Key Points
Margins to recover from 20-year low of 6.9%
Global pulp prices bottoming out in late 2024
Weakened rupee and timber price moderation helping
Industry consolidation favoring large players like ITC and JK Paper
As per the report, This growth is attributed to several key factors, including a high operating rate within the domestic paper sector, the anticipated price hikes following the bottoming of global pulp prices in December 2024, and a weakened rupee.
"We believe the Indian paper industry's EBITDA margin is likely to improve gradually to historical levels of 16-20 per cent over the next four to six quarters," the report added.
Additionally, the report highlights expectations of a moderation in timber prices, driven by increased plantation activities from wood-based industries.
The EBITDA margin of the Indian paper industry dropped to its lowest level in the last two decades (6.9 cent in FY25 compared to a 20-year average of 16.6 cent) due to a steep increase in timber prices and weak pricing power brought on by a sharp slowdown in domestic demand and increased pressure from cheap imports from China and Indonesia.
The report added that the current environment for the Indian virgin-grade paper industry is different from previous weak cycles in terms of a higher degree of industry consolidation due to the aggressive expansion strategy of a few large players.
According to the report, the large paper companies would target growing their market share in slow-growing paper segments, despite a material improvement in the balance sheet position and the industry operating at a high utilisation rate.
The report added that the industry is likely to operate at a high utilisation rate in future due to limited capex, despite material improvement in balance sheet position.
The major players in the Indian paper industry include ITC Limited, Ballarpur Industries Limited, JK Paper Limited, Tamil Nadu Newsprint & Papers Limited (TNPL), and West Coast Paper Mills Limited.
