MSMEs in paper packaging see revenue jump this fiscal with demand recovery – The Financial Express

Clipped from: https://www.financialexpress.com/industry/sme/msme-eodb-paper-packaging-units-see-revenue-jump-in-fy22-amid-demand-recovery/2380513/

Ease of Doing Business for MSMEs: The key driver for demand has been the growth in sectors including e-commerce, pharmaceuticals, ready-to-eat, and others during the pandemic, according to experts.

The raw material and energy-intensive paper packaging industry see at least 40-50 per cent of the total cost going into the raw material purchase. (Image: Pexels)

Ease of Doing Business for MSMEs: While prices of raw material – waste paper (recycled fibre) — had jumped from Rs 10 per kg pre-Covid to around Rs 30 per kg this year, though stable now, the paper packaging industry is looking at a significant jump in revenue in the current financial year on the back of revival in consumer spending. The key driver for demand has been the growth in sectors including e-commerce, pharmaceuticals, ready-to-eat, and others during the pandemic, according to experts. 

“Paper packaging industry is back to pre-Covid levels. Even during Covid, it had started picking up after lockdown and had revived fastest among all segments in the paper sector. The industry is mostly dominated by smaller units while the paperboard segment is led by larger units,” Rohit Pandit, Secretary General, Indian Paper Manufacturers Association (IPMA) told Financial Express Online.

The paper industry is made up of segments including newsprint, writing and printing, packaging and paperboard, speciality paper like tissue and other residual items. According to Crisil, the domestic paper industry is dominated by the paper packaging segment that accounts for 50-55 per cent of the sector’s capacity. On the other hand, around 30 per cent is led by writing and printing paper and around 15 per cent is contributed by newsprint, and remaining by speciality paper and other segments. The paper packaging segment involves paperboard and kraft paper used in pharmaceutical, e-commerce, consumer durables, fast moving consumer goods, and ready-made garments segments. 

“E-commerce consumption of paper packaging has been significantly sharp. From 2018-19, it has substantially gone up as e-commerce had grown during Covid and lockdown period. Similarly for pharma, the growth has been there. India imports lots of waste paper and is used as feedstock for making packaging material paper. Since there is no standardised scientific way of segregation and collection of waste paper waste in India, businesses are forced to rely on imported paper. If we are able to get around this bottleneck then a lot of the paper in India can get recycled effectively,” Chandrasekhar Rajagopalan, President, Indian Flexible Packaging & Folding Carton Manufacturers Association told Financial Express Online.

Also read: For 50% MSMEs, govt schemes didn’t help during Covid: Survey of 150 MSMEs

A strong revival in consumer spending amid the waning impact of the pandemic will help the paper packaging industry bounce back with revenue growth of 15 per cent this fiscal, after a decline of around 8 per cent in the previous fiscal, rating agency Crisil had said on Tuesday. Moreover, “Capacity utilisation and operating leverage will also improve and, together with continued high realisations and almost stable raw material prices (mainly waste paper), will help in improving the operating profitability of packaging paper players this fiscal.” 

With capacity utilisation improving, businesses are also expected to start capital expenditure for improving their capacity by around 10 per cent over FY23 and FY24. “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. Consequently, capacity utilisation of paper packaging players is seen rising to over 80 per cent this fiscal from 65-70 per cent in the last. Increased sales volume and 6-7 per cent higher realisations mean revenue growth will be healthy this fiscal,” said Anuj Sethi, Senior Director, Crisil Ratings.

Subscribe to Financial Express SME newsletter now: Your weekly dose of news, views, and updates from the world of micro, small, and medium enterprises

Packaging paper — by and large made from recycled fibre has been under strain during Covid due to issues around collection, price, and considerable import of recycled pulp by China. Hence, the availability and cost of recycled fibre have been an issue for Indian enterprises. The raw material and energy-intensive paper packaging industry see at least 40-50 per cent of the total cost going into the raw material purchase. On the other hand, the recent jump in prices of coal and imported coal also had a bearing on the cost. For instance, according to a PTI report in October this year, there was a 15 per cent increase in coal rate to $200 per metric tonne, analysts at Morgan Stanley had noted. 

In fact, the overall growth in the paper packaging segment had been impacted since the implementation of Goods and Services Tax (GST) in July 2017, according to experts. “Overall growth of paper packaging has come down to around 4-5 per cent. Pre-GST it was around 12-13 per cent that reduced to 8-9 per cent before dropping further. During Covid, there was a huge blip which was unavoidable but recovery has been significant after that. In the second wave, industrial activity was less impacted in comparison to the first wave,” added Rajagopalan.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s