EVEN as most industries are clocking double-digit growth, the domestic paper industry is still chugging along in a single-digit growth trajectory. Pradeep Dhobale, chief executive of ITC’s paperboard and speciality paper business, who has just taken over as the new president of Indian Paper Manufacturers Association spoke to Vivek Sinhaon the status of the industry and the way forward.

Even as the economy is on a high growth trajectory, the paper sector is still on a single-digit growth path. What are the key constraints?

The main reason is that the raw material situation is not comfortable and we are not able to take large positions. This is due to the current model of raw material development — ‘farm forestry’. For growing faster we need to have a capacity push as in China where people have added millions of tonnes of capacity. For large-scale expansions we need largescale investments in the range of $1 billion as against Rs 500-600 crore that is happening now. And for that, we need to have a comfortable position with respect to raw material. But there are some positive developments with the proposed model of ‘multi-stakeholder partnership,’ which is awaiting policy clearance. When that happens, the industry will respond and we should be able to achieve double-digit growth.

So far we are in the zone where GDP growth and paper industry growth is matching. But when per capita GDP crosses $1,000, history shows that demand multiplier in paper industry goes above one. So if GDP grows by 8% paper consumption grows by 10%. We are approaching that inflexion point.

The domestic paper industry is highly fragmented. What are the prospects of consolidation?

Consolidation will happen over a period of time but I don’t see it happening over the next 2-3 years. The large players have announced their brownfield expansions with most of them going for borrowed funds. However, that is not enough given the growth and in that scenario there can be a shakeout with mergers and acquisitions after sometime.

As far as international players are concerned, the Indian market is becoming attractive to them. Indian market is today growing three times the rate of the global average. But putting up a large project and delivering on it, MNCs would face the same problems of raw material that we face.

Domestic paper prices are close to the all-time high, clocked during mid-’90s. Is there any scope for further upward movement?

Last one year, there has been an upward movement where the supply demand scenario allowed it to happen but we have still not absorbed the full cost of the increase in raw material and energy cost. On an average, prices have gone up by about Rs 2,500 per tonne over a period of one year. The input cost has gone up more than that. We have been able to improve on our profits through internal efficiency measures. But there is still scope for upward movement of prices as internationally also writing & printing paper and the coated paper grade are showing signs of firming up due to cost push from the pulp price.

Across sectors, we are seeing Indian companies going abroad to acquire companies and assets. Barring a few cases, the theme of global play is missing in the ambitions of paper companies...

The growth rate that the Indian industry is offering is robust enough. Even with all the announced capacity expansion, India would still have a supply gap in 2010, so going overseas for creating paper capacities seems unlikely but for pulp and raw material, that’s the way forward and many people are considering. For individual companies, certainly one route to grow would be acquiring capacities where the plantation aspect is taken care of.

What are the regions where Indian companies are looking for pulp and wood supply?

South-East Asia and Latin America are the traditional regions. But I expect the African continent to start contributing as they are like new kids on the block as far as fibre supply is concerned and there are no large-scale paper mills in that side of the world. It could be developed like Russia, which doesn’t have huge capacities for pulp and paper but supplies wood to other countries that have such large plants. But we would need to factor in freight costs and we might look at the idea of bulk buying at the industry level to bring down costs.