A strong recovery in consumer spending amid the waning impact of the Covid-19 pandemic will help the paper packaging industry rebound with revenue growth of 15% this fiscal year, the agency said. Crisil notation.
The industry had reported an 8 percent drop in the previous fiscal year.
In addition, the agency said that capacity utilization and operating leverage will also improve and, together with consistently high achievements and nearly stable raw material prices, will help improve the operating profitability of the plants. wrapping paper players during this exercise.
Therefore, with the improvement in capacity utilization, actors are also likely to incur capital expenditure to increase capacity by 10% compared to fiscal years 2023 and 2024.
“Stronger than expected growth in e-commerce sales due to growing safety and health awareness, healthy double-digit growth in domestic pharmaceutical sales, and resumption of sales of consumer durables are driving the demand for wrapping paper, âsaid Anuj Sethi, Senior Director, Crisil Ratings.
âAs a result, the capacity utilization of paper packaging players is expected to reach over 80% this fiscal year, compared to 65-70% in the previous fiscal year. The increase in sales volume and achievements up 6-7% means revenue growth will be healthy this fiscal year.
In addition, the report states that a gradual recovery in clothing sales will also support revenue growth.
Notably, Crisil expects the operating profitability of the wrapping paper players to reach the pre-pandemic level of over 17% this fiscal year, compared to 15.5% the previous fiscal year, supported by a better operating leverage and higher achievements.
âIn addition, the costs of key inputs such as waste paper, which experienced a sharp increase over the past year, have now stabilized, which will help improve operating profitability,â said the agency.
The nationwide lockdown to contain the pandemic has hit sales of clothing and consumer durables in the past fiscal year.
In addition to the foreclosure, weaker growth in domestic pharmaceutical sales impacted the revenues of paper packaging companies, which had experienced healthy compound annual growth of 7-8% in the previous five years.
âA moderate third wave, if it does occur, is unlikely to have a significant impact on the recovery of the wrapping paper segment. However, the evolution of the prices of key raw materials, such as imported waste paper, will be one to watch, âCrisil said.
As it stands, the domestic paper industry is dominated by the paper packaging segment, which accounts for 50-55% of the sector’s capacity, followed by writing and printing paper, newsprint and special paper and other segments.
The paper packaging segment includes cardboard and kraft paper used in the packaging of pharmaceuticals, e-commerce products, durable consumer goods, fast moving consumer goods and ready-made clothing.
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