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Paper industry scripts resurgence from pandemic blues as packaging sector packs a punch

A stronger-than-anticipated growth in e-commerce sales due to increasing safety and hygiene consciousness, healthy double-digit growth in domestic pharmaceutical sales, and revival in consumer durable sales are driving demand for packaging paper

March 30, 2022 / 10:28 AM IST
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The Indian paper industry seems to have erased the worst blot the pandemic had inflicted on it, driving the capacity utilisation down from 99 percent to 77 percent between FY19 and FY21, and begun scripting its resurgence to pre-COVID levels.

Experts believe that Indian virgin grade paper sector will continue to operate at near-full capacity for the next three years due to limited capex in W&P (writing and printing) paper segment and healthy demand growth rate seen in packaging board and tissue paper segment. Improving industry fundamental is likely to result in improved pricing discipline for the sector in future.

Price hikes across all the product categories

Coal, chemical, transportation costs have increased for all the mills. Due to the shortage of waste paper, the prices of recycled paper manufactured by grade B&C mills have gone up significantly and the increase is much more pronounced than the hikes taken by Grade A mills.

Channel checks done by Centrum Institutional Research found that, wholesale prices of W&P paper have increased from Rs39-46 per kilogram to Rs75-80 over the last one year. The coated paper prices are up 40 percent to Rs 100 per kg, while craft paper and board prices have increased from Rs31-33 a kg to Rs37-44 a kg over the same time frame. Prices of news print paper, which largely uses recycled paper, have registered the biggest price movement from Rs37 a kilo to Rs85 a kilo.

The uptick in demand and inflationary trend has led to higher than normal demand at distributor level. “The troika of demand normalisation, higher level of demand at channels and favourable pricing has created a happy scenario for likes of JK, West Coast and Andhra Paper,” a report from Centrum Research said. These factors can result in windfall gains for these companies over the next couple of quarters.

Paper industry in India

The Indian paper industry is estimated to be about 20 metric tonnes per annum (MTPA), of which carton boards and container boards (corrugated boards) constitute the largest share (55 percent), followed by writing and printing paper (25 percent), specialty paper (10 percent) and newsprint (10 percent).

The industry is expected to average an annual growth rate of 8-9 percent over the next five years, led by robust growth in packaging grades. Within carton boards, the consumer packaging segment (40-50 percent of total paperboard volumes), is expected to clock 8.5-9.5 percent CAGR in the same period, driven by increased volumes in end-user segments such as household appliances, FMCG products, ready-made garments, pharmaceuticals and e-commerce.

Further, the ban on single-use plastics is expected to fuel the demand for paper based alternatives.

Packaging industry

Industry sources suggest that all major capacity expansions in the paper sector are planned towards packaging board segment, but still the segment is likely to operate at almost full level as the segment is growing at a healthy 10-12 percent rate along with sharp surge in paperboard exports. On the supply side, very limited large players like ITC Ltd, JK Paper and West Coast Paper Mills are in a position to tap the opportunity due to heavy capex requirement for setting up a new packaging board plant.

Demand revival augers well for packaging industry

According to a report from CRISIL, paper packaging industry is expected to bounce back with a strong revival in consumer spending as the impact of pandemic has subsided to a large extent. It expects the industry to grow at 15 percent this fiscal after a decline of 8 percent last year.

“A stronger-than-anticipated growth in e-commerce sales due to increasing safety and hygiene consciousness, healthy double-digit growth in domestic pharmaceutical sales, and revival in consumer durable sales are driving demand for packaging paper,” a report from CRISIL said.

Consequently, capacity utilisation of paper packaging players is seen rising to pre-pandemic levels which coupled with increased sales volume and 6-7 percent higher realisations mean revenue growth will be healthy this fiscal.

With improved market conditions businesses are also expected to undertake capex programmes for capacity enhancement over FY23 and FY24.

Major players

JK Paper recently enhanced its capacity through the inorganic route as it acquired 136 KTPA (Kilo Tons per Annum) capacity of Sirpur Paper Mills and it also commissioned a new 200 KTPA packaging board plant in January 2022. It now has a total paper and board capacity of 6.25 lakh MTPA.

West Coast Paper had augmented its capacity in FY20 when it had acquired 241 KTPA capacity of Andhra Paper. Its current capacity stands at 3.5 lakh MTPA.

ITC Ltd, the diversified conglomerate, is also one of the leading players in the speciality paper and value added paperboards segment. It is focusing on providing sustainable packaging solutions to the exports market in a big way while maintaining its leadership in the domestic market.

It has a paper /paper board capacity of 9 lakh MTPA and a pulp capacity of 4.5 lakh MTPA.

In a media interaction some time ago, Sanjiv Puri, Chairman and Managing Director, ITC Ltd had said that, “ITC is making significant investments in value-added segments with focus on sustainable packaging”.

According to him, investments have been made in pulp import substitution at its Bhadrachalam unit, developing a cost-competitive fibre chain, emphasizing sharper focus on operational efficiency by leveraging data analytics, and Industry 4.0 enabled margin expansion.

“There are new products that have already been launched while more are in development stages. We have developed a sustainable fibre value chain which strengthens our competitiveness,” Puri said.

The company is making conscious efforts to reduce plastic usage across industries including its in-house personal care, foods and hotel businesses.

Over 50 use cases developed and implemented across various spheres of the business enabling the paper & packaging business to expand margin by 230 basis points over last 2 years, ITC had said in its Q3FY22 earnings review.

ITC’s paperboard, paper and packaging division grew by 38.5 per cent on year in Q3FY22 to Rs 2,046 crore while segment profits (before interest and tax) rose 57 per cent year on year to Rs 448 crore.

The division contributed ~11 per cent to total revenues and approximately 8 per to the profits (before interest and tax).

During Q3FY22, the paperboard volumes for ITC were at record high on the back of demand revival across most end-user segments and exports. Its value added Paperboard segment witnessed a strong growth aided by higher realisation, strategic capacity expansion and strong exports performance while the packaging and printing business had a strong outing both in domestic and exports segments.


Experts believe both JK Paper and West Coast Paper stocks are likely to get re-rated and may trade well above historical average multiple due to strong growth visibility over the long term. They expect both the players to  continue with their aggressive growth for their businesses through organic expansion (by putting packaging board capacity through brownfield route) or acquisition of existing company (to further consolidate their position in most profitable writing and printing paper segment).

According a report from Edelweiss Research, value added paperboard segment for ITC, in spite of high base, is likely to grow aided by higher realisation, strategic capacity expansion and strong exports performance. “Higher realisations, investments in pulp import substitution, cost-competitive fibre chain, sharper focus on operational efficiency leveraging data analytics and industry will help in margins,” the report added.

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Gaurav Sharma