Paper Industry Faces Revenue Dip Amid Rising Costs

Crisil projects a 2-3% revenue decline for paper manufacturers this fiscal, following a decrease last year due to low realisations. Rising costs, particularly for wood, and a shift towards digital communication are key challenges. However, supportive measures and future improvements in input costs offer stability.

Paper manufacturers are anticipating a 2-3% revenue decline in the current fiscal year, influenced by lackluster realisations, according to a recent Crisil report. This follows last year's 6-7% price-induced downturn. The sector's operating margins for Writing and Printing (W&P) paper are projected to contract by 400-500 basis points, reaching 15-16% due to expensive raw materials and dwindling realisations.

The volume growth for W&P paper is expected to be subdued at 2-4%, attributed to a persistent shift towards digital communication. This trend may be partially mitigated by increased government spending in education and a return to office-based work environments. Crisil Ratings highlights that profitability is under pressure from falling paper prices, influenced by inexpensive Asian imports and moderate demand.

On a positive note, the credit profiles of paper manufacturers appear resilient amid the downturn, supported by deleveraged balance sheets and cautious capital expenditure strategies. Despite shrinking operating profits leading to minor setbacks in debt metrics, the financial health of these companies remains robust, with expectations of margin recovery next fiscal as domestic wood supply improves.

(With inputs from agencies.)