Industry Risk Score : Paper - Industrial

Executive Summary

The Indian paper industry contributes 3.7% to the global production of paper. The global paper and paperboard market was estimated at ~415 million tonnes (MT) in 2018 and is expected to grow to 470 MT by 2030 owing to rising demand for packaging paper globally especially container boards and carton boards. As per Indian Paper Manufacturers Association (IPMA), the annual turnover of the Indian paper industry is estimated at ~Rs. 60,000 crore. India’s per capita paper consumption currently stands at ~13 kg way below the global average of 57 kg. In fact, the consumption is even below the Asian average of 40 kg signifying positive growth momentum going ahead. The paper industry is broadly classified into four segments - Packaging Paper/Board which contributes ~50%, Printing & Writing (P&W) (~30%), Newsprint (~16%) and Specialty Papers & Others (~4%) to the total industry.

In FY19, overall demand of paper in India grew at 6.4% y-o-y to 18.6 million tonnes (MT) from 17.5 MT in the previous year. Segment wise packaging paper/board grew at a healthy 8.5% y-o-y to 9.7 MT whereas P&W segment grew ~4% y-o-y to ~5 MT. At a broad level, paper consumption in India is rising at a healthy rate on account of rising income levels, increasing literacy rates, improvement in the standard of living and out-of-home consumption.

The industrial packaging paper/board segment stood at 9.7 MT in FY19 witnessing a growth of 8.5% y-o-y. The segment primarily includes kraft paper/board (~60%) and duplex paper/board (~40%). Industrial paper is majorly used for manufacturing cartons, boards, corrugated boxes, folding boxes, liquid packaging boards catering to industries like pharmaceuticals, FMCG, e-commerce. Rising urbanization, increasing penetration of organized retail, growth in FMCG and processed food industries are likely to be the major growth drivers for the segment going ahead.

Raw materials used in production of paper include wood, bamboo, recycled fibre, bagasse, wheat straw, rice husk, etc. In terms of share in overall paper production, ~25% is based on wood/bamboo, ~58% on waste paper/recycled fibre and ~17% on agro-residues (bagasse/wheat straw). Going ahead, access to good quality and cost competitive raw materials to remain a key monitorable for the industry.

Key Risks & Attributes

  • Rising competition among players and through imports
  • Risks pertaining to government regulations
  • Any future constraint in terms of availability of raw material at competitive prices in the country

Demand & Supply Scenario


The industrial paper segment’s market size in India grew at a healthy 8.5% to 9.7 MT in FY19. The rise was supported with increased urbanization and rising penetration of e-commerce.

Despite witnessing this healthy growth, the per capita paper consumption of the country stands at a subdued 13 kg which is lower compared to the global average of ~57 kg. In fact, the demand for industrial paper (packaging paper/board) is expected to grow further led by rising demand in better quality packaging catering to over-the-counter medicines and FMCG products along with sustained rise in e-commerce segment, ban on single use plastic by the government. Further, rising income levels and increasing commercial activity in organised retail is also likely to augment growth. Subsequent to rising demand, manufacturing capacities also have been rising proportionately albeit at a slower pace.

Acuité believes that the rising growth in the domestic industrial paper/board industry trims demand risk. Further, increase in disposable income, and robust growth in sectors such as e-commerce and organized retail is also likely to support growth.

Nature & Extent of Competition


The Indian paper industry is highly fragmented with 750 to 800 paper mills situated across the country. However, the competitiveness is influenced by the type of raw materials being used for manufacturing of paper. For instance, wood pulp-based mills possess high entry barriers owing to scarcity of the raw material, high power & water consumption and location issues on account of the requisite environmental clearances. Further, being capital intensive business players continuously optimize their cost structure’s allowing them to mitigate competition in the domestic market.

On the other hand, waste paper and agro-based mills witness low entry barriers owing to it being relatively less capital intensive. Consequently, there is high level of competition within players which cripples their margins as well. Notwithstanding, at a broad level, organized players continue to be differentiated with better access to raw materials and high level of investments in technology which helps them produce superior products.

Moreover, the domestic industry also faces immense competition of imports from ASEAN countries which are of superior quality and of lower prices. Imports are further supported by progressive reduction in the basic customs duty by India on paper imports under the FTAs signed with ASEAN and South Korea. With the domestic paper manufacturers being less competitive against imports, given their superior quality coupled with lower prices, the industry is likely to continue to face competition going ahead as well.

Acuité believes that the industry remains exposed to moderate competitive intensity and will remain a key monitorable going ahead.

Input Related Risk


Major raw materials used to manufacture industrial paper are waste paper/recycled fibre, agro residue and wood/bamboo. Manufacturing units majorly depend on waste paper which consumes low amount of energy compared to the other raw materials. However, inadequate availability of the same in the country has been a major constraint for the paper industry due to which the domestic players had to depend on imports for meeting their raw material needs. Consequently, players are vulnerable to price volatility & foreign exchange risks which impacts their profitability. However, ban on import of waste paper by China (a major consumer) in early 2018 has reduced the international cost of waste paper which has brought relief to the domestic players in terms of availability and pricing.

Going ahead, with the sector’s lower dependence on wood pulp based raw materials and higher reliance on waste paper can lead to increased exposure.

Acuité believes that input related risk to the sector persists. Going ahead, adapting backward integration can help the sector in mitigating the said risk.

Regulatory Risk


The industrial paper sector is subject to stringent environmental and pollution control norms as paper mills contribute significantly to air and water pollution. Players in the industry have to comply with stringent effluent treatment norms of pollution control boards and depend on complete discretion of the government which leads to high compliance risks. However, most of the pulp-based paper mills have adopted environment friendly technologies to minimize wastage and maximize recycling/reuse materials to produce eco-friendly paper.

The industry is also vulnerable to dumping risk with any reduction in the basic customs duty by India on paper imports under the FTAs signed with ASEAN and South Korea. With the domestic paper manufacturers being less competitive against imports, given their superior quality coupled with lower prices, the industry remains susceptible for the same.

Acuité believes that regulatory risk persists in the paper industry due to requirement of continuous adherence to environmental regulations. In fact, investments are required to comply with these norms which can impact players’ profitability.

Technology Risk


Organized players have already increased investments on research and development (R&D) for technological upgradation to ensure better compliance and optimum utilization of key resources.

However, smaller paper manufacturers are more prone to using obsolete technology where raw material and power consumption is higher as compared to modern paper mills. Adoption of new technology by these players would lead to cost reduction, optimal consumption of raw material coupled with compliance to several regulatory norms. Notwithstanding, this requires investments by players which can impact their profitability leading them to avoid this transition.

Acuité believes that organized players have or are transitioning to newer technologies thereby alleviating risk.

Industry financial performance risk score

Operating Margin

Interest Coverage Ratio
(Marginally favorable)

Return on capital employed
(Marginally unfavorable)

Debt/ Equity
(Marginally favorable)

GCA days
(Marginally unfavorable)

Note: The industry financial performance risk score is provided on a 6-point scale


Acuité IRS should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security of any entity forming part of the industry. Acuité IRS is based on the publicly available data and information and obtained from sources we consider reliable. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind arising from the use of Acuité IRS.