Forecasting is always dicey, but everybody has to do it, to know where the screw needs to be drilled, in order to grab the opportunities and face the challenges. People will have to think about strategy differently because the old style of industry analysis will not help. So, to make it easy Paper Mart presents the views of the industry pioneers discussed during an event.
Opportunities for the Indian paper industry
Mr. Pradeep Dhobale: In my view a businessman always looks to invest in the growing market and this is one area where India has a positive story because the base is so small as compared to other nations so we have one way that is to go forward. We have the youngest working population, every year huge number of children’s enter into schools, which directly creates roughly a demand of a million ton every year. Now it’s up to us that how the industry plays the game and benefits everybody. There should be a healthy competition but the industry has a responsibility in totality as well. The companies need to get its act together and above all industry needs to get its act together. There is a great opportunity where the industry works together for the development of the industry. All the stakeholders who work on the same raw material base can come together and work on the respective opportunities. The unprecedented price increase of wood is a seasonal thing and then in couple of years it gets stabilizes, this has happened in the past also. The prices will not come down, but there are huge opportunities to do the required scale up of plantations for stabilizing the prices. Further other opportunities include increasing the yield of the land by raising the productivity. On the raw material side if we get our acts together then I think we have a way forward, market is already there hence great opportunities lies ahead.
Mr. Yogesh Agarwal: The definition of business performance is relative. All the companies are facing challenges and also the competition in facing challenges. At the end of the day it is our ability to understand and combine the moving parts and make it a winning combination. So you need to learn faster than your competition then only you can earn money because cost pressure leads to lower margins. For instance the price increase in the raw material cost is not a huge drawback as it leads some kind of increase in paper prices too. Having said that there are other opportunities on the sideline of paper, as we go forward like setting up of trading arm, having the merchandizing of paper what is not manufactured here can be brought in. Large manufactures can have converting lines, open credit policy in the market etc to have lot of head start in new businesses. Like ITC has done the stationary business on the sideline of paper manufacturing likewise the copier paper has given us an extra room to do various SKU’s in that business. And mind you it’s tough to do these businesses, being in a capital intensive business having the rate of interest so high.
Mr. N Gopalaratnam: We are the only guys here who are telling that ours is not a good industry and the situation is bad but for rest of the world India is having a good time and is growing. According to them we are blessed with good market conditions. Yes, we are growing, it is the question of how we look at it half glass empty or half full. What is declining is not necessarily be the growth but probably the rate of growth which is on account of the global slowdown. Paper industry, I believe is growing and there are hiccups on the way and we are here to find the solutions. The story that is unfolding in front of us offers a better market in the coming years, now it is up to us that how to manage the business and face these hiccups. Along with that we have other opportunities like PAT or REC where we can play our part and earn money. We have to work harder, smarter to handle these hiccups. We need to focus on our plantations, if we grow them well and if we grow them fast, we can control the price rise. It’s been truly said that we are the father of these crises because first we grew more than what we needed then we slashed the prices then we separated the farmer from the plantation and now when there is a paucity of the raw material we say we are paying more. We need to adopt a regulated policy to protect our raw material base in the long term and get our acts together in this competitive environment.
Mr. AVPS Chakravarthi: Going forward I believe innovation is the key. If we think that we can sustain the market by selling what we are selling then we are wrong. We have to innovate and upgrade our skills and match the global standards. Larger mills are doing their efforts on this front and medium mills have to at least follow the norms in the market or else they will be vanished from the playfield. Being in the paper industry we have to educate the people about the right image of the industry that it is sustainable and recoverable.
Mr. Sunil Sood: As far as opportunities are concerned I find some of the silver lining on the sides of the dark cloud. We have recently started our new machine in China and had a very good start up. The whole production has been sold out both in Chinese market and other export regions. So, there are opportunities in the playfield but one has to do his homework that what he wants to do.
Ideas to boost the image of the paper Industry
Mr. N Gopalaratnam: this is the one area where we have not done our homework and my friend’s here doesn’t think that we are a clean industry so that’s the problem. Actually we have to convince ourselves first that we are a clean and sustainable industry as compared to electronic industry. Personally we have started taking the initiatives at schools because I thought that it will be good to catch them young because that’s the right age where the children take up the things very fast. We have to target schools, colleges and other institutions to educate them that paper industry simply doesn’t cut trees rather it plants more then what it cuts.
Mr. Yogesh Agarwal: It is a strong thought that the paper is made out of wood and a common man think that these are the people who are polluting the environment. And it’s tough to remove that perception and I believe that industry or the association or a single company doesn’t have this kind of deep pockets to really bombard the thought process. Having said that it is not difficult to alter this mindset it’s just that we need to distract the mind of the consumer to the other things that paper industry does. For instance we are the only industry that has the carbon footprints because we plant trees and we directly sequest more CO2 than we produce. Moreover, look at the other industries that how much carbon do they produce and they can only buy the carbon credits to show that they are environment friendly. This is the platform, which can be used by the paper industry to alter the perception of the common man.
Mr. Pradeep Dhobale: Everything depends on the communication whether you spend million dollar or you start from the small school and then multiply it to other schools. If we start these things in our own cities than slowly the whole area will be covered. We at ITC are reaching to 500,000 students among 300-400 schools. As Yogesh, said that you don’t have to begin with saying that we are not a polluting industry or we are environmentally safe rather we should start with the environment education first and then gradually advance to other things. And, this has to be done in a campaign mode and you don’t have to be afraid that you are doing this to change the image of your company it’s a cultural change and will take a long time. I have been told that the FMCG companies spend close to 15% of their turnover in communication but for the B2B industries it is 3-4% worldwide and Indian paper industry comprises fraction of a percentage. Finally the innovation in communication is the key and it will evolve over a period and if we don’t do it than it becomes worse and worse. We also have to make the government buy our story, as they are also opinion leaders. We need to get some of the prominent leaders in our cities to say our story then we can expect some changes.
Mr. Sunil Sood: Communication is bad from our side we have to work with one another or form association which can take this forward. There are several bodies who work on this subject we need to tap them and say our story. Companies are sometime scared of engaging in these kinds of communications. Now and then people say that we are not making money so we cannot spend on the communication. It doesn’t have to be that way the industry needs to come together and spread the words of the good things done by the industry. This is a sustainable and recycled based industry doing least harm to the environment.
Challenges for the Indian paper industry(will the Chinese model of importing woodchips and selling paper outside will work for India)
Mr. Sunil Sood: As I said in the morning that woodchip will not be available for everyone as and when they wanted. You have to build your papermills and converting facilities where the markets are. Few years back when we built our Rizhao mill on the coastal lines, the cost involved was high as compared to other areas but over a time we have proved that the coastal mill can survive provided it has enough scale and you introduce certain practices. So the China will not have wood for its needs and it will always depend on the imported pulp and wood chips for the next decade or so. In last couple of years the pulp cost has gone up which will stay for the next couple of years. India has to build the model where it can sustain itself within its own territories as the model of being non-integrated will have adverse effect on the already compressed margins.
Mr. Pradeep Dhobale: I don’t think that this model of importing woodchips and pulp will work out in India or someone is taking the position to invest in the huge port facilities. So if at all any imports will happen it will be marginal. Therefore we have no other choice but to promote the farm forestry and increase the land yield. And now, the big multinationals and specially the FMCG companies are focusing on that we must produce locally because of the carbon footprint issues. And if the trees are grown in Finland or Brazil then the carbon footprint of shipping them will add in your account and make your carbon footprint more adverse. And if the importing model is initiated in this country I don’t think that it would be a right model for us.
Mr. Yogesh Agarwal: In the last 4-5 years, the pulp has been dominated by South America and the paper is by China but nobody knows that who has actually made the money with this kind of pulp prices. South Americans have lost money in the past 6 months and so the Chinese paper companies and many other Asian companies. So far it is not known that which model will work for the industry and if you see the 4P’s of business i.e. plantation, pulp, paper and paper trading then which cycle of the business is making money hasn’t been figured out yet. At the end of the day it is the commercial viability of the project that will decide which model is good for the business. China has gone to chip buying they don’t have the wood and they have the same problems as India is facing and I am sure if they had wood plantation then that would be also be as expensive as ours. The next 5 years for the paper industry are the years of transition and would specify the way to go forward.
Mr. N Gopalaratnam: We have lost money by applying the above model on the acquisition we have made. We are using imported pulp and yet we haven’t been able to make both ends meet. The production has gone out and the energy levels are fine but still we are not able to find a proper mix wherein we can get the proper balance with the cost. The point is that when deciding on the pulp or the chips you need to see the economics whether you are in the position to spent those extra dollars. China is growing so we are, they are putting in machines every now and then which are non-integrated and if China can do it why not we. This subject needs a detailed analysis to come to any conclusion.