Packaging paper to drive growth for paper manufacturing companies, says ICRA

Rating agency ICRA said that the paper industry is witnessing a paradigm shift from the demand perspective, with growing demand for packaging paper from e-commerce, food and food products, FMCG and the pharmaceutical sector. Meanwhile, demand for newsprint papers (NP) and printing writing papers (PWP) fell due to rising digitisation.

ICRA said that in the medium term, demand for packaging papers will drive growth for paper manufacturing companies.

ICRA’s Vice President & Sector Head, Suprio Banerjee, said, “The installed capacity levels in packaging paper is seen picking up progressively, aided by the capex incurred in the recent past over FY2017 to FY2022, along with the capex planned over the next two fiscals till FY2024. For the sample set of entities under study the installed capacity in packaging paper division is expected to be largely at par with non-packaging paper (NP+PWP) capacity by FY2023 and notably surpass the installed capacity by FY2024.”

The revenue growth for the paper industry plummeted in FY2021 due to pandemic-induced disruptions in the form of factory lockdowns, curtailed demand for NP and PWP segment as schools and colleges were closed along with offices working in hybrid modes.

However, with the continued demand from FMCG, pharma and e-commerce sectors, particularly for packaging paper, the paper manufacturing industry is expected to grow in the range of ~30-31% in FY2022, albeit on a lower base of FY2021. The growth is expected to be in the range of 7-8% in the next two fiscals supported by demand from packaging segment.

ICRA said that a major near-term concern for the paper industry would be rising wood pulp and wastepaper prices along with elevated fuel costs. The industry relies on imported coal largely, wherein the prices have risen substantially over the last one year. Nonetheless, the industry is coping with these challenges by passing on the price rise to its final customer as well as absorbing, wherever possible.

However, the rating agency noted that the long-term demand potential for the India’s paper industry remains intact, given the rising penetration of different forms on paper in daily livelihood and has shifted towards the packaging paper segment.