Paper Manufactures Continue to Face Cost Pressures in FY14 - India Ratings

New Delhi, October 9, 2013: India Ratings & Research (Ind-Ra) says even though paper companies have hiked prices recently, their margins might not improve. This is because price hikes are driven by cost pressures due to rising prices of domestic wood as well as of imported materials such as pulp and coal due to rupee depreciation.   
Over FY10-13, major paper companies saw a significant increase in raw material, power and fuel costs and the trend has continued in FY14 as well. Paper manufacturers have been unable to fully pass rising input costs to the customers due to higher supply and competition from importswhich has negatively impacted their profitability.
Sustenance or depreciation of rupee from current levels (INR62) could lead to further price hikes in segments where prices are determined by import price parity. However, in the writing & printing paper segment, further major price hikes are not likely in H2FY14 till the time the capacity added during the year is absorbed.  This is because the segment is driven primarily by domestic demand supply dynamics.
Ind-Ra expects that steps taken by large paper companies to achieve operational efficiency through capex on building integrated pulp facility, modernisation of equipment and wood imports would help improve costs structure. This would be key for an improvement in profitability, as input cost pressures and finished products pricing environment are unlikely to improve in FY14.
(Source: Corporate Communications and Investor Relations, India Ratings & Research - A Fitch Group Company.)