Wood cost to tear off writing and printing paper margin: Crisil report

New Delhi [India], December 22 (ANI): Operating margin of writing and printing paper manufacturers is set to contract 400-500 basis points to 15-16 per cent this financial year — following a similar correction last fiscal from the unusually high level of fiscal 2023 — driven by costlier hardwood and softwood and softening realisations, according to Crisil Ratings.

Further, revenue is projected to decline 2-3 per cent this fiscal year-on-year — after a price-led decrease of 6-7 per cent last fiscal — largely reined in by subdued realisations.

Volume is expected to grow a tepid 2-4 per cent this fiscal owing to the continued shift towards digital communication, partly offset by the government’s focus on expenditure in the education sector and increased work from office.

Gautam Shahi, Director, CRISIL Ratings, said that on the profitability front, two factors will drive the compression this fiscal.

“One, writing and printing paper realisation will continue to correct from the abnormal highs of fiscal 2023, driven by low-cost imports from China and East Asia amid modest demand, resulting in a decline of 5-7 per cent in writing and printing prices. Two, domestic wood costs will continue to surge due to increased demand from competing wood-based industries and reduced wood output caused by lower plantation during the pandemic.”

Shahi asserted that imported wood prices are expected to rise 18-20 per cent due to international supply disruptions.

That said, Crisil believes that the credit profiles of writing and printing paper makers will be able to withstand the cyclical downturn.

A CRISIL Ratings analysis of 11 paper makers, accounting for a substantial portion of the organised writing and printing paper market, indicates as much.

Pranav Shandil, Associate Director, CRISIL Ratings, said that while a decline in operating profits will cause a slight moderation in debt metrics of writing and printing paper manufacturers this fiscal, they will still remain healthy due to deleveraged balance sheets and modest debt-funded capex.

Operating margin is poised to recover 300-400 basis points to 18-19 per cent next fiscal, as increased plantations over the past two years will improve supply and, consequently, drive down domestic wood prices.