New Delhi: 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, Crisil said on Tuesday.
According to the rating agency, despite a 200 basis points (ps) blow to operating margin, credit profiles will be stable on the back of strong capital structure.
A study of 50 CRISIL-rated companies, which account for 37 per cent of the industry’s revenue, indicates as much.
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, the agency said in a press statement.
The industry, which logged a steady compound annual growth rate of 5.5-6.5 per cent 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 per cent this fiscal.
Crisil said that 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 per cent from Rs 10.5 per kg in February this year to Rs 12 per kg in September.
