people indirectly.

Introduction
The Rs. 25,000-crore Indian paper industry accounts for about 1.6% of the worlds paper and
paperboard production even though the country accounts for nearly 16% of the global
population. The Indian paper industrys market size has been estimated at Rs.321 billion,
growing at a CAGR of 10.5% from around Rs. 195 billion in 2003-04 to Rs. 321billion in 200809. In 2009-10, the country produced 9.18 million tons of paper, growing at an average 6-7%
compared with 2% growth in developed countries (Source: Assocham). The paper industry
growth is forecast at 8.4% annually, touching 11.5 million tons in 2011-12and 15 million tons by
2015 (Source: Business Line, 7 May, 2010).
In India, paperboard accounts for nearly 47.3% of the total market size, followed by writing and
printing paper (29.6%), newsprint (19.5%) and speciality paper (3.6%) according to CRISIL
Research.
India is among the worlds fastest growing paper markets; an increase in consumption by one kg
per capita can potentially increase annual paper demand by a million tons. Indias paper

production is forecasted to grow at a CAGR of 8.4% while consumption is pegged at a CAGR of

9% till 2012-13 on account of a growing demand for tissue paper, tea bags, filter paper, light
weight online coated paper and medical grade coated paper (Source: Business Line, 7 May,
2010).

Positive macro triggers: Low per capita consumption: Indias per capita paper consumption
grew 10.6% in2009-10 (from 8.3 kg in 2008-09 to 9.18 kg) compared with 42 kg in China and
350 kg in developed countries (Source: Assocham), implying a large scope for correction.
Export opportunity: A number of European and US paper mills are shutting down owing to
overcapacity and cost issues, an attractive export opportunity for Indian paper mills. Besides,
Indian paper manufacturers, utilising agriculture-based raw material, possess a sustainable
growth opportunity on account of growing environment consciousness.
Packaging industry: The Rs. 77,570-crore Indian packaging industry (as on April 2010)grew
around 15% year-on-year (Source: Indianpackagingshow.com). The paper board market size was
about Rs. 120 billion in 2009; demand grew at a 3.4% CAGR from 3.7 million tons in 2004 to
4.4 million tons in 2009 (Source: CRISIL Research), riding a growth in the pharmaceutical,
cigarettes, textile, FMCG, consumer durable and retail segments.
Changing lifestyles: With improving domestic living standards, demand for speciality paper
(tissue paper, fine art paper, business card paper and greeting card paper) is expected to increase
at around 8% CAGR

Paper type

Uses

Writing and

Writing,

printing

stationery

paper

Varieties
printing,

Cream
map

Demand drivers
wove,
litho,

paperboard,
copier
coated paper

Population growth, level of

literacy,

public

and

private

spending on education, level of

and

business

activity,

presence

of

increasing

modern

retail

formats and growth in the

printing industry

Paperboard

Industrial purpose

Kraft

paper,

Growth

in

the

packaging

recycled

board

industry, industrial production

and virgin board

and development in packaging

technology and substitution by
other materials

Speciality

Tissue paper, fine art

Duplex,

paper

paper,

and white board

variety is linked to the standard

and MG posters

of living as well as per capita

paper

for

specialized industrial

grey

usages such as steel

Consumption

of

this

paper

income

mill kraft, insulation

grades, etc
Newsprint

Printing

paper

newspapers

of
and

Glazed

standard paper

magazines

MAJOR PLAYERS IN THE INDUSTRY

and

Ballarpur industries
Hindustan paper corp
ITC
Tamil nadu news print
JK paper
Khanna paper mills
West coast paper mills
Rama newsprint & paper mills
Andhra Pradesh paper mills
Orient paper & ind
Star paper mills

Growing

economy,

growing

circulation and readership

Demand and supply:

Domestic paper demand grew steadily at a CAGR of 6.5% from6.8 million tons in 2003 to 9.3
million tons in 2009 (Source: CRISIL Research).With rising economic growth, share of the
paperboard segment in total demand has increased. The paperboard segment accounts for around
47% of demand, while the writing and printing, newsprint and speciality paper segment accounts
for nearly 30%, 20% and 3%respectively. It is expected that by 2014, paperboard demand will
grow at a 7% CAGR due to a healthy growth in industrial production and recovery in the
consumer goods sector. Demand for writing and printing paper is expected to grow 6.5% CAGR,
driven by the governments thrust on education and overall economic growth.

Estimated paper demand

Paper demand statistics

2005

2006

2007

2008

2009

2010

2011E

Per capita consumption (Kg)

7.3

7.8

8.3

9.18

9.4

10

4.20%

6.80%

6.40%

10.60

3.20%

6.30%

Growth

(%)

in

per

capita

consumption
Indian population (mn)

%
1,09

1,114

1,131

1,147

1,164

1,182

1,199

1.60%

1.50%

1.40%

1.40%

1.50%

1.50%

8.1

8.8

9.5

10.2

10.2

12

6
Growth (%)
Total paper demand (mn MT)

7.7

Growth (%)
5.80% 7.80% 8.10% 8.10%
8.10%
Source: Census 2001, National Sample Survey Organisation, IPMA, Karvy estimates

8.10%

Production: The Indian paper industry is fragmented; the top five producers accounting for
around 20-22% of the total Indian paper capacity. In 2009, the annual operating capacity was 9.1
million tons and annual production was 7.4 million tons, and with currently undertaken
expansions, another 15 lac tons is expected to be added by 2012 (Source: CRISIL Research).
Consumption: As paper consumption is linked to economic development, India has emerged as
one of the worlds fastest growing paper markets. Per capita consumption increased from 8.3 kg
during 2008-09 to 9.18 kg in 2009-10, a growth of 10.6% (Source: Assocham),even though this
is low compared with Japans 250 kg, Koreas 170 kg, Chinas 45 kg, world average per capita
consumption of 56 kg and Asian average of 46kg.
Price: Raw materials and power constitutes the major cost, accounting for around 55-60%of the
total costs. The paper industry faces a demand-supply mismatch, resulting in price rise. The cost
of pulp has been rising after the global slump, reaching an all time high of USD 974 per ton as
on 2009 (Source: CMIE). Moreover, an earthquake in Chile recently disrupted pulp supplies of
about three million tones, resulting in an increase in price of pulp globally.

Further, the US government withdrew a subsidy of USD 125-150 per ton for the treatment of
black liquor (generated during pulp manufacturing), which is a harmful effluent and by-product
of kraft paper manufacture. The withdrawal of the subsidy discouraged wood use for pulp
manufacture, boosting the demand for its alternative waste paper.
As per CRISIL estimates, the domestic prices of paper are expected to increase over2010-11 and
2011-12. The manufacturers are increasing capacity significantly, adding about1.5 to 2 million
tons between 2008 and 2012, most of which are in the writing and printing segment. Paperboard
prices are likely to increase by 10-12%, owing to lower capacity additions and higher demand
growth.

THE INDUSTRY REGULATION

Government has completely delicensed the paper industry with effect from17th July, 1997. The
entrepreneurs are now required to file an Industrial Entrepreneur Memorandum with the
Secretariat for Industrial Assistance for setting up a new paper mill or substantial expansion of
the existing mill in permissible locations. Foreign participation is permissible. Most of the paper
mills are in existence for a long time and hence present technologies fall in a wide spectrum
ranging from oldest to the most modern.

Import-export

India imports about two million tonnes of pulp (soft wood and hardwood) and waste paper (sack
waste for unbleached grades, envelopes waste, cup stock for white grades and magazine waste)
for newsprint.
The following prime grades of paper are imported from USA, Europe, Dubai and Singapore:
label stock, wet strength papers, tea bag tissue, soft tissue, filter paper, insulation kraft,
extensible kraft, decorative laminates, overlay tissue, thermal papers, digital papers, coated
papers/boards and some specialities. Stock lots of all grades totaling about 200,000 tonnes arrive
every year mostly from USA and Europe. These are imported by traders in major metro cities of
Mumbai, Chennai, Cochin, Bengaluru and Delhi.
India has surplus to export some grades. It exports following grades of papers to Middle East,
South Eastern countries, Eastern Europe and USA: A4 copiers, wood-free (mostly from bamboo
and agro waste by several small mills), MG varieties (from small agro based mills), coated
duplex (mostly recycled fibre) and large quantity of converted products like stationery items,
calendars, books, magazines, childrens play books and comics.

Capacity, Production and Raw material

There are, at present, about 515 units engaged in the manufacture of paper and paperboards and
newsprint in India. The country is almost self-sufficient in manufacture of most varieties of paper
and paperboards. Import, however, is confined only to certain specialty papers. To meet part of
its raw material needs the industry has to rely on imported wood pulp and wastepaper. At present
about 60.8 per cent of the total production is based on non-wood raw material and 39.2 per cent
based on wood.
Performance of the industry has been constrained due to high cost of production caused by
inadequate availability and high cost of raw materials, power cost and concentration of mills in
one particular area.
Several policy measures have been initiated in recent years to remove the bottlenecks of
availability of raw materials and infrastructure development. To bridge the gap of short supply of

raw materials, duty on pulp and waste paper and wood logs/chips have been reduced. The
capacity utilization of the industry is low at 60%. About 194 paper mills, particularly small mills,
are sick and /or lying closed. Several policy measures have been initiated in recent years.
Cost structure
Main costs for a paper manufacturer are raw materials, power and fuel, and chemicals.
Transportation and employee costs also account for a substantial part of total cost. Over the last
few years, most input costs, especially raw material costs, have been on the rise, due to higher
demand and lower availability. Going forward, with further growth in demand, CRISIL Research
expects input costs to increase in the medium term.

Raw material Forecast

Domestic manufactures use three types of raw materials in the manufacture of paper- forest
products(wood and bamboo), agri-residues (bagasse, straw, cotton, etc.) and wastepaper
(recycled paper). In 2006-07, wood accounted for 30 per cent of production, agri-residues for 32
per cent and domestic waste paper for 17 per cent. Imported wastepaper accounted for 15 per
cent of production and imported pulp for 6 per cent. However, over the next 5 years, with

production expected to increase at a CAGR of 6.7 per cent, demand for raw materials is also
expected to increase correspondingly. However, domestic supply will not be able to keep pace
with demand, and this will result in higher consumption of imported raw materials. As indicated
by our research, imported raw materials will cater to around 27 per cent of the domestic
production by 2011-12.

Raw Material
(i) For Wood Based industry
Revision of forest policy so that plantation can be raised by industry/Cooperatives of
farmers/State Government. De-graded forest land to be made available to the industry for raising
plantations.
(ii) For Waste Paper based Industry
Import of waste paper at minimum import duty. Introduction of eco labeling system where in
products made from recycled fibre are rated higher than the products made from virgin fibre.
Introduction of modern and effective collection and grading system.
(iii) For Agro Based Industry
Funds to be made available for technology upgradation for handling & processing of agro
residue fibre, in small & medium scale industries.

Domestic paper industry

The domestic paper industry is estimated at around 10 million tonnes yearly. Of this, the writing
and paper segment accounts for 3.8 mt, the packaging grade paper segment is around 4.5 mt and
the newsprint industry about 1.7 mt.
The domestic yearly per capita consumption of paper is only 9.2 kg, much lower than many other
developing economies. The figure in China and Indonesia is estimated at 42 kg and 23 kg,
respectively. However, all segments of the industry are growing at eight to nine per cent or
above.

Forecast:

Growth in Indian paper industry is expected to accelerate.

CRISINFAC estimates the growth at 7.6% in the next 5 years.

Branded copier, coated paper and duplex board segments will grow at a faster pace

GROWTH DRIVERS

Economic growth
Targeted growth of 12% for manufacturing sector
Increasing literacy rate
Increasing government spending on education
Population growth
Changing demographics
Higher urbanization (2.5% growth)
Higher proportion of young adults
Increasing living standards
Demand for high quality magazines

 Lifestyle changes & media growth

Increase in advertising and direct mailers

Growth Pangs

The increasing demand for paper brings with it new challenges of economies of scale, efficient
usage of resources, need to develop and expand sustainable use of fibre, and value chain
management, etc. Despite the fact that the Indian Paper Industry holds its importance to the
national
economy,
unfortunately
it
stands
fragmented.
Paper sector is dominated by small and medium size units; number of mills of capacity 50000
tons per annum or more is not more than 25. Less than half a dozen mills account for almost 90%
production of newsprint in the country. There is a growing need to modernize the Indian mills,
improve productivity and build new capacities.

CAPACITY ADDITIONS
Paper industry to witness large scale capacity additions over the next 3 years
Around 2.5 million tones of capacity is expected to come on stream over the next 5 years, with
most large and medium scale players adding capacities. The total capital expenditure is estimated
at Rs 120-150 billion.
CRISIL Research expects the total supply to grow at a CAGR of 6.5 per cent over the next 5
years. Although incremental demand is expected to absorb the growth in capacity over the
medium term, capacity additions in the short term (3-4 years) are expected to be higher than the
incremental production, resulting in an increase in supply.
Medium term projections say that the demand will continue to be above supplies. Paperboard
capacity addition announced 2 lac tpa, mostly in lower end recycled boards.

RATIO ANALYSIS
RETURN RATIOS
On Net worth

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

PBIT Net of P&E/Avg. net worth

PAT/Avg. net worth

4.795429
1.255359

5.756688
3.062713

6.325320
3.613002

5.968650
3.169735

5.155530
2.327752

3.826939
1.091774

employed
PAT Net of P&E/Avg. capital employed

2.544345
0.652654

3.240451
1.229887

3.55066
1.56969

3.237181
1.210630

2.590499
0.819515

1.848033
0.197190

On Total Assets
PBIT Net of P&E/Avg. total assets
PAT Net of P&E/Avg. total assets

1.455027
0.37323

1.856325
0.704553

2.12883
0.94112

1.999266
0.747678

1.646212
0.520786

1.185568
0.126503

No. of Cos.

210

215

215

211

197

179

PROFITABILITY RATIOS

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

7.919945

11.41641

12.22571

11.66394

9.807782

8.521078

PBDTA/Total Income

4
3.162667

6
7.964042

7
7.542479

1
5.182955

6
3.306757

PBT/Total Income

5
1.841971

6.414481
4.582344

2
5.750816

2
5.406462

9
4.026134

3
2.016056

PAT/Total Income

On Sales
PBDTA Net of P&E/Total Income Net of

7.976029

10.28931

10.26966

8.736893

7.369883

P&E
PBT Net of P&E/Total Income Net of

7
5.195171

11.0991
6.769833

1
6.064274

9
4.039879

9
2.075960

P&E
PAT Net of P&E/Total Income Net of

3.162524
1.826218

9
3.329258

3
4.521504

2
3.884765

8
2.865001

8
0.765556

P&E

No. of Companies

210

215

215

211

197

179

On Capital Employed
PBIT Net of P&E/Avg. capital

On Total Income

Capital investments of the industry in the past few years

The Indian paper industry is expected to attract Rs 10,000 crore investments in three to five years
for setting up green field projects as well as capacity expansion of the existing plants
Among others, ITC is setting up one large paper mill. Seshasayee is also almost doubling its
paper production from the present 120,000 tonne per year to 250,000 tonne in three years with an
investment of Rs 350 crore.
Sree Sakthi Paper Mills, the Kochi based paper mill company is investing Rs. 180 million to
expand its production capacity to 85,000 tpa. The company which produces Kraft paper for
packaging and duplex board has two production units one at Chalakkudy and another in Edyar in
Kerala. It has invested high speed pressure formers to improve the quality of duplex board. The
expansion programme was completed by end of April 2010.

GROWTH OF THE INDUSTRY IN THE PAST YEARS

Larger players may shift to use waste paper for raw material. Indian paper industry is struggling
to get raw materials at effective price as there is no government policy to favour paper industry
for forestation and also at importing pulp. Though quality of final product remained a concern till
few years had been sorted out with advanced technology. Among the larger mills, TN Newsprint
and Century Pulp and Paper already have recycled fibre. Internationally, recycled paper forms
30% of the component as raw materials.

OUTLOOK
The demand for upstream market of paper products, like, tissue paper, tea bags, filter paper, light
weight online coated paper, medical grade coated paper, etc., is growing up. These developments
are expected to give fillip to the industry.

Indian paper industry needs the following for being globally more competitive.
i.

Sustained availability of good quality of raw materials (forest based) and bulk import of
waste paper to supplement the availability of raw materials.

ii.

Adequate modernization of the manufacturing assets.

iii.

Improvement of the infrastructure.

iv.

Quality improvements and reduction in cost of production

v.

Import policy conducive for import of material, equipment, instruments, raw materials &
technologies which are bearing of the quality and environment.

DEVELOPMENTAL CHALLENGES

Enhancing Industrys competitiveness to face global competition

Economies of scale

De-fragmentation of industry

Modernization of mills

Building new capacities

Meeting incremental demand of paper

Productivity/quality improvement

Creation of robust raw material base

Environmental upgradation and green technologies

Setting mechanism for collection, sorting, grading and utilisation of recyclable waste
paper

ISSUES AND CONCERNS

The Indian paper and paperboards industry has potential and also capabilities to service the
growing demand in domestic and international market and also to create huge employment
avenues in the rural-India through agro/production forestry and at mills, provided the
competitiveness of the value chain is encouraged by the government.
Wood: Indias wood resources are limited therefore, cost of wood is much higher in global
comparison. Since there is conspicuous absence of Government enabling policies favouring
industrial/production plantation, securing future wood supplies will be Industrys biggest
challenge.
Bagasse/ Straw: Though annual availability of agro residues is large yet, this may not be able to
sustain the future growth of the Industry, taking due account of quality of paper required,
environmental issues involved, etc. Moreover, bagasse is increasingly used by sugar mills for cogeneration of power and no more easily available to the paper mills as raw material.
Energy Cost: The Government of India has recently withdrawn core sector status hitherto
enjoyed by the paper industry. Cost of coal is escalating and prospect of availability of quality
coal is diminishing. The imported coal price had crossed USD 100/MT; such steep price rise had
resulted in escalation of cost of production of those mills which happened to be dependent on
imported coal for generation of steam/power. Also, power purchased from the grid is proving
expensive for the industry.

Top line and bottom line of the industry

Paper, Newsprint & Paper
Products
Rs. Crore (Non-Annualised)

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Sales

13187.14

14753.8

16789.68

18100.75

19384.52

19276.43

Industrial sales

12781.04

14514.61

16611.05

17816.51

19087.43

18940.42

248.34

697.53

992.22

1015.83

802.01

399.15

PAT

REFERENCES:
Industry data from PROWESS DATABASE

http://industrytracker.wordpress.com/2011/04/19/paper-industry/
http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/svs/paper-/-wood-/-glass/-plastic/-marbles/production-capacity-to-up-nearly-50-withnew-plant-jk-paper/articleshow/7932244.cms
http://www.business-standard.com/india/news/indian-paper-industry-could-attractrs-10000-cr/398440/
http://www.ipma.co.in/paper_industry_overview.asp
http://www.business-standard.com/india/news/indian-paper-industry-could-attractrs-10000-cr/398440/
http://paper.industry-focus.net/
http://www.economywatch.com/world-industries/paper/indian.html
http://www.ipma.co.in/percentage_share.asp