India Paper Industry

CONTENTS

Indian Paper Industry

Abstract 2

Introduction 3

Industry Analysis 3

Structure of the industry 3

Current paper market 3

SWOT Analysis 4

Economic Parameters 4

The demand supply 4

The cost structure 4

Cost competitive positioning 5

Focus on operating performance 5

Key Drivers 5

Change in Industry structure 5

Change in competitive conduct 5

Role of Central Government Purchasing 5

Impact of budget on paper industry 5

Forest policy Ð'- main impacts 6

Emerging Global Issues 6

Summary 8

Appendix 1 9

Appendix 2 10

References 11

ABSTRACT

Indian paper industry is the 15th largest in the world and provides employment to 1.3mn people in the country contributing Rs25bn to the Government. The industry has recorded a volume growth of CAGR of 5.47% over the last 3 years. Indian paper industry has a 1:1 correlation with the economy. With the expected GDP growth of 6.9% for FY05 and 7-8% for FY06 as per RBI, the paper sector is expected to record a similar growth rate.

The domestic per capita consumption is the lowest at 6kg compared to the South Asian and the world average of 11kgs and 53kgs respectively. The Indian paper industry has an installed capacity of 6.7mn tons while, the effective capacity is estimated to be lower at 6.15mn tons.

The demand for paper is influenced by various macro-economic factors like national economic growth, industrial production, promotional expenditure, population growth and the Government's allocation for the educational sector. Domestic demand for paper is expected to grow at a CAGR of 6-7%. India's paper demand is expected to touch 8mn tpa by 2010. A leading global paper industry consultant projects a shortage of about 0.7mn tpa by 2010.

Capacity expansions (which cost 50% less than new capacities) have been announced by most players, but would take 1-2 years to be operational. Capacity expansions of over 600,000 tons have been announced by the 7 large players in the sector.

Captive power is an integral part of a paper manufacturing facility in the organized sector and requires an investment of Rs30-40mn per MW. Captive power is 1.5 to 3 times cheaper than Grid power and could result into annual savings of about Rs10mn/MW. Most players in the industry have captive power generation facilities. The captive power capacity is expected to grow steadily, which will help bring down the cost of production. However, rising coal prices and availability of coal are key areas of concern.

Paper exports have risen at a CAGR of 14% pa from 105,000 tons in FY00 to 176,000 tons in FY04. Most of the organized players are planning to expand their reach to the international markets by trying to adhere to the global standards and improving the quality of paper manufactured.

Capacity expansions (which cost 50% less than new capacities) have been announced by most players, but would take 1-2 years to be operational. Capacity expansions of over 600,000 tons have been announced by the 7 large players in the sector.

But the industry still faces certain issues such as:

Ð'* Sustained fiber supply

Ð'* Sustained water supply

Ð'* Sustained energy supply

Ð'* Closed cycle operations

Ð'* Color & chloro-organics in wastewater

Ð'* Odor & VOC's in emissions

Ð'* Solid wastes management

ANALYSIS

INTRODUCTION

The Indian paper industry has an important role to play in Indian economy. Indian paper industry is the 15th largest in the world and provides employment to 1.3mn people in the country contributing Rs25bn to the Government. The Indian paper industry is highly fragmented, and domestic market oriented is largely due to industry policy of excise concessions in the 1970s. In 1980s paper industry was facing a serious oversupply situation, capacity utilization rates being around 60%. In 1990s the government reversed the policy making large units more competitive by removing excise concessions.

The Indian paper industry has an installed capacity of 6.7mn tons while, the effective capacity is estimated to be lower at 6.15mn tons. The industry produced 5.26mn tons of paper in 2003-04. Newsprint capacity in India is estimated at 1.12mn tons however, domestic production is only 0.59mn tons, while consumption of newsprint is 1.1mn tons.

The Indian Paper industry is among the top 15 global players and is the fastest growing market in the world. On other side, due to new investments in writing & printing paper this segment in India is growing at 12 to 13% a year. International pulp prices increased sharply in 2004 on account of increased demand from US and China resulting in an increase of about 5% on an average in the domestic paper prices in India.

To face future challenges, the Indian Paper Industry has been focusing on repositioning of product lines, improving internal efficiencies & making investments in expansion & building production capacities and to further penetrate in the global market. Obviously it is showing its preparedness to meet the challenges. It is estimated, the paper demand would grow at 7% to approx. 8 million tones by 2010.

INDUSTRY