Indian Paper Packaging Companies might see an increase in its sales volumes in FY2024-25

Indian paper packaging companies are expecting a growth in sales volumes by 5-7% in the fiscal year 2024-25, a significant rise from the previous year's 3% growth. This upswing is attributed to a boost in demand from major industries such as pharmaceuticals, eCommerce, consumer durables, FMCG, and ready-made garments, which together drive the majority of demand in this sector.

However, significant increase in raw material costs, particularly international wastepaper prices, which surged by 25% due to elevated freight costs and geopolitical issues, poses a challenge. While there has been a 10% rise in kraft paper prices, the industry struggles to pass these costs onto customers promptly due to the gradual recovery in demand and competition from less expensive imported goods.

In light of these financial pressures, companies are expected to hold back on major capital expenditures. Investments are likely to be channeled primarily towards debottlenecking and modernization rather than expanding capacity, ensuring that debt levels remain manageable. This conservative approach to spending should support the sector's credit risk profile by maintaining a stable debt-to-EBITDA ratio under 2 times, similar to the previous year.

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The sector remains cautiously optimistic, with utilization rates forecasted to increase from 85% to about 90%. However, the outlook could be affected by slower than anticipated consumption recovery or further fluctuations in input prices, which could further strain the industry's financial health.