Indian paper manufacturers are projected to experience a 2-3% revenue decline during the 2024-25 fiscal year, primarily due to subdued realizations and rising raw material costs. The operating margins for Writing and Printing (W&P) paper manufacturers are expected to contract by 400 to 500 basis points, bringing them down to 15-16%. This contraction is driven by increased costs of hardwood and softwood, which are essential raw materials for paper production, and a softening of paper prices.
The surge in domestic wood costs is attributed to heightened demand from competing wood-based industries and reduced wood output caused by lower plantations during the pandemic. Additionally, imported wood prices are expected to rise by 18-20% due to international supply disruptions.
In response to these challenges, paper mills have implemented price increases of ₹3 to ₹6 per kilogram across all W&P grades to ensure the sustainability of their operations and align with rising costs.
Despite these hurdles, the credit profiles of W&P paper manufacturers are expected to remain resilient, supported by deleveraged balance sheets and moderate capital expenditure. The industry anticipates a recovery in operating margins in the next fiscal year as increased plantations over the past two years improve domestic wood supply, potentially reducing domestic wood prices
.
