Overview Industry Scenario - Why Priroty PAPER The challenge for the Indian paper industry to meet the

ever increasing demand of paper, board and newsprint is getting crippled due to shortage of fibres in the country. The future demand of paper is expected to grow from 5.6 MT at present TO 9.5 MT in 2010 and 13 MT in 2015. Demand for creamwove paper is expected to increase by 7-8%. Demand for different kinds of coated paper has increased by 8% in 2002, duplex board has recorded increase by 6.5%, kraft paper has registered a 6% rise in demand and newsprint an impressive 10%. Indian paper industry can be broadly classified into paper and paperboards and newqsprint. The paper and paper board segment constitutes of cultural paper, industrial paper, speciality paper. We will be treating newsprint as a separate type of paper and it is dealt in detail in the last section. The paper industry in India has a long history with the first mill being commissioned in 1832. The number of paper mills in the past with average capacity is as given in the table below. Year No. of Mills Installed capacity million ton Average capacity ton 1950-1951 17 0.137 8,050 1970-1971 55 0.768 13,500 1980-1981 137 1.816 11,500 1990-1991 325 3.304 10,000 1999-2000 406 6.200 15,270 2001-2002 594 8.500 22,000 (approx)

Why a priority? The Indian paper industry, reeling under liberal imports, price cuts and rising input costs for the past three years, seems to be on a comeback trail. With the firming-up of international pulp and paper prices, the domestic paper market registered an upward trend. In South India, starting with ITC Bhadrachalam Paperboards Ltd (ITC-BPL) many paper mills increased production and posted higher turnovers last year on account of improved market conditions. For instance, The Andhra Pradesh Paper Mills (APPM), The South India Paper Mills (SIPM), The Sirpur Paper Mills (SPML), Delta Paper Mills (DPM) and the Coastal Papers (CP) have all posted higher turnovers in 2001-2002. PACKAGING 80% of the total packaging industry in India representing an approximate market of 1225 million (Rs86 billion) uses Rigid Packages, which are the oldest and the most conventional packaging. These include: Glass bottles Metal cans food cans, aerosol cans, battery cell cans Aluminium collapsible tubes Injection moulded plastic containers made of PVC, PET, HDPE Barrels made of HDPE Paper board and corrugated boxes. Some commercial products which have recently changed their packaging from conventional material are: PRODUCT PACKAGING PRODUCTS USED (conventional material replaced)

Milk LDPE film pouches (coated paper, bottle, metal) Beverage, soft drink, squash, mineral water, edible oil PET (glass) Pharmaceuticals PVC, HDPE, PP, GLASS (paper, glass to a less extent) Beverage crates HDPE,PP, PPCP (wood) Toothpaste tubes and other squeeze tubes HDPE, LLDPE, PP (metal) Soaps Polyester film, LLDPE, LDPE, PVC (paper) Pallet Wrap LDPE, LLDPE (heavy duty paper) Fertiliser HDPE/PP woven sacs (jute) Mineral LDPE heavy duty sacs (jute) Cement HDPE/PP/woven sacs (jute) Retail Carrier Bags LDPE, HDPE, HM (paper, jute bags) Recent trends in consumption and spurt in branded products has enhanced the use of flexible packaging products such as: over wraps, multi-layered/co extruded films, laminated products and poly sacs in the Indian market place. Impact of new technology in flexible packaging on the Indian user industry The Indian market has graduated from the use of PVC and cellophane to the use of modern plastic such as PET and Polypropylene (PP). Some recent usage in flexible packaging in the Indian industry are: POLYMER FILM USAGE APPLICATION LDPE/ LLDPE Sealant layer in lamination, co extruded films, laminated tubes Carrier bags, milk, edible oils, vanaspati (polyunsaturated vegetable oil), processed food, dentrifice HDPE Poly sacks, barrier film in co extrusion Cement, Jute, edible oil and vanaspati (poly-unsaturated vegetable oil)

Polyester Outer, reverse printed layer in Lamination metalising, lamitubes Processed food, pan masala, confectionery BOPP Sealant and non sealant layer in Laminations, over wrap, metalising Cigarettes, processed food, adhesive tapes LDPE/LLDPE film is normally used as an extruded film in food packaging (baked foods, meat, carrier bags), as a co-extruded film in flexible laminations, edible oil packaging, spices, milk etc. and also as a coating material in HDPE woven sacks. 75% of the polyester film is used by the flexible packaging sector in laminated packs where it is normally used as an outer layer on which reverse printing is done. Polyester films are also used as synthetic yarn in India. BOPP Film is used mainly as over wrapping in cigarettes, textile products, board lamination, over wrap and inner wrap in biscuits, bread and confectionery and other food products. However, when compared to international usage, BOPP is low, this is due to the problems associated with conversion, investment costs for changing from polyester film and the excess capacity of polyester film in India. PRINTING Despite the growth of television and the net, print media has registered an impressive 10% readership gain in the last two years. The National Readership Study 2002 (NRS 2002) showed that the print media has added 17 million new readers during this period of two years.

In the last quarter century, the world printing industry has undergone a great amount transfiguration. From sheet-fed printing to web printing, from low speed to high speed, black and white to colour printing, from paper substrates to as wide variety of substrates it was a long way for the printing industry. There has been amazing spread of Information Technology (IT) from the end of the 20th century, giving enormous information in the form of printed letters. Printing industry is a constantly growing industry, continuously transforming with its growth. The purpose of printing is broadening to a wide variety of usage: from a traditional purpose of a means of communication, to a wider variety of attractive packaging, various types of cards, tickets and labels amongst others. Out of the various fields of communication means, printed material has many characteristics that are difficult to be replaced by digital information. The printing industry is recognised as a core sector.

Return to top -------------------------------------------------------------------------------Characteristics of Market PAPER Size of Market The Indian paper industry is extremely fragmented. This industry structure is the result of the past Government policies which

encouraged the setting up of many small mills with as low capacity as 1 ton per day. In the newsprint segment there are at present 39 mills (4 in central public sector, 2 in state public sector and 33 in private sector) with an installed capacity of about 0.836 million tpa at present. Market Trend The present domestic paper demand is 5.6 million tpa . Indian per capita consumption of paper is 5 Kgs with an expected growth rate of 6-7% per annum over the next 5 years. Paper consumption in India is expected to reach 9.5 million tonnes by the year 2010 and 13 MT by 2015. The industry is characterised with a closed or dead capacity of 1.1 million. In the last few years, imports have increased substantially from 102,000 ton in 1996-97 to 450,000 ton in 2000-2001, leading to increased pressure on domestic production margins. Among the various sub-segments, paper boards is expected to grow above the industry average growth rate, leading to an increase in its share within the paper industry. The capacity utilisation of the industry presently is 67%.

PACKAGINGS Size of Market

The Indian packaging industry is of approximately 25 billion. It is a combination of organised (large Indian and international companies)and the unorganised (small and medium Indian companies). The organised industry is represented by less than 5% of the overall industry and controls over 70% of the market by volume. The flexible packaging industry is estimated to be approximately 340 million (Rs 24 billion). The orgnaised sector operates in the laminated product segment such as Form-Fill-Seal pouches, tetrapacks, and lami-tubes which are required to use advanced technology to cater to the production of high value products. However, the small sector which constitutes the unorganised part of this industry produce over wraps, co-extrusion films, and polysacs . There are some 600 700 packaging machinery manufacturers, 95% of which are in the small and medium sector located all over India. Increasing need for sophisticated packaging solutions by Indian companies supplying both the domestic and export markets has seen the entry of large players in the organised sector. Market Trend Laminated products with growth rates of 25-28 % and above is the fastest growing segment in the flexible packaging sector. The three major laminated products growing rapidly in this sector are: form-fill-seal pouches, tetra packs and laminated tubes. Form-Fill-Seal Pouches With a market size of approx. 115 million (INR 8 billion) the organised sector accounts for 50% of total capacity and 60% of the total market in value terms. 85% of the capital investment cost of this sector is in printing machinery. Since competition is severe in this segment, converters catering to the premium segment invest in sophisticated etching and printing technology; whereas converters catering to the medium segment concentrate on low cost printing equipment. The competition in the medium segment is expected to increase dramatically with price cutting, and lower margins becoming a norm. Indian companies in the medium segment with increased market penetration, improved quality of products and raw materials used, latest technological inputs are likely to have a higher rate of success.

Large Indian companies in this segment are FLEX Industries, Paper products, Sharp Industries; some medium sized companies include Multi-Flex, Heritage Packaging, Gulabdas Flexipack Industries, Arun Mantex, Akar Laminators, Leela Packaging. Laminated Tubes - A recent entrant in India, toothpaste, cosmetics, pharmaceuticals are the major user industries. Toothpaste alone accounts for over 75% of the market. Growth in the sector is around 15%, the single largest manufacturer in this segment is ESSEL Packaging constituting a market share of 85%, but the joint venture between Courtalds Plc and Indian Aluminium is likely to have an impact on the Essel monopoly in this market . Other Indian companies in this segment are RAS, KMK Lamipak and Anil Chemicals. Tetrapacks - First introduced in the 80s to package fruit drinks, Hindustan Packaging Ltd is the only company manufacturing Tetrapack in technical collaboration with Tetrapak. These are used in the packaging of fruit drinks and to a lesser extent in milk. Key Players Of the five major Indian companies in the Polyester sector, Garware Polyester is the market leader; however with increasing competition in laminated packaging and backward integration to produce polyester film and resultant over capacity, the Indian industry had to export over 30% of its total sales value. Over capacity, fall in international prices of polyester film as well as lack of price competitiveness has made Indian exports non-viable. Flex Industries is the largest producer of BOPP in India. A number of companies had planned additional capacities in BOPP expecting the increased overall demand for flexible packaging ; however, the lower polyester film prices and a general slow down in the economy led to an oversupply situation in BOPP resulting in the export of BOPP. Other players in this filed are Paper products, Sharp Industries; some medium sized companies like Multi-Flex, Heritage Packaging, Gulabdas Flexipack Industries, Arun Mantex, Akar Laminators, Leela Packaging and Guardian Plasticote.

In the Laminated tubes sector, the single largest manufacturer is Essel Packaging, Courtalds Plc INDALCO joint venture, RAS, KMK, Lamipak and Anil Chemicals. Demand supply conditions A majority of the raw material manufacturers are in the organised sector which accounts for high capital costs required to establish in this sector. Manufacturers of rigid packaging raw materials such as tinplate, rolled aluminium products, steel sheets, paper and paper board and pet chip and raw materials for flexible packaging such as aluminium foil, plastic films, PET, LDPE, HDPE AND BOPP, manufacturers are all included in this category. Users of plastic films including different types of converters manufacturing flexible packaging products like laminate films, metallised film, adhesive tapes and over wraps are also part of the flexible packaging sector. Materials like BOPP films are also sold direct to end users as in the case of cigarette manufactures for use as an over wrap. There are around 13000 converters in India a majority in the small and medium sector located in all parts of the country. A fragmented end user profile, restrictive government policies and low barriers to entry have all contributed to the profusion in numbers in this industry. The low levels of technology, prevalence on manual labour, restricted research and development facilities, high import tariff has affected product innovation and usage. For example the use of BOPP in India was slow due to lack of technical know-how and easy availability of raw materials to the converting industry. PRINTINGS Size of Market Despite the growth of television and the net, print media has registered an impressive 10% readership gain in the last two years. The National Readership Study 2002 (NRS 2002) showed that the print media has added 17 million new readers in this period of two years. The average reader still spends 16% of the total media time (about 18-20 minutes per day) reading. The Indian printing industry is an important factor for corporate India. The World Bank reports that in 1995, its output of printed information from India

equalled a value of 20 million . India thus ranks fourth after Japan, China and South Korea in Asia. With nearly as much as 80,000 print shops, India is a significant market for suppliers of printing machinery. It applies very much to the Indian paper industry with an output of currently 2.5 million tons per annum. According to All India Federation of Master Printers, Indian printers still predominantly (80 per cent) use letterpress-printing technologies. But in India, as everywhere else in the world, offset technology is gaining in importance and has grown considerably. Market Trend According to surveys, newspapers are solely responsible for the sharp increase in readership. This is 156 million per annum at present, which was 131 million in 1999. Despite this growth, as many as 250 million literate adults still do not read any publications in India. This leaves plenty of room for further growth of the printing industry. An interesting point here is that, the reach of magazines has declined from 93.8 million in 1999 to 86.2 million in 2002, which is a drop of 22%. More urban housewives now read daily newspaper instead of poring over magazines. The emerging trend in future printing technology is flexography and computer controlled printing process. But the introduction of sophisticated equipment will never be able to produce quality product at the expected minimal cost. This is only possible with the active support of skilled technicians with committed zeal to accept and adapt to the fast changing technology. Constraints The quality and cost of printing are guided and controlled to a large extent by the paper manufacturers and the government. Sales Tax is one of the hurdles for this industry. The making of paper and cardboard, of printed matters and paper products of all kinds are key factors for the international competitiveness of the printing industry