As per India Ratings and Research, the pricing environment in the paper industry is showcasing an improvement in FY16. There has been an improvement in the cost structure. The improvement has not been seen in 1HFY16 due to a still unfavorable domestic demand-supply balance and a high level of imports.
The paper industry faces a muted pricing environment due to the domestic overcapacity that has not been absorbed. This environment is supposed to improve by FY16 with enhancement in demand and focus by sector companies on exporting surplus volumes.
The issue faced by the paper industry over input pressure due to an increase in domestic wood prices has now subsided. Wood prices have started to stabilize in FY15. The constant hard work of paper mills on-farm forestry leads to more availability of woods, reducing the average procurement costs.
Sector companies in the past compacted on the price and cost fronts. It now focuses on improving operational efficiency. Although pricing is likely to improve, enhance cost structure on the cost front will help in fetching the profitability of sector companies, even with muted demand growth.