Indian Paper Industry PDF
Indian Paper Industry PDF
Indian Paper Industry PDF
Newspaper (NP):
NP largely derives its demand from the print media and the levels of pagination in the newspapers which generally tend to be higher during economic upturns on account of higher advertisement budgets. The volatility in the domestic newspaper segment is further accentuated by zero import duty protection, higher bargaining power of buyers i.e. media publishing houses which have higher flexibility to import in relation to consumers in PWP & IBP
segments. This segment is largely imported now as the cost and quality of imported paper is much better than the ones that are available in the domestic market.
Coated Paper:
Coated Paper is largely used in high end printing and publishing purposes such as corporate brouchers and publicity material which is the highest value added product in the PWP segment.
The major inputs for the paper industry include the fiber (derived from Wood, Waste Paper and agri-residues), Power & Fuel and chemicals. These items account for 75% of the total cost of paper production. The individual cost structure varies according to the companys product profile and manufacturing process. Companies using Pulp/Waste paper have relatively lower chemicals and P&F cost, whereas those using Wood for in-house pulping capabilities have higher chemical and P&F cost.
Wood:
The availability of fiber for the domestic producers has always remained an area of concern irrespective of the source of fiber they are based on. On the one hand the availability of wood for pulp making has been constrained on account of government regulations and limited possibility for manufacturers to have captive plantations. On the other hand the availability of waste paper has been limited because of low collection levels of waste paper due to alternative uses of such waste in other applications like packaging. For the industry players based on agri-residues, the availability has been affected by cycles in agricultural produce as well as alternative use in power generation which not only affects the constant availability but also results in volatility in prices. To improve the availability of wood during one decade almost all the integrated paper mills have started initiatives such as farm forestry/Contract farming to promote wood as a commercial paper among the farmers. However, inspite of these efforts the wood prices have seen an increase due to increasing competition among players for wood sourcing as well as long gestation period in farm forestry. Further, wood as a commercial crop has to compete with other cash crops such as Cotton, Sugarcane, and Tobacco etc which have seen a constant increase in prices.
Nearly 2.5 tons of Baggasse or 2.3 tons of wheat straw is required to produce 1 Ton of paper.
Recycled Fiber/Waste Paper Based: Of the total 653 paper mills in operation more than two thirds of mills use recycled fiber/waste paper as the primary fiber source contributing about 4.72 million tons per annum or 47% of the countrys total production of paper/paper boards and newsprint.
Nearly 1.33 tons of recycled/waste paper is recycled/waste paper is required to produce 1 ton of paper. Stock to invest in the paper sector:
Currently the stock which can be considered for investment in the paper sector is only TNPL. All stocks in the paper sector have seen a very moderate performance on account of rising wood prices which have seen significant increase over the years. Further, the companys inability to pass on rise in raw material cost has eroded the EBITDA margins of the players in the paper sector. We recommend a Buy on the stock with a target price of Rs.121/- for the stock.
1) The company has got presence in value added products which has seen a constant increase in their realizations. 2) The company has constantly increased its capacity and currently has a capacity of 0.4 MTPA which will drive its growth. 3) The company has historically maintained Capacity utilizations higher than the industry average which will continue in the near future. 4) The company has tied up with 7 co-op sugar mills in Tamilnadu for supply of 10 Lakh MT of bagasse in return for steam which will be supplied to the sugar mills. 5) The company has been able to maintain a EBITDA margins of 15-20% and is likely to maintain this margin in the medium term because of backward integration initiatives. 6) The stock at the CMP of Rs.98/- is trading at a PE of 6x its FY13 EPS and has an attractive dividend yield of 5%.