Challenges and Future Prospects for Writing and Printing Paper Industry in India

The operating margin for writing and printing paper manufacturers in India is expected to decrease by 400-500 basis points to 15-16% this financial year. This follows a similar decline last year from the high levels of fiscal 2023, as reported by Crisil Ratings. The decrease is attributed to higher costs of hardwood and softwood and lower realisations.

Revenue is projected to fall by 2-3% this year, following a 6-7% drop last year due to lower prices. The volume is expected to grow by a modest 2-4%, influenced by a shift towards digital communication. However, this is partly balanced by government spending on education and increased office work.

Factors Affecting Profitability

Gautam Shahi, Director at CRISIL Ratings, highlighted two main factors affecting profitability. First, the prices for writing and printing paper are expected to decrease by 5-7% due to low-cost imports from China and East Asia and modest demand. Second, domestic wood costs are rising due to increased demand from other wood-based industries and reduced output from lower plantation during the pandemic.

Imported wood prices are also expected to rise by 18-20% due to international supply disruptions. Despite these challenges, Crisil believes that the credit profiles of paper manufacturers will withstand the downturn. An analysis of 11 major paper makers supports this view.

Future Outlook

Pranav Shandil, Associate Director at CRISIL Ratings, noted that while operating profits will decline, the debt metrics of paper manufacturers will remain healthy due to deleveraged balance sheets and modest debt-funded capital expenditure. The operating margin is expected to recover by 300-400 basis points to 18-19% next fiscal year, as increased plantations improve supply and reduce domestic wood prices.