Paper Product Manufacturer

Home / News / Industry News /

E-commerce props up paper-packaging fortunes: CRISIL Ratings

News Group

E-commerce props up paper-packaging fortunes: CRISIL Ratings

Issue Time:2021-09-03

Mumbai: A revival in demand, led by increased offtake from e-commerce channels, will support a rebound for paper-packaging entities this fiscal, offsetting the impact of pandemic-induced disruptions in the first quarter, according to CRISIL.

And despite a 200 basis points (bps) blow to operating margin, credit profiles will be stable on the back of strong capital structure, said the rating agency that studied 50 companies, which account for about 37% of the industry’s revenue.

Sales volume had wilted after the lockdown as demand from key end-user industries such as ready-made garments, industrial components, consumer durables and exports weakened. However, demand rebounded as heightened safety and hygiene consciousness forced consumers to increase use of e-commerce channel for deliveries. Therefore, on-year basis, demand for paper packaging is seen unchanged at 9 million metric tonne this fiscal.

"Given the increase in input costs, average operating margin is expected to shrink 200 bps on-year to 12-12.5% this fiscal. However, it is good to see companies working to raise margins by improving their product mix, especially in categories such as FMCG and e-commerce," said Mohit Makhija, Director, CRISIL Ratings.

The industry, which logged a steady compound annual growth rate of 5.5-6.5% over the past five fiscals, added about 1.5 million tonne capacity last fiscal. With demand flat-lining, it is set to log its lowest operating rates of less than 70% this fiscal. Low operating rates curb the ability to pass on input price increases to consumers. The pandemic has led to supply disruptions, impacting waste paper supply, a key input for this industry. Consequently, input prices have risen 14% from Rs 10.5 per kg in February this year to Rs 12 per kg in September.

To mitigate high input costs, the industry is trying to push high-value products such as grease-proof paper for food packaging, bleached white paper for e-commerce, and abrasion- and damage-resistant corrugating paper for shipping consumer durables. However, this will only partially mitigate the impact of rise in input prices.

“Notwithstanding a decline in cash accrual by 25%, liquidity of packaging paper makers remains comfortable. Net cash accrual is expected to be over 2 times debt repayments due in fiscal 2021, compared with close to one time in fiscal 2015, indicating improvement in debt-servicing ability,” said Krishna Ambadasu, Associate Director, CRISIL Ratings.

Consequently, credit outlooks are expected to remain stable this fiscal. The extent of demand recovery from consuming sectors will remain a monitorable
(Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)

Download The Economic Times News App to get Daily Market Updates & Live Business News.

Our Customers

If fulfilling your online orders is a costly affair because of the cost associated with shipping and packaging, then you need to develop cost-effective strategies to not let packaging and shipping eat into your profit margins

Our value: creating innovative eco-friendly products.