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Paper Industry in for good times - Views on News from Equitymaster

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Paper Industry in for good times

Dec 11, 1999

After a long gap, the domestic paper industry is making headlines. With economy showing signs of improvement, things are also looking up for this beleaguered industry. Paper prices have hardened by nearly 40% this fiscal, on the back of rising international prices, as also a decline in excess capacity. Currently, supply and demand match each other. Per capita paper consumption is also up to around 5 kg (3.5 kg in FY97 and FY98). Exports have also picked up and the threat of imports no longer looms large on the domestic paper companies, since the south East Asian currencies have hardened.

The industry majors are trying to make the most of these favourable situations. They are looking to grow big through mergers and acquisitions. Moreover, after the merger of Andhra Pradesh Rayon's pulp manufacturing unit into Ballarpur Industries, the industry is agog with rumours of more mergers and takeovers in the near future. All this good news has sent the paper companies stock valuations in for a re-rating on the bourses.

These are good times indeed for the paper industry, but if the Asian currencies depreciate again, the industry will again have to grapple with cheap imports, which hit it hard in FY97 and FY98. The merger moves will not only help domestic industry consolidate but will also gear it to face import competition, if it does arise.


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