Ruchira Papers Ltd Management Discussions.

Global economic overview

In 2020, global economic activity was affected by the pandemic, resulting in a contraction of 3.3% after a slow growth of 2.4% in 2019. G20 countries experienced an aggregate slowdown of (-) 3.2%, with the Euro area contracting by (-) 6.8%, UK by (-) 9.9%, Japan by (-) 4.8% and the US by (-) 3.5%. Among major economies, India contracted by (-) 7.3% while China was the only major economy to record a growth of 2.3% in 2020. The global economy is projected to grow by 5.5% in 2021 largely due to the successful roll-out of vaccines across the globe, coupled with policy support in large economies. (Source: IMF).

Indian economic review

The Indian government announced a complete lockdown in public movement and economic activity from the fourth week of March 2020. As economic activity came to a halt, the lockdown had a devastating impact on an already-slowing economy. The Indian economy de-grew 23.9% in the first quarter of FY20-21, the sharpest de-growth experienced by the country since the index was prepared. The Indian Government announced a bold economic stimulus to combat the sharp slowdown caused by the lockdown, its various measures aimed at easing liquidity and credit unavailability faced by the MSME sector to reinvigorate economic activity. Similarly, various measures targeted at incentivising investments in economic segments and labour reforms, helped improve sentiment and attract global investments, strengthening Indias self-reliance for critical needs.

Indias relief consumption, following the lifting of social distancing controls, translated into a full-blown economic recovery. A number of sectors in India – real estate, steel, cement, home building products and consumer durables, among others - reported unprecedented growth. India de-grew at a relatively improved 7.5% in the July-September quarter and reported 0.4% growth in the October-December quarter and a 1.6% growth in the last quarter of the year under review. The result is that Indias GDP contracted 7.3% during FY20-21, largely on account of the sharp depreciation of the first two quarters. This sharp Indian recovery – one of the most decisive among major economies – validated Indias robust long-term consumption potential.

Outlook

As a result of the setback caused by the second wave, real GDP growth for FY21-22 may finish lower than expected before India returns to robust growth in FY22-23 with a projected 6.8% growth over FY21-22. Despite recent developments, Indias economic activity has been gathering strength with demand and supply sides staging an appreciable recovery, improved mobility and optimism due to a sustained vaccination rollout programme, growth-enhancing proposals in the Union Budget and reasonably favourable monetary conditions.

Global pulp and paper industry overview

The paper & pulp industry is one of the large industries in the world and pegged at USD 394.25 Billion in 2020 as against USD 450.43 Billion in 2019 and expected to reach USD 679.72 Billion by 2027, growing at a CAGR of 3.45 % during the period. In 2020, the largest market share in the industry was contributed by the packaging segment as well as the food and health care sub-segment. Pulp and paper are extensively used for packaging in end-user industries such as consumer goods, hygiene, food, industrial packaging and agricultural firms. Owing to the environment- friendly aspects of paper products and increasing awareness of its benefits, the demand and use of these products are increasing in North America, accounting for the highest share in the pulp and paper market. Europe is taking huge strides for achieving a dominant position in the PPI market. Germany has established worlds highest paper chemical manufacturing plant.

Indian paper industry overview

India accounts for a 4.3% share of the global paper industry. The Indian paper industry size was estimated at H80,000 Crores in FY20-21 as against H70,000 Crores in FY19-20. India ranks 15th among paper manufacturing nations. Imports rose at a CAGR of 11.34% in value terms from 3,411 Crores in 2010-11 to 8,972 Crores in FY19-20 in the last nine years. The per capita consumption of paper in India is 14 Kg which is low compared to the global average per capita paper consumption of 57 Kg and is estimated to enhance to 17 Kg by 2024-25. Paper consumption in India is ~15 Million tonnes per annum and expected to reach 23.5 Million tonnes per annum by 2025.

Paper is a biodegradable and eco-friendly green product. The industry planted more trees compared to its harvest and primary raw materials (wood and agro-leftovers) are 100% renewable. Indian companies utilise 46% raw material from recovered paper, 29% from agro leftovers like bagasse, straw etc., and 29% from plantation wood. The average cost of recycling of paper is H32 per Kg, which includes H20 for collecting paper trash and H12 as conversion cost. Comparatively, collection of plastic waste cost ranges from H30 to H36 per Kg and recycling H22 to H35 per Kg, transportation costs for each tonne of paper H4.5 per kilometre as against H6.2 per km in case of plastic.

Energy consumption for paper production is 0.59 to 1.19 tonne of oil equivalent per tonne which is quite low compared to 1.48 to 2.58 a tonne in plastic. The worlds largest paper fair PAPEREX released a study that proves that paper can save 55-60% energy compared to plastics.

The Indian paper market can be divided on the basis of raw material and application. On the basis of raw materials used, the sector is sub-divided into waste and recycled paper, wood and agro residue. Due to increasing concerns regarding cutting trees to generate pulp, the waste and recycled paper segment is anticipated for a speedy growth. On the basis of application, the sector is subdivided into writing and printing paper, paper board and packaging, newsprint and specialty paper. The printing and writing segment is expected to reach 5.8 Million tonnes in FY20-21, growing at a CAGR of 4.5%. Demand for packaging paper & board segment is expected to grow at a CAGR of 8.9% to reach 11.1 Million tonnes in FY20-21. However, demand for writing and printing paper was sluggish as most educational institutions remained shut throughout the year under review due to the COVID-19 pandemic.

 

(Source: maiervidorno.com, printweek. in, the Hindu business line, Business standard)