India’s writing and printing (W&P) paper manufacturers are facing a contraction in operating margins, projected to decrease by 400-500 basis points to 15-16% in the current fiscal year. This decline follows a similar reduction in the previous fiscal year from the unusually high levels seen in fiscal 2023. The primary factors contributing to this contraction include escalating costs of hardwood and softwood—essential raw materials for pulp production—and decreasing realisations due to low-cost imports and modest demand.
Revenue for W&P paper manufacturers is anticipated to decline by 2-3% this fiscal year, following a 6-7% decrease in the previous fiscal year. This trend is largely attributed to subdued realisations, with W&P paper prices expected to drop by 5-7% due to competitive pressures from imports, particularly from China and East Asia, which collectively supply a significant portion of India’s uncoated and coated paper demand.
The surge in domestic wood costs is driven by increased demand from various wood-based industries and a reduction in wood output caused by decreased plantation activities during the pandemic. Additionally, international supply disruptions are expected to elevate imported wood prices by 18-20%, further impacting the cost structure of paper manufacturers.
Despite these challenges, the credit profiles of W&P paper manufacturers are expected to remain stable, supported by deleveraged balance sheets and modest debt-funded capital expenditures. Looking ahead, operating margins are projected to recover by 300-400 basis points to 18-19% in the next fiscal year, as increased plantation efforts over the past two years are anticipated to improve wood supply and reduce domestic wood prices.
