Industry Risk Score : Paper – Writing & Printing

Executive Summary


India is the fastest growing paper market in the world, with an estimated turnover of Rs. 50,000 crore annually . India’s per capita paper consumption is much lower than the global average, but presents significant potential on the back of its steady growth due to increasing domestic demand in contrast to many developing countries, which have seen demand slowdown or even reducing demand. Overall paper demand in India grew at an annual rate of over 6.5% to reach 17.1 million tonnes (MT) in FY 2017-181.

Writing & Printing (W&P) paper segment, which comprises about one-third of the total paper industry size at 5.06 MT, grew at an annual rate of 4.9% during the period1. Digitisation increasingly poses demand risk to the industry. The segment faces threat from internet use, e-books and computerisation in various fields. Companies will have to embrace the digital revolution and innovate to respond to changing markets in future. Overall demand for the W&P segment however remains favourable and is expected to grow on the back of expected growth in the education sector and growing enrolment as well as increasing number of educational institutions.

A significant proportion of the demand (15-20% in FY 2017-181) is met through imports, though the proportion has been decreasing over the years. Imports are supported by preferential tariffs under free trade agreements (FTAs). Domestic players face competition from cheaper imports, mostly from ASEAN nations, China and South Korea, impacting their profitability.

W&P paper industry faces significant input-related risks due to shortage of wood pulp and non-availability of land for plantation purposes in the country. Wood pulp based capacities (by volume) comprises about 60% of the industry, balance 40% being waste/ recycled paper and agro residue based manufacturing . Rising pulpwood prices in the domestic market and lack of access to quality pulp are hampering capacity additions in the industry, especially at the higher-end W&P segment. Lack of sustainable domestic supply of waste/recycled paper has led to dependence on imports of waste paper, which makes the industry susceptible to price volatility and foreign exchange risks. Seasonal supply and use as fuel source affect the supply of agro residue for the paper industry. The proposed National Forest Policy, 2018, if passed by the Union Government, is expected to address the pulp scarcity issue by allowing public-private partnership for plantation purposes on government-owned degraded forestland in collaboration with forest development corporations of various states and farmers.

Overall, the paper industry is highly fragmented with around 850 units having installed capacity of 25 MT and a capacity utilisation of 85-90% . W&P paper segment faces moderate competition risk. The organised players are differentiated with higher investments in machinery and technology, superior products and better access to raw materials. Waste paper and agro-based mills are relatively less capital intensive and entry barriers are lower and is relatively more fragmented.

The paper industry is capital, water and power intensive and incurs heavy costs. Captive pulp processing and power plants reduce input cost, but increase capital cost. Thus, production capacity has to be maintained at an optimum level to absorb significant capital investments.

Regulatory risks are moderate to high as the industry is subject to stringent environmental and pollution control norms since paper mills contribute significantly to air and water pollution. Players have to implement cutting-edge technology in paper mills for cost reduction, effective raw material/power consumption and compliance with pollution control norms. This poses a challenge for the W&P Paper industry, given its largely fragmented nature. Organised mills have increased research and development spends for the development of indigenous state-of-the-art technology to address energy consumption and environmental concerns.

Key Risks & Attributes

  • Raw material (pulp wood) supply, waste paper pricing in international markets
  • Non-availability of land for captive pulp plantation
  • Non-availability of land for captive pulp plantation
  • Foreign exchange fluctuations
  • Environmental concerns and regulations
  • • Technological obsolescence


India’s fast growing paper market is led by increasing consumption across segments (packaging, decorative, tissue paper and writing and printing). The domestic industry turnover contributes to 3% of global production1. Indian paper industry provides direct employment to over 0.5 million people and indirectly employs 1.5 million people, thus playing a vital role in Indian economy1. The overall paper demand in FY 2010-11 was 11.15 MT and has been growing over the years at a CAGR of 5.5% to reach 17.12 MT in FY 2017-181. Exports rose at a higher rate of 7.9% CAGR from 0.53 MT to 0.98 MT during the period1 mainly driven by demand from the Middle East and Eastern Europe markets.

The paper industry is highly fragmented with around 850 units with an annual installed capacity of 25 MT and 85-90% capacity utilisation3; production capacities ranging from 5T - 500T per day3. Fragmentation poses a challenge for the Indian paper industry as average global capacities are 3-4 times that of Indian players.

The W&P paper sector’s market size stood at 5.06 MT in FY 2017-18 accounting for about 30% of the overall Indian paper industry1. W&P paper includes cream wove, super printing paper, copier paper, maplitho paper (non-surface and surface size), coating base paper, broadly classified as coated (80%1) and uncoated paper (20%1).

Demand & Supply Scenario


India’s per capita paper consumption is a little above 13 kg, low compared with the global average of 57 kg1. However, it has witnessed steady growth in contrast to many developing countries, which have seen demand slowdown or even reducing deman, posing a rather favourable demand situation for the domestic players.

With the ongoing digital revolution, a lot of traditional sectors using paper are increasingly set to become paperless. Digitisation poses a threat to the traditional markets for newsprint and office paper. This has impacted W&P paper consumption adversely. As a result, the market for W&P segment grew at a moderate annual rate of 4.9% and stood at 5.06 MT for FY 2017-181, lower than the overall paper industry’s growth rate.

However, demand for the segment has sustained and managed to grow due to growing urbanisation, proportion of earning population, per capita income and consumption levels. Specifically, improvement in literacy rate as a result of growing school enrolments and rise in the number of educational institutions, have been driving the W&P demand. For FY2017-18, about 7-10% of the W&P paper demand was met through imports; mainly due to cost competitiveness of the imported paper

Rising paper imports, particularly duty-free ones from the ASEAN region, have been adding some pressure on the domestic industry which rose at a CAGR of 7.4% from 1.78 MT in FY11 to 3.17 MT in FY181. Imports are cheaper due to lower raw material and energy costs coupled with no tariff barriers in India. However, the W&P segment hasn’t been as vulnerable as the industrial paper segment of the industry. Its share in the imports was just 11% (0.03 MT; mainly uncoated paper) of total imports.

Location of paper mills also plays a role in demand trends, especially for those manufacturing value-added products. Mills located near ports have an added advantage due to better access to export markets and ability to manage the sales portfolio in response to the domestic demand-supply situation. Domestic paper demand is also skewed with relatively higher consumption concentration in western regions due to higher economic activity. Top paper manufacturing states in India are Maharashtra, Andhra Pradesh and Gujarat, accounting for 30-40% of the country’s production capacity.

Expansion of production capacities in the W&P segment has been rather limited due to shortage of raw material (wood pulp) and slow demand growth. Wood based mills being capital intensive face constraints such as low ROI and long gestation periods further constraining enhancement of production facilities.

Acuité believes that demand in the W&P segment faces moderately high demand risk in wake of the increasing digitalisation. The demand, however, has been stable as a result of growth in the education sector and buoyant economic growth in India. However, shortage of the key raw material - wood pulp and waste/ recycled paper poses a major supply-side constraint for the industry.

Nature & Extent of Competition


The Indian paper industry is highly fragmented, with around 800-850 paper mills3. Of these, around 18-20% mills (19 wood based, 83 recycled based and 49 agro based) are W&P paper manufacturers (2010)2. Large players focus mainly on high value-added segments such as copier paper, while majority small companies are present in the low-end segments. Since a variety of grades of paper are being produced coupled with high switching/exit costs, overall competition risk is low in the industry from product differentiation perspective.

The level of competition and consolidation among paper mills is influenced by the type of raw materials being used for manufacturing of paper. Scarcity of raw material, high power and water consumption, need to be located near forest reserves, effluent discharge and environmental clearances pose entry barriers to wood pulp-based mills. Most of the established players like BILT Ltd., JK Papers Ltd., ITC Ltd., and West Coast Paper Mills Ltd. fall in this category and comprise about 60%2 of the capacity. These players mostly operate in premium product segment and need to continuously focus on maintaining competitive cost structure vis-à-vis imports. They maintain higher entry barriers in the domestic market given the capital intensive nature of their operations.

Waste paper and agro-based mills, comprising remaining 40%2 of the capacities, are relatively less capital intensive and are hence relatively more fragmented with lower entry barriers. Emami Paper Mills Ltd., Khanna Paper Mills Ltd. and Rainbow Paper Mills Ltd. are the key players in this segment. They cater to a larger market, but face tougher competition and margin pressures. Proximity of mills to waste paper generation sources or ports (where waste paper is imported) also plays an important role in keeping the costs low for these players.

Overall, the domestic industry faces immense competition due to cheaper imports from China, South Korea and other ASEAN countries due to reduction in basic customs duty by India under free trade agreements (FTAs) signed with these countries. As per IPMA, paper from ASEAN countries that is produced from raw wood is available at about USD 40 per tonne, as against USD 110 per tonne in India . However, as compared to the overall paper industry, imports in W&P segment pose a lower risk as they comprise only 10-11% of the total paper imports.

Arrangements with the dealer network also poses as an area of competitive risk in the segment. Most of the sales of paper mills, especially small and medium-sized ones, are typically through dealers who source orders from printers. These dealers also handle customer servicing and payment collections on behalf of paper mills. A well-distributed dealer profile and eligibility for supplies under large corporate and government contracts are an important factor for better sales realisation.

Acuité believes that though the risk of W&P segment from cheap imports is lower than the overall paper industry, there is continuous pressure on the established players to remain cost effective given the scarcity of wood pulp and waste paper and pulp in the country.

Input Related Risk


W&P paper industry has significant dependence on wood pulp based raw material and thus vulnerable to changes in its availability and prices. The estimated total W&P production from wood, bamboo and chemical pulp is around 60% and the rest 40% in equal proportions from waste paper/recycled fibre and agro residue such as bagasse, wheat straw and rice husk3. Lack of land for plantation purposes and low forest yields constraint cost-effective pulp supply to the industry.

Current demand for wood pulp is about 11 MT per year against domestic availability of 9 MT per year1. Almost 90% of this demand is being met through industry-driven agro/social forestry and the balance through government sources and imports. As per an industry association estimate, this demand is further expected to rise to 15 MT p.a. by FY 2024-251. Consequently, companies have to necessarily maintain high wood pulp inventory levels and/or depend on import of raw materials.

Global pulp prices have been on a rise putting pricing pressures on pulp importers. Hardwood pulp costs around $770 while softwood is priced around $860 per tonne and prices were up by $240 a tonne during FY18 . Ban by China on waste paper imports in 2018 has further escalated pulp prices. However, since most of the wood pulp imported is of softwood variety, mainly used by Industrial paper sector, impact on the W&P segment has been rather limited.

Here, units with captive pulp capacities such as Ballarpur, ITC Limited – PSPD and JK Paper tend to be in a favourable position. Industry has been taking certain initiatives to address the wood pulp availability related concerns. Some of these include access to degraded forestland, agro/social forestry, clonal production units of seedlings and in-house R&D towards improvement and testing of wood varieties. However, these initiatives may not be sufficient to the meet the demand gap.

Rising cost of power and chemicals has pushed the manufacturing cost of packaging paper. Also, since the industry uses significant amounts of water, proximity of mills to water sources is crucial. Companies also have to adopt water conservation methods to reduce consumption. Mills near raw material sources have transportation and distribution cost advantages.

Acuité believes that input risk to the sector is significant due to its heavy dependence of wood pulp. Although, companies have been using alternative pulp sources to overcome the constraints and opening up of forestland for industrial purposes shall be a key monitorable.

Regulatory Risk


The Ministry of Environment and Forests has framed the new Draft National Forest Policy in March 2018, which, if passed, shall replace the 1988 policy that did not allow use of forestland for industrial purposes. The new policy aims to promote public-private partnership for afforestation and reforestation purposes in degraded forests and improve productivity of forests. However, the draft faces challenges in terms of environment and safeguarding rights and interests of tribal and other forest dwellers, who depend on forests for their livelihood.

Paper manufacturing companies are subject to multiple environmental legislations with respect to air pollution, water consumption and pollution, regulated by multiple central and state government bodies, mostly PCBs (Pollution Control Board). Players have to comply with stringent effluent treatment norms of pollution control boards, subject to amendments at short notice and complete discretion of the government, leading to compliance risks. However, subsequent to India signing the Montreal Protocol in 1991, most of the chemical pulp-based paper mills have been proactive in adopting environment friendly technologies to minimise wastage and maximise recycling/reuse materials to produce eco-friendly paper. Most of the mills have shifted to elemental chlorine-free processes to reduce the discharge of ozone-depleting halons produced during bleaching.

As a result of FTAs signed in January 2010, there are rules binding India to reduce or eliminate tariff rates on more than 89% of agricultural, marine and manufactured products. Since then, there has been a significant increase in share of imports of pulp and paper from ASEAN countries on account of phased reduction in import duties. This poses a dumping and pricing risk to the domestic companies. They have hence reached out to the government to curb imports in view of availability of domestic capacities or re-impose 10% custom duty on ten-member South East nation bloc. The government has also been urged to keep the paper and paper board products in the negative list (no preferential treatment) while formulating new FTAs.

Acuité believes that regulatory risk is low to moderate for the paper industry due to adherence to various environmental legislations and regulations. However, compliance to these extensive norms require continuous investments and affects margins. Government’s response to the Draft National Forest Policy is a key monitorable.

Technology Risk


As the Indian paper industry is largely fragmented, smaller players are prone to technology risks. Raw material and power consumption is higher as compared to a modern paper mills and international counterparts.

  • The pulp and paper sector is a significant energy user and currently ranks fourth in the industrial sector for its energy use. In 2006, the sector represented 6% of global industrial energy use. In light of increasing energy prices, this poses as a challenge for the domestic players.
  • Chemicals are also one of the major cost drivers of paper and the degree of chemical usage depends upon the raw material used in the paper-making process including chlorine, sodium chlorate, caustic soda, sodium sulphate, sodium sulphide, pulping aids, chlorine dioxide, oxygen, calcium hypochlorite, ozone and hydrogen peroxide.

These factors clearly pose risk in terms of productivity, quality management, energy efficiency and costs related to compliance with environmental protection legislation. Some of the smaller player segments/group of mills have reduced capacity resultantly .

Increasing digitisation poses a significant substitution threat to the traditional markets for newsprint and office paper. E-books pose technology/ replacement risks due to their immense storage capacity, navigation benefits, share-ability and portability.

Paper mills, hence, need continuous incremental investments for periodic rebuilding, regular maintenance and technology upgrades to ensure cost effective processes for environmental compliance and optimum utilisation of key inputs such as water, power and chemicals. Modern high-speed machines with proficient debarking and chipping systems, efficient cleaning and bleaching processes and chemical recovery would be the key areas of investment in the aspect.

Acuité believes that technology/ substitution risk to the writing and printing paper industry is high. There is a growing need to upgrade technologies in mills to improve efficiencies and comply with environment protection norms.

Operating Margin


In terms of net sales, the industry witnessed a healthy y-o-y increase of about 14.2% from FY 2015-16 to FY 2017-18. Average EBITDA margins remained in a healthy range of 13.7-16.9% during the period, reflecting a favourable position of the industry. Despite the increasing threat from digitalisation, growth in school enrolments and rise in the number of educational institutions have been driving the demand.

Interest Coverage


With limited leverage and improving income levels, overall, the interest coverage performance was highly favourable with an average of 2.32 times during the period. The average interest coverage improved significantly from 1.60 times to 2.28 times during FY 2016-18 period.

Return on Capital Employed


The average ROCE for the industry remained under pressure throughout the three-year period with an average of 4.2%. It improved marginally at 2.1% in FY 2015-16 and improved to 6.1% in FY 2017-18.

Debt / Equity


The industry showed a stable and favourable debt-equity ratio with an average of 1.33 times during the three-year period. The industry average was at 1.0 time in FY 2017-18, indicating limited reliance on borrowed funds.

GCA Days


The industry presented a favourable liquidity profile in terms of gross current assets (GCA), with an average of 116 days for the three-year period. For FY 2017-18, average GCA of the industry stood at 109 days.

Industry Financials and Industry Average

Fact Sheet (As on Year Ended March 31st)SUM Unit 201803 201703 201603
Net Sales Rs. Cr. 13,910 11,949 10,840
OPBDIT (Excl. NOI) Rs. Cr 2,347 1,736 1,486
Depreciation Rs. Cr. 673 643 824
PAT Rs. Cr. 850 580 278
Net Cash Accruals Rs. Cr. 1,523 1,223 1,102
Networth Rs. Cr. 5,835 5,052 3,790
Total Debt Rs. Cr. 6,108 6,684 6,740

Average Unit 201803 201703 201603
EBITDA Margin % 16.9% 14.5% 13.7%
PAT Margin % 6.1% 6.1% 2.6%
ROCE % 6.1% 4.1% 2.1%
Interest Coverage Times 2.8 2.5 1.8
Debt to Equity Times 1.0 1.3 1.8
Debt to EBITDA Times 2.6 3.9 4.5
GCA Days Days 109 120 119

The entities considered in the static pool are as under:

  • Bindals Papers Mills Ltd.
  • Emami Paper Mills Ltd.
  • J K Paper Ltd.
  • Khanna Paper Mills Ltd.
  • Kuantum Papers Ltd.
  • N R Agarwal Inds. Ltd.
  • Navneet Education Ltd.
  • Ruchira Papers Ltd.
  • Satia Industries Ltd.
  • Shree Rama Newsprint Ltd.
  • Shreyans Industries Ltd.
  • Tamil Nadu Newsprint & Papers Ltd.

IRS Definitions

Acuité Industry Risk Scores are assigned on a six-point scale, with 1 indicating ‘High Risk’ and 6 indicating ‘Highest Safety’. The intermediate scores are defined in the table below:

Industry Risk Score Risk classification of the Industry
ACUITE IRS 1 Highly Unfavourable
ACUITE IRS 2 Unfavourable
ACUITE IRS 3 Neutral
ACUITE IRS 4 Marginally Favourable
ACUITE IRS 5 Favourable
ACUITE IRS 6 Highly Favourable


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.

Our exciting journey started in 2005 with rating of bank borrowers most of whom were small and medium enterprises. At that time, credit rating was a concept known only to large issuers of capital market instruments. Since then, like a caterpillar transforms itself into a beautiful butterfly, we transformed to rate bonds, bank facilities of large corporates and issuers across industries. Along came many achievements - SEBI Registration in 2011, RBI accreditation in 2012, 50,000 ratings in 2018, 5,000 Bond and Bank Loan Ratings in 2017, launch of India's first Android and iPhone app to disseminate rating, tamper-proof QR-code-enabled rating rationales, and SMERA Terminal to name a few.

Now is the time to re-emphasize our increasing footprint across all segments of ratings through the launch of our new name - 'Acuité'.

The name has changed. The spirit of upholding highest standards of analytical rigour, continuous improvement, excellence in our processes and quest for innovation remains the same. We would like to re-emphasize that we will continue to work hard to provide independent, unbiased and timely opinion of highest standard.

Acuité means 'sharpness and clarity of thought and vision'. Let our research and ratings help you take decisions with confidence.

Sankar Chakraborti