Indian Paper Industry

INDIAN PAPER INDUSTRY

Paper industry in India is the 15th largest paper industry in the world. It provides employment to

nearly 1.5 million people and contributes Rs 25 billion to the government's kitty. The

government regards the paper industry as one of the 35 high priority industries of the country.

today there are about 515 units engaged in the manufacture of paper and paperboards and

newsprint in India. The pulp & paper industries in India have been categorized into large-scale

and small-scale. Those paper industries, which have capacity above 24,000 tonnes per annum are

designated as large-scale paper industries. The Indian Paper manufacturing Industry is highly

power and capital intensive, is broadly divided into paper, paperboards, and newsprint.

Indian paper industry needs the following for being globally more competitive:

Sustained availability of good quality of raw materials (forest based) and bulk import of

waste paper to supplement the availability of raw materials.

Adequate modernization of the manufacturing assets.

Improvement of the infrastructure

Quality improvements and reduction in cost of production

Import policy conducive for import of material, equipment, instruments, raw materials &

technologies which are bearing of the quality and environment.

Infrastructure

Improvements of key ports, roads and railways and communication facilities which will help the

entire industrial sector including pulp & paper.

Raw Material

For Wood Based industry

Revision of forest policy so that plantation can be raised by industry/Cooperatives of

farmers/State Government. Degraded forest land to be made available to the industry for raising

plantations.

For Waste Paper based Industry

Import of waste paper at minimum import duty. Introduction of ecolabeling system where in

products made from recycled fibre are rated higher than the products made form virgin fibre.

Introduction of modern and effective collection and grading system.

For Agro Based Industry

Funds to be made available for technology upgradation for handling & processing of agro

residue fibre, in small & medium scale industries.

Government Policies

Accelerated depreciation to partially mitigate high capital intensity. Allow duty free imports of

new & second hand machinery/equipment for Technology Up gradation.

Energy Policy

Better availability & quality of coal. More uniform Energy Policy by States.

MARKET METRICS

Over 1000 firms with installed capacities ranging from 1000 metric tons (MT) per annum

to 300,000 MT per annum capacities operate in the country, making India the 15 th largest

paper producing country in the world.

The Indian paper and paperboards industry grew by nearly 7 percent during the year

2008-2009. This is substantially higher than the world average of 2 percent.

India’s paper manufacturing capacity is expected to grow at a Compounded Annual

Growth Rate (CAGR) of 3.7 percent from 7.30 million MT per annum to 8.75 million

MT per annum between 2008-9 and 2009-10.

The domestic demand for paper and paperboard is expected to rise at a compounded

annual growth rate of 6.1 percent by 2008-9

The healthy growth in the paper industry was driven by:

Strong growth in the economy

Increasing sophistication of the Indian consumer

Emergence of packaging as a key driver of product differentiation.

Expanding the circulation of leading English and vernacular newspapers

IMPORT MARKET

The Indian import of paper is expected to continue for the next five years and beyond to meet the

expanding local demand. Indian firms also import pulp from other countries. The Indian paper

manufacturers have started facing serious challenges.

The major threat faced:

Shortage of quality raw material

Restricted availability of wood and thereby pulp made prices to rise

Increase in product cost

Consistent denial of permission by the central government

Advantages:

Government of India has been reducing the peak import tariffs each year.

Pursuing the policy of actively entering into Regional Trade Agreements (RTA) to

countries in ASEAN group.

COMPETITION

The Indian paper industry has an installed capacity of 6.7 million tons per annum (tpa) while, the

actual production was approximately 5.26 million tons of paper in 2008-2009. The local

production is estimated to have reached 6 million tons in 2009. Newsprint capacity in India is

estimated at 1.2 million tons per annum, however domestic production is only around 0.6 million

tons per annum while consumption of newsprint is 1.1 million tons per annum. The domestic

pulp and paper industry is expected to increase its production from the present six million tons to

eight million tons by 2012 to meet the growing demand. Recognizing this, several top players

have initiated capacity expansion plan that is expected to be start commercial production. Further

confronted with limited raw material resources and technology options, the efficiency levels

have to be improved.

MAJOR PLAYERS

The Andhra Pradesh Paper Mill Ltd

Incorporated in 1964, the company has two manufacturing units and an off-site

conversion center with a total capacity of 153, 500 TPA. There are five paper machines installed

in the mill, which produces paper of different M.F & M.G varieties in the range of 21 to 250

GSM. The mill is manufacturing largest range of papers and boards. Annual sales volume is

around USD 82 million.

Ballarpur Industries Ltd – BILT

BILT is India's largest paper company and the only Indian company to rank amongst top

100 paper companies in the world. BILT is India's largest manufacturer and exporter of paper,

with a strong presence in all segments of the usage spectrum that includes Writing & Printing

Paper, Industrial Paper and Specialty Paper.

ITC Limited

ITC is one of the world's most modern and contemporary manufacturers of packaging and

graphic series of boards. ITC's Paperboards business has a manufacturing capacity of over

360,000 tons per year and is India's market leader across all carton-consuming segments

including cigarettes, foods, beverages, pharma, personal care & toiletries, durables and match

shells.

JK Paper Ltd

JK Paper Ltd., India’s largest producer of branded papers is a leading player in the Printing and

Writing segment. The company operates two plants in India, one in the East

JK Paper Mills (JKPM) in Rayagada, Orissa with a capacity of 125,000 tons per year,

and the other in the West – Central

Pulp Mills (CPM), located in Songadh, Gujarat with a production capacity of 55,000

tons per year.

Both plants are ISO 9001 – 2000 and ISO 14001 certified and operate at around 120% capacity

utilization. The aggregate annual output is over 180,000 tons per year of Paper and Pulp, using

contemporary technology.

Pudumjee Pulp & Paper Mills Limited (PUDUMJEE)

A Pune (Maharashtra, India) based Company engaged in the manufacture and sale of Specialty

Papers is a flagship Company of the M.P Jatia Group of Companies. Beginning with

manufacture of India’s first indigenous Greaseproof and Glassine papers for packaging for the

first time in India, PUDUMJEE went on to extend range of papers to include Security Papers

such as MICR Paper, Sensitized Paper, Postal Stamp, Impressed Stamp, Passport and Excise

Banderoll, Laminating Base, Silicone base paper, Wax Match paper, Packaging Papers of

various kinds and types, Tissue Papers, catering to wide range of industrial applications specially

manufactured to meet customers` specific requirements. Starting with a capacity of 6,000 MT of

paper per annum in 1968, PUDUMJEE has now reached a capacity of 38,500 MT per annum of

Specialty Papers.

Seshasayee Paper and Boards Limited (SPB)

Incorporated in 1960, the company was promoted by Seshasayee Brothers Pvt. Ltd., in

collaboration with Parsons and Whittemore, USA. SPB commenced production in 1962, on

commissioning a 20,000 tpa integrated facility comprising a pulp mill and two paper machines

capable of producing, writing, printing, kraft and poster varieties of paper. The plant capacity

was expanded to 35,000 tpa in 1967-68, and in 1976 to 55,000 tpa. SPB undertook various

equipment balancing and modernization programs improving its operating efficiency, captive

power generation capacity. The current installed capacity of the company stands at 1,15,000 tons

per year.

Tamil Nadu Newsprint and Papers Ltd.(TNPL)

Promoted by the Government of Tamil Nadu in 1979, and with an installed capacity of 2,30,000

tpa, TNPL is the largest producer of bagasse based paper.

The West Coast Paper Mills Ltd.

Promoted by Shree Digvijay Cement Company Limited, Sikka, Gujarat in 1955 and located at

Dandeli in Karnataka, the mill manufactures writing, printing and wrapping papers. The Mill is

based on conventional Kraft process using wood as main raw material. Annual Production

capacity is 157,750 TPA. In 1964 the company promoted The Andhra Pradesh Paper Mill Ltd.,

to take over Andhra Paper Mills owned by the Government of Andhra Pradesh.

CUSTOMERS

End users of paper are both industrial and individuals.

The $10 billion Indian pharmaceutical industry, $8.5 billion Indian consumer products

industry sector, and $6.1 billion processed food industry segment, are the major end users

of papers for packaging their products.

Schools, colleges, offices are also major end users of paper.

Book publishing firms, print media and newspaper publishers are another major

industrial end users of paper.

TRENDS IN PAPER INDUSTRY

Paper industry looks to be moving away from a period of relatively low prices. That will affect

what you pay for both office paper and for sending print jobs to commercial printers. The cost of

paper hit a peak in 2009 and has retreated ever since, with reductions in price of around 10-15%

in 2010. But that will change in 2011. The trends:

i. Mills will try to raise prices while continuing to limit production

The cause of the price decreases of the last few years: overproduction. Paper

companies have learned their lesson, and there will be an attempt to limit of the supply of

paper. After all, demand has gone down in recent years, so the reduction in supply has

become critical.

ii. Tax credits for paper industry ended December 31, 2009

Paper companies were the beneficiaries of a major energy tax credit for recycling

waste from the pulping process back into energy to power that process. The tax break,

worth millions to some companies, ends, so the general expectation is that prices will

have to rise.

iii. Demand will rise

As the economy gets better, more paper will be needed. Due to lack of advertising,

publications have gotten smaller and smaller, but that trend may reverse. A quick rise in

demand may mean a sudden jump in prices.

iv. Paper industry is now sales driven; new products are in the pipeline

This has more to do with commercial printing than office use, though there have

been a wider variety of paper options even for regular copier paper. That’s especially

true in the recycled paper area, which leads to..

v. Environmentally-friendly options will continue to grow

Recycled paper used to mean a big drop-off in quality, but no longer. As the

demand for recycled paper goes up thanks to corporate Green initiatives, paper makers

have responded with a bigger selection of papers suitable for office and publication uses.

PORTERS 5 FORCE ANALYSIS

Diagram of Porter's 5 Forces

SUPPLIER POWER Supplier concentration

Importance of volume to supplier Differentiation of inputs

Impact of inputs on cost or differentiation

Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration

Cost relative to total purchases in industry

BARRIERSTO ENTRY

Absolute cost advantages Proprietary learning curve

Access to inputs Government policy Economies of scale

Capital requirements Brand identity

Switching costs Access to distribution

Expected retaliation Proprietary products

THREAT OFSUBSTITUTES -Switching costs -Buyer inclination to substitute -Price-performance trade-off of substitutes

BUYER POWER Bargaining leverage

Buyer volume Buyer information

Brand identity Price sensitivity

Threat of backward integration Product differentiation

Buyer concentration vs. industry Substitutes available

Buyers' incentives

DEGREE OF RIVALRY -Exit barriers -Industry concentration -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes

Rivalry among existing firms

There is large number of players in paper industry, which increases rivalry among them.

There is an intense rivalry as paper has high storage cost. There is a higher level of

rivalry as there is a low level of product differentiation. As the market growth is slow,

firms fight for market intense. Rivalry is measured using concentration ratios. The CR

indicates the percent of market share held by the four largest firms

Bargaining power of suppliers

A producing industry requires raw materials - labor, components, and other supplies. This

requirement leads to buyer-supplier relationships between the industry and the firms that

provide it the raw materials used to create products.

Bargaining power of buyers

The power of buyers is the impact that customers have on a producing industry. In paper

industry, buyers are powerful as they purchase a significant proportion of output, and

they possess a credible backward integration threat, they are weak as they are

fragmented.

Entry barriers

Government policy

Economies of scale

Capital requirement

Special access to distribution

Switching cost

Expected retaliation from present players

Large investments in technology, not capable of alternate uses

Exit barriers

Easy to exit as exit cost is low and it is an independent business.

Threat from substitutes

In Porter's model, substitute products refer to products in other industries. 8 GB pendrive

can hold the same data where 8 tonnes of paper can hold. Substitutes for paper is pen

drives, PCs, etc n in case of packaging, glasses, aluminium foil, plastics, etc.. Threat

arises from the price change of substitute product and also their availability which gives

more choice for the customers.

ANDRAPRADESH PAPER MILLS LTD

The Andhra Pradesh Paper Mills Ltd. was formed with infusion of funds and high calibre

management of the well-known industrial house of Bangurs of Calcutta, who have interests in

textile manufacturing, tea plantation, wind energy generation and trading and investment

business other than paper. In 2001, Coastal Papers Ltd was taken over by the company.

The production capacity of both the units put together is 1,74,000 TPA. There are eight

paper machines installed at the two locations which produce papers of different M.F & M.G

varieties in the range of 21 to 250 GSM as well as newsprint.

With the commissioning of largest continuous digester in the country, the total bleached

pulp production at APPM (Unit Rajahmundry) is 1,81,500 TPA. The paper production capacity

will increase to 2,41,000 TPA after commissioning of 67000 TPA paper machine which is

undererection.

YEAR 2006 2007 2008 2009 2010 AVEGRAGE GROWTH IN PERCENTAGE

SALES 497.56 533.03 628.24 657.33 669.34 5.971%

TOTAL INCOME

509.45 567.09 676.95 667.6 681.83 7.54%

2006 2007 2008 2009 2010 AVEG-RAGE

GROWTH IN PER-

CENTAGE

0100200300400500600700

SALESTOTAL INCOME

ANALYSIS

The average growth of the industry has been 5.97 % was Farley good, were the industry

has grown by 7 % during the year 2008-2009.

The company has been growing well along with the industry growth. As the industry

growth has been ranking higher than the world average.

The total income of the industry has been continuously rising which depicts that the

company has been in a slowly and steadily increasing their earnings growth.

Though the total income has been contributed by various other factors such as generation

of electricity and generation of power paper board has the major contributions.

As could be expected from how the worldwide pulp and paper industry has shaken out

over the past few years, the real movers were the Asians, Which has been clearly

mentioned by the growth of the company.

One cannot replace paper for a new book publication or for fresh usage. Statistics would

reveal that more than 50 per cent of white paper produced annually is used for record

purposes, and if this were to be replaced by CD or magnetic tapes, consumption would

drastically fall.

JK PAPER LTD

J K Paper Limited was incorporated in 1960 under the ownership of Hari Shankar Singhania

Group. The company is engaged in manufacturing and sale of pulp paper, paper board, straw

paper, writing and printing papers and speciality papers.

The company has manufacturing plants at Jaykaypur in Rayagada, Orissa and at Songadh in

Gujarat having manufacturing capacity of 150000 tonnes till June 2005.JK papers distribution

networks includes more than 100 wholesalers and 1700 dealers. It also has 10 warehouses and 4

regional offices.


SALES 848.07 904.04 726.97 1227.94 1252.1 9.91%

TOTAL INCOME

859.75 917.21 746.58 1241.56 1261.98 10.05%

2006

2007

2008

2009

2010

AVE

GRA

GE

G...

0

500

1000

1500

2000

2500

3000

TOTAL INCOMESALES

ANALYSIS

The company’s sales has grown in average by 9.91% which has been grown steady state,

whereas there is a fall in the year 2008 alone as it is accounted for 9 months alone.

The year 2008-2009 has been having a high growth of 24.6% when comparing the other

years.

The sales has been very steady as because the demand for paper have been from

newsprint, notebooks, book printing where there won’t be any sudden raise of demand

for paper.

When the income has been rising it has been raising with the raw materials expenses as it

continuously increases year after year.

Overall, sales of pulp, paper, board and converted materials showed a significant drop in

2009 compared with 2008, from $313.8 billion to $282.6 billion, which specifies a clear

down fall of the demand in the market were companies couldn’t do well.

SESHASAYEE PAPER & BOARDS LTD.

Seshasayee Paper and Boards Limited (SPB), the flagship company belonging to 'ESVIN

GROUP', operates an integrated pulp, paper and paper board Mill at Pallipalayam, Erode-638

007, District Namakkal, Tamilnadu, India.

SPB, incorporated in June 1960, was promoted by Seshasayee Brothers (Pvt) Limited in

association with a foreign collaborator M/s Parsons and Whittemore, South East Asia Inc.,

USA. After commencement of commercial production, having fulfilled their performance

guarantee obligations, the foreign collaborators withdrew in 1969.

Main promoters of the Company as on date are a group of companies belonging to the

ESVIN group headed by Mr. N Gopalaratnam.

The Plant capacity was expanded to 35000 tpa in 1967-68, by modification of PM-2 and

addition of a third Paper Machine (PM-3). The cost of the expansion scheme, at Rs 34 Millions,

was part financed by All India Financial Institutions (Rs 31 Millions)


SALES 469.3 503.95 547.28 561.21 529.02 5.221%

TOTAL INCOME

477.71 511.07 556.48 571.08 537.7 5.30%

2006

2007

2008

2009

2010

AVE

GRA

GE

G...

0

100

200

300

400

500

600

ANALYSIS

The average growth in sales of the company has been 5.22%. This depicts a steady

growth rate.

The sales have fallen down in the recent years due to lack of demand as there were many

substitutes for the paper has been rising in recent years.

Also the raw materials costs have increasing. And this ultimately results in the costs of

production which lead to lag behind other competitors.

The company has also been under debt. It has also been incurring fixed costs, which also

leads to companies decreasing their income growth.

To bridge the shortfall of these 50 million tonnes, paper imports in 2009 should have shot

up to maintain the consumption level. But this did not happen, implying that there has

been no growth in consumption

ITC LMITED

ITC Ltd is the largest tobacco company in India with an annual turnover of Rs.19,844 crore. The

company was incorporated way back in 1910 under the name of Imperial Tobacco Company of

India Limited and was renamed as I.T.C Limited in 1974.

Later in 2001, the dots were removed from the name and today the company is known as

ITC Limited. ITC has 11 subsidiaries engaged in various business activities such as hotel &

restaurants, commercial complexes, computer software, trading and NBFC.


SALES 16236.65 19505.06 21467.38 23247.84 26399.63 32.799%

TOTAL INCOME

16611.54 20007.43 22131.92 23827.27 27061.12 2.91%

2006 2007 2008 2009 2010 AVEGRAGE GROWTH IN PER-

CENTAGE

0

5000

10000

15000

20000

25000

30000

SALES

TOTAL IN-COME

SALESTOTAL INCOME

ANALYSIS

The average growth rate of the company has been 32.7%. There is no fall in the sales

where they could maintain it steadily. They have been managing the sales apart from the

demand.

The company has been showing a good growth rate which ultimately pushes the industry

to grow.

This has also been determined under the growth of raw materials as it has been natural

pulp, which constitutes the major raw materials.

The total income has been rising at a slower rate as it could not withstand with the

expenses paid to the raw materials.

The advent of the digital revolution and environmental protection has affected the

production and consumption of paper worldwide which has adversely affected the

industry.

BALLARPUR INDUSTRIES LTD.

Established in 1945, Ballarpur Industries (BILT) is the flagship company of the Avantha

Group headed by Gautam Thapar. It is the largest company in the domestic paper industry with

an installed paper capacity of 4,81,568 tonnes per annum.

The company also has a 98,550 tonnes per annum of rayon grade pulp capacity in

Kamalapuram at Andhra Pradesh. The company has grown over the past few years organically as

well as inorganically.

It acquired and subsequently merged Bilt Graphic Papers in 2003.

Further, in April 2006, the company merged APR Packaging which is engaged in writing and

printing paper.

The merger increased BILT's paper capacity by 55,000 tonnes per annum.

With a view to cater to the growing demand, the company has chalked a capex plan of Rs.800

crore towards increasing its total capacity by 2.5 lakh tonnes per annum. The project is expected

to be completed by June 2008.


SALES 2085.34 2375.92 1049.67 1076.32 1102.17 15.37%

TOTAL INCOME

2124.33 2395.97 1172.18 1110.16 1127.79 15.86%

20062007200820092010AVEGRAGE GROWTH IN PERCENTAGE

ANALYSIS

The company has been growing at average growth rate of 15.37% which depicts a good

growth rate among the industries.

Though the industry has been doing in reasonably way they could maintain their steady

income level.

They have shown a fair growth rate among the other companies in the industry. Also they

could manage with their raw material costs as it was increasing every year.

The industry has been falling as it could not cope with its competitors who become the

substitutes for the products which is ultimately reducing the demand.

Total reported paper and board production fell to 206.6 million tons from 219.7 million

tons in 2008. This marked the second consecutive year of decline were in the industry

demand has been coming down which depicts the availability of raw materials at cheaper

costs.

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Indian Paper Industry