Indian Paper Sector Set for Recovery by 2025-26: Report
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Synopsis
The Indian paper industry is expected to gradually recover by FY26, despite challenges posed by rising imports and raw material costs. A report by CareEdge Ratings indicates that stabilization in wood pulp prices and increasing demand will enhance operating margins.
Key Takeaways
- Recovery projected for Indian paper sector by FY26.
- Operating margins expected to improve by 2%.
- Growth in paperboard and packaging segment by 8.2%.
- Impact of NEP 2020 on printing and writing paper.
- Challenges from rising imports and raw material costs persist.
Mumbai, March 17 (NationPress) The Indian paper sector is on the brink of a gradual recovery despite the intense margin pressures caused by surging imports and escalating raw material costs in FY24 and the initial nine months of FY25, as revealed in a report published by CareEdge Ratings on Monday.
The study indicates that with the anticipated stabilization of wood pulp prices and a decrease in imports, operating margins for the paper industry are expected to enhance by around 2 percent in FY26.
The paperboard and packaging sector, which accounted for 55 percent of industry revenue in FY24, experienced a growth of 8.2 percent fueled by e-commerce and the prohibition on single-use plastics. Furthermore, the printing and writing paper segment is projected to gain from the National Education Policy (NEP) 2020 and increased government investment in education, positioning the industry for sustained growth, according to the report.
"The Indian paper sector is at a pivotal point. Although challenges such as rising imports and inflation in raw material costs have pressured margins in FY24 and the first nine months of FY25, the sector is set for a rebound. Stabilization of costs and strong demand factors will facilitate margin enhancement by FY26. To stay competitive, manufacturers must prioritize modernization, cost efficiency, and innovations in sustainable packaging," stated CareEdge Ratings Associate Director, D. Naveen Kumar.
In FY23, the industry saw considerable growth in net sales realizations (NSR), driven by pent-up demand following Covid and the resumption of office work. Nevertheless, this spike was short-lived, with sales realizations normalizing afterward. Following FY22, paper imports from China and ASEAN nations surged, resulting in India becoming a net importer in FY24 in terms of volume. Duty-free imports under Free Trade Agreements (FTAs) with ASEAN and South Korea further hindered domestic production. In FY24, domestic paper output decreased by 5.1 percent, with an additional 1-2 percent drop anticipated in FY25, the report noted.
The ongoing influx of imports throughout FY24 has intensified pressure on local manufacturing. A combination of reduced sales price realizations and rising input expenses is projected to lead to a revenue decline of 3-4 percent for domestic paper companies in FY25. Domestic wood prices have reached unprecedented heights owing to increased demand from other sectors and diminished plantation activities during Covid. Hardwood pulp prices rose by 20-25 percent in FY24 and the initial nine months of FY25. Domestic manufacturers faced difficulties in passing these costs onto consumers due to competition from lower-priced imports, the report added.
