What are the factors affecting the raw material price?
There are a number of things which increase the cost of the raw material. Dollar increase from 64 to 68 increases the prices by 6%. Oil prices have gone up and this affects many raw materials. The major change is the pulp prices. As you can see from the graph below, prices have gone up by more than 250USD per ton.
And this is due to many reasons. Primary being China’s increased dependence on pulp import due to restrictions imposed by the Chinese government. Also, there seems to be a general aversion to the usage of plastics. So many common items like straws etc are shifting to the paper base and hence increase in pulp demand. This is one item but many more are converting. This is an unprecedented rise and the entire paper/board price will increase a lot.
70-80% of input material in the print process is produced using imported raw material. How will this affect your business, plus the pricing negotiations with your customers?
We are printers and not central bank to absorb any costs. The government is increasing the price of petroleum products on a daily basis. So we also pass on the burden to the next station as no one can absorb it. While doing it on a daily basis is not viable, we have to look at it at regular intervals. Most of the customers do understand as we do not operate in an insulated world.
How will your company absorb this price increase? What is your strategy?
Why should or can any company absorb this increase? What strategy would you want to follow? Is there a strategy for this? The only reason anybody does business is to make money. If you don’t, then you are dead. And currently the margins as such are very thin. There is nothing we can absorb. I am actually very unhappy that you could ask a question like this.
Will this raw material inflation temper your company’s outlook for the year? What is the percentage you are looking at?
You buy petrol for your car, no matter if it is Rs 60/- or Rs 70/-. So also if the markets are good, print will be in demand. So that is not the problem. Problem is the banks. They are not giving loans and sentiments are low. Also, the political uncertainty is affecting investments. So the outlook for commercial printing seems tough. Packaging is growing as it is needed to run the system. Also, more and more goods are getting packaged and more and more are sold online.
From an export point of view, a strong dollar will boost turnover. Your comments?
I would think so. However, as we do not export much, I am not the expert to comment on the same.
When the top-level delegation met the GoI representatives, they were asked what is the revenue the print and packaging industry contributes to the Exchequer? Can you hazard a guess?
At 10 kg paper per capita consumption, the cost of paper/board would be Rs 13-billion kilos. At about Rs 50/- per kilo, that would be Rs 650-billion. So, we must be contributing Rs 150-billion to the Exchequer (2-billion USD). I must say that I am not sure of this. However, it’s an interesting exercise.