India Ratings and Research (Ind-Ra) opines that the pricing environment in the paper sector is unlikely to show a significant improvement in FY16. However, the profitability of companies should show an improvement in 2HFY16, with a relief on the cost front and improved cost structure.
The pricing environment in the sector did not improve in 1HFY16 due to a still unfavourable domestic demand-supply balance and a high-level of imports. The paper sector continues to face a muted pricing environment as the domestic overcapacity added in the past has not been fully absorbed yet.
However, the pricing environment should improve by FYE16 with a gradual improvement in demand as well as a focus by sector companies on exporting surplus volumes. Input pressures, primary due to an increase in domestic wood prices, faced by paper companies over FY12-FY14 have now subsided. Wood prices, which have almost doubled during the period, started to stabilise in FY15.