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Indian Paper Industry Overview - Go To Market Strategy

AUTHOR : PARTHASARATHY BASU

Copyright MarketExpress - Business News, Financial News & Research Portal. All rights reserved. The information in this document shall not be duplicated, used or disclosed, in whole or in part without the consent of MarketExpress and the author. www.marketexpress.in - Financial News, Business News & Research Portal For Full report & Go To Market Strategy Consultancy Contact : research@marketexpress.in
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Index

Paper Industry overview Indian paper market Competition/customer/consumer overview Short-study on specific paper/pulp segments Manufacturers comparative profile

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There are five paper product segments; specialty and tissue segments account for 5-15% volume share
Paper segments

Packaging

Printing & Writing (P&W)

Newsprint

Specialty

Tissue
5% share in India, 15% share globally Bond paper MICR/cheque Dcor paper Cigarette paper Business card Greeting cards Photo material

Carton board/ Kraft?

Duplex

Grey and white board

Coated paper

Uncoated paper

Art paper

Chrome Creamwove Maplitho Copier

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Indian paper market has different product portfolio mix; P&W products dominated by uncoated paper
Indian market at 11.6 MMT production has larger share of P&W products against global portfolio and growing at 8-10% CAGR; Uncoated paper and newsprint declining globally but growing in India

395 MMT

11.64 MMT

1%

9%

Client segment

Source: Industry annual reports

Coated segment (P&W) small in India but growing the fastest


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Coated segment is a 0.5 MMT segment dominated by BILT and JK; offers better NSR than uncoated
BILT and JK dominate the coated segment; China drives imports with 80% share On average, coated paper has a higher realization of Rs.2000 than uncoated

0.5 MMT

0.12 MMT Rs. 50-52 Rs. 45-50

Though attractive from NSR perspective, it will be difficult to match the Source: Secondary search scale advantage of BILT and JK
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Imports have created pricing pressures; smaller domestic cos thinking of exiting due to margin pressures
Lower import price has led to surge in import volumes, creating a potential surplus Imports not expected to be restrained despite efforts Anti-dumping duties by West driving dumping to India
Rs. 50-52
Actual volumes mght be lower due to recent rupee depreciation

Rs. 48-50

~180-210K*

US and EU have imposed antidumping duties on Chinese and Indonesian products Thailand too has recently announced levy on Chinese paper

Govt. has refused to impose anti-dumping duties earlier as well (Dec. 2009 ruling)
120K

Few companies (e.g., Century) are slowly exiting the coated market due to margin pressures from cheap imports, rising RM prices
The coated market is gradually diminishing for Indian players. We (Century) have stopped coated due to price attack from Chinese -Ex factory GM, Century

*Estimate based on monthly figure of 15-18K MT Source: Secondary search

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Creamwove dominates uncoated segment though losing market share; Copier segment growing fastest
CAGR (07-11)

2.29 MMT

2.46 MMT

2.61 MMT

2.77 MMT

2.94 MMT

6% 16%

5%

4%

Source: Analyst reports

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Large capacity players play across spectrum focusing on Maplitho & copier

1.6 MMT

0.8 MMT

0.55 MMT

Source: Analyst reports

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Copier and Maplitho offer better MOPs and directionally better NSRs than Creamwove
MOP of paper product by competition (Mar 12 shown in Rs./kg)

Avg MOP: Rs. 49.85/kg Avg MOP: Rs. 46.6/kg Avg MOP: Rs. 43.3/kg

Source: Company data MarketExpress - Business News, Financial News & Research Portal | Author: PSB

Maplitho segment can be further split into two categories


Paper segments

Packaging

Printing & Writing (P&W)

Newsprint

Specialty

Tissue

Carton board/ Kraft?

Duplex

Grey and white board

Coated paper

Uncoated paper

Art paper

Chrome Creamwove Maplitho Copier

SS Maplitho

NSS Maplitho

P&W Maplitho
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Ledger paper

Color paper
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Manufacturers comparative profile


Manufacturer BILT ITC PSPD Tamil Nadu PL Production capacity (MT/ yr.)* 846K 600K 400K % share of P&W 90%+ <10% 100% FY11 revenue; 10-11 CAGR Rs. 4500 cr 14% Rs.3507 cr. 13% Rs.1200 cr. 20% Rs.870 cr. -20% Rs.1140 cr. NA Rs.1231 cr. 9-10% Rs. 800 cr. 20% NA NA Not applicable Rs. 127 cr. 18% Rs. 575 cr. 12% Rs. 360 cr. 1% TBD Rs. 2000 cr. 21% FY 11 EBITDA 19% 23% 30% Domestic plant locations Maharashtra (3), Orissa (1), Haryana (1) AP (2), TN (1), WB (1) Tamil Nadu (1) HQ Gurgaon Secunderabad Chennai

Century Paper Hindustan Paper JK Paper Andhra Paper Khanna Paper Whitefield Paper Rama Paper Seshayee Paper & Boards Ltd. Sirpur Paper Star Paper Mills Orient Paper TBD

200K 335K 414K 241K 360K 200K 60K 115K 138K

100% 60% 85% 100% ~30% (est.) 100% 15% 100% 80%+ (est.) TBD

NA NA 22% 21% NA 4% 23% 11% TBD 17%

Uttarakhand (1) Assam (2), Kerala (1), Nagaland (1) Orissa (1), Gujarat (1) Andhra Pradesh (2) Punjab (1) Andhra Pradesh (1) Uttar Pradesh (1) Tamil Nadu (1) Andhra Pradesh (1) Uttar Pradesh (1) Madhya Pradesh (1) Orissa (1)

Delhi NA Delhi Madhapur (AP) Gurgaon Kovvur, AP Delhi Chennai Gurgaon

100K

80% (est.)

Kolkata

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Manufacturers comparative profile


Competitors Abhishek Industries Emami Paper Mills Pudumjee Pulp and Paper Mills Bindal Paper KR Pulp & Paper ABC Naini Paper Shreyans Paper Saitia Paper Ruchira Paper Prolific Paper Production capacity (MT/ yr.)* 175K 145K 36K % share of P&W 100% 10% 80% (est.) FY11 revenue; 10-11 CAGR Rs.574 cr. 9.7% Rs. 429 cr. 14% Rs. 225 cr. 3.6% NA Rs. 196 cr. 61% Rs. 318 cr. 45% Rs.106 cr. Rs. 287 cr. 10% Rs. 250 cr. Rs.254 cr. 25% NA FY 11 EBITDA 10-20% (group) 15% 8.4% Domestic plant locations Barnala, Punjab (1) Balasore , Orissa (1) Kolkata (1) Pune (1) HQ Ludhiana Kolkata Mumbai

90K (300 TPD) 100K (250 TPD) 90K (300 TPD)

100% 70% 100% NA 100% 100% 40% 100%

NA <10% 15% NA 6% NA 13% NA

Muzaffarnagar, UP (1) Shahjahanpur (1) Hoshiarpur, Punjab (1) Kashipur, UK (1) Punjab (3) Muktsar, Punjab (1) Sirmour, HP (1) Kashipur, UK (1)

Muzaffarnaga r Delhi Delhi Kashipur Ludhiana Muktsar Delhi

27-30K (90 TPD) 66K 70K 86K 20K

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P&W Product Segmentation


P&W segment
Competitors Creamwove Volume share (% of P&W) GSM USES 44%
54/58 54-80, 110 Notebook, Exam material, Cash book, Invoice Book printing

UNCOATED PAPER Maplitho SS Maplitho 12%


58-150 75/95 Books,calendar, Maps, diaries Envelope 54-90 Multi-color printing High-end computer stationary, quality nbooks,

Copier Ledger 2%
60/70/80/100

COATED PAPER

P&W maplitho 12%

Color paper 2%
60-90

Copier 16%
58/70/90

12%
58-95 80/90/100/130/170 Lamination Annual reports/ calendars, air-tickets etc

Govt. record keeping High-end books, Legal docs calendar, maps, diaries

BILT JK Paper TNPL Khanna Abhishek Industries ABC Naini Bindal KR Paper


(Optima Maplitho)

(Eco-brite)

(Grafika-Maplitho)

To launch To launch


To launch

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There are four broad categories of consumers with varying characteristics for A grade paper
Retail customer Description Individuals, small
business establishments

Publishing houses

Educational institutions

Government

Publishers of Academic institutes Government-industry educational materials publishing reports, internal i.e., notebooks, research materials magazines, specially books Publisher of noneducational materials magazines, literature Navneet, Rupa Publications IIT, IIM, NID, IISc MOFPI report

Example(s) Xerox shop, SMEs


Small order sizes Product requirement Fulfilled by local dealer Diverse set of needs (varying by business) Low-medium

Medium-large order Large order size size Fulfilled by wholesaler Fulfilled by wholesaler Limited variety requirement Less variety High Wholesaler Low-medium Medium Wholesaler Low-medium

Customer loyalty

Relationship Dealer owned by


High Estimated profitability

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There are four broad sales channels to reach the consumer; last three are still evolving
Distributor network Description
Current set-up of wholesale, dealers Drives almost all of the market

Own-shops
New emerging concept currently used by BILT (P3 brand) to contact and sell products to customer directly

Modern retail

E-commerce

Reliance Retail and Online sale of Paper Big-Bazaar tying up and office stationary with Office Depot and Staples to create one-stop shop of stationary

Example(s)

NA

BILT P3 Brand

Staple Future Jabong expected to stores at launch an online eKarnataka, commerce portal for Maharashtra & UP office supplies

Advantages

Can leverage existing knowledge Lower incremental investments margins with middlemen

Develop better Reduced supply chain in-efficiencies and understanding of middle-men costs customer needs (more suited for A-grade) High investment required (out of core business) Additional expenses of real estate, vendor mgmt. to weigh in Price pressure due to huge bargaining power of retail chains

Disadvantages Need to share

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Paper manufacturers are increasingly focusing on branding and expanding across value-chain
Branding: JK Paper and BILT have led the way bringing the brand closer to retail customers Value chain expansion: BILT, ITC has diversified to stationary & retail to connect with customers, increase margins

BILT Office stationery

BILT Retail

ITC Office stationery

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Rayon grade pulp volumes have been rising at 7-10% CAGR in last 10 years due to two factors
Two factors have driven this growth globally High growth (10%+ CAGR) of the textile industry in China, India and Indonesia in the last decade pushing up demand for rayon Increased substitution of cotton with pulp-based rayon due to high-cotton prices

Globally companies are now investing heavily in capacity expansion to meet demand for this high-value product

*DP: Dissolved Pulp

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Rayon grade pulp manufactured by three players in India; Prices on record high correction expected
50% of Indias requirement of 0.4 MMT is imported Prices are ruling at record high of ~$1300/ton (Rs. 65K/ton); however correction expected to bring it down to Rs. 45-50K/ton
Prices shown in $/MT

403K MT

*DP: Dissolved Pulp

driven by global capacity expansion of 16% over current capacity of 6 MMT by ~26 firms globally

6 MMT

0.8 MMT

0.7 MMT

7.3 MMT

*BILT sources 90% of the hardwood required for the pulp from market and rest from Gov. auctions; exports are banned Source: Company corporate presentations

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The coated paper used in packaging of chewed tobacco is sold to tobacco manufacturers post processing
1 2

Coated paper mfr

Package paper processing

Tobacco mfr

Description

Manufacture single-coated paper (C1S) Product sold through dealers; dealer owns the customer Product samples tested by Gutka mfr before approval /order placement

Aggregates inputs for preparing final package material


Coated paper, aluminum laminate

Prepare final product using the printed reels on the production line

Deliver reel of printed packaging material to customer for filling in products

Example of players

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~50% of chewed-tobacco market uses satchets; Market size estimates to be ~ 20-30K MT, worth ~Rs.400 cr.
Satchet relevant segments makeup 50% of tobacco sales Coating paper market is estimated to be ~Rs. 250-300 cr.; Growth expected on-par with coated segment of 12%

Rs. 10-11K cr.

Total Gutka/Pan-Masala market size

Rs. 5000 cr.

% share of packaging cost for Tobacco manufacturer


Use satchet primarily target segment

10-15%

Satchet market for Package Paper mfr (i.e., Uflex)

~Rs. 500 cr.

% share of Raw Material (primarily paper) for Uflex 1 RM/Coating paper market size (related to Gutka)

~50-55%

Rs. 250 cr.

Industry volumes
Gutka

20-30K MT

Resultant MOP (Average):

Rs. 83K-120/MT

Source: Newspaper articles, dealer conversations, Uflex company annual report

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Regulations expected to squeeze market


High NSR of Rs. 70-100K depending on paper mfr. Product is a C1S with 40-70 GSM available in paper, Aluminum Govt. regulations to make it tough to operate in market
Sales on tobacco laced Gutka and Pan Masala banned in 3 states MP : April 2012 Kerala: May 2012 Bihar: May 2012 (one year)

~Rs. 100K

Rs. 72K

Product types
65 GSM chrome 55 GSM chrome paper 40 GSM poster paper

All states are expected to ban the sale of gutka under Food Safety Standards Authority rules notified by the Centre in August 2011 that prohibited the sale of tobacco or nicotine in food substances -The Telegraph, 3rd June edition

Features
Moisture proof High porosity High strength properties (burst factor) Quality printing surface (0.8pps)

Satchet sales of non-tobacco laced Gutka/Pan-masala should sustain demand for coated paper but volumes as of now remain small at 10-15% share?

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Thank You

Copyright MarketExpress - Business News, Financial News & Research Portal. All rights reserved. The information in this document shall not be duplicated, used or disclosed, in whole or in part without the consent of MarketExpress and the author. www.marketexpress.in - Financial News, Business News & Research Portal For Full report & Go To Market Strategy Consultancy Contact : research@marketexpress.in

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