Business

Paper stocks report strong earnings growth in H1FY19 on high demand

Updated : November 16, 2018 11:25 PM IST

Maharashtra is the largest producer of paper in India followed by Andhra Pradesh, Gujarat, Uttar Pradesh and West Bengal.

The Indian paper industry currently has a turnover (net of taxes) of Rs 50,000 crore and contributes Rs 4,500 crore per annum to the national exchequer.

As paper and pulp prices recorder high levels during July and August, 2018, shares of paper manufacturers gained up to 50 percent in H1FY19.

Main Players

Paper industry is broadly classified into four segments namely printing and writing (P&W), packaging paper and board, specialty papers and others, and newsprint. P&W and packaging paper and board are the two larger and more profitable segments in the sector with ITC, JK Paper, Tamil Nadu Newsprint & Papers and West Coast Paper Mills, being the largest players in the country. The top four players account only 10 percent of the paper market share.

In India, the paper industry is scattered with more than 1,000 mills, of which only 750 mills are operational. Out of 750, only 100 mills are actively operational. Pulp is the primary raw material used for manufacturing of paper and can be sourced from wood, agriculture residues, wastepaper etc.

Demand

Macro factors drive the demand for paper in India. Demand for paper is expected to grow by 53 percent in the next six years, largely on account of growth in rural demand. The threat of an increase in imports is now reduced due to rupee depreciation, high realisations for paper globally and the threat of imposition of anti-dumping duty. On the other hand, environmental crackdown is driving further consolidation in the Chinese paper industry, which actually helped domestic players to gain market share.

Capacity

As per CARE Report, the domestic demand for paper in India grew from 9.3 million tonnes in FY08 to 17 million tonnes in FY17 at a CAGR of 6.9 percent. The report expects overall demand for paper to touch 18.5 million tonnes in FY19 and 20.7 million tonnes in FY20. The Indian paper industry accounts for approximately four percent of the world’s production of paper.

Maharashtra is the largest producer of paper in India followed by Andhra Pradesh, Gujarat, Uttar Pradesh and West Bengal. The Indian paper industry currently has a turnover (net of taxes) of Rs 50,000 crore and contributes Rs 4,500 crore per annum to the national exchequer. More importantly, it’s providing employment opportunities to two million people directly and indirectly, mostly in rural areas.

Growing demand and increase in paper prices have helped paper manufacturing companies to improve their margins and profitability. As demand for paper is expected to remain strong as well as prices are expected to go higher, manufacturers are expected to report strong numbers going ahead. The H1FY19 ended with a strong earnings growth in terms of revenue as well as margins, and H2FY20 is further expected to remain strong. Hence, paper stocks will remain in focus primarily on account of higher demand and paper prices.

Speaking earlier on paper and pulp prices, AS Mehta, president and director, JK Paper, said India remained the fastest-growing market and global paper industry is growing at 2-3 percent.

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Paper stocks report strong earnings growth in H1FY19 on high demand

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