Recently, we spoke with Sakata India’s managing director VK Seth about the Indian economy and its printing and packaging industry. Sakata Inx, with ink manufacturing plants in Rajasthan and Gujarat, is present in newspaper and commercial offset printing inks and high-quality gravure flexible packaging inks. The packaging inks article has appeared in the October print issue of Packaging South Asia.
This article focuses mainly on our discussion of the commercial and newspaper print industry and its recovery or structural difficulties. We (Mandeep Kaur and Naresh Khanna) started by asking Seth about the pandemic’s effects on the economy and the print and packaging industry.
VK Seth – The economic growth in the country was already slow in 2019. Our industry growth had come down from, let’s say, 11% plus to 6 or 7%. Then in February and March 2020, things came to a standstill. As plants opened up in April in May, there was some recovery and take-up of both raw materials and print output, especially in the packaging sector because of de-stocking and other factors.
However, although newspapers are speaking hopefully of recovery in the festival season, this is yet to be seen. Even in packaging, there is a tapering off since September, and we are not clear if there will be some pick up in what is traditionally an up season till the end of the calendar year.
As far as the economy, we see a severe hit in unemployment and industries such as hotels, aviation, and others. After the first quarter of 2021, we expect at least packaging to come back to 6 or 7% in volumes. The point is that before demonetization, we were growing by 11 to 12% in volumes.
Commercial and newspaper print in significant decline
MK and NK – We have spoken to many newspapers over the past seven months since the lockdown in March-end and attended webinars that put hope in the smaller towns and cities which they would prefer to call Bharat. What is your feedback on the progress that newspapers are making in their recovery?
VK Seth – Our information is that circulations have returned in Tier 2 and Tier 3 towns to about 60 to 65% of pre-Covid levels while metro circulations have recovered only to 35 to 40%. Commercial printing has also shrunk about 15 to 20%. Offset commercial printing is hit more than packaging. Offset monocarton packaging may be doing better overall than commercial print.
In newspapers, we feel that many readers will be weaned away and never return to them over a period of time – that there could be a 15 to 20% permanent loss in readership. Earlier, we thought that we have another ten years before the leveling off and gradual decline in print readership, but now we fear that Covid has accelerated the whole process of decline, a quicker loss of these customers from newspapers, magazines, and books. Digital and electronic mediums are likely to gain out of this.
MK and NK – We wrote earlier that the larger dailies’ raw material consumption, as reported in their quarterly financial statements, is down by as much as two-thirds over the same period last year. While this category would include newsprint, inks, and offset plates, are you also experiencing this decline?
VK Seth – Yes, Q1 was very bad for ink consumption by newspapers, and even Q2 was relatively low. Current levels of ink consumption are only back to about 50%.
We are tracking newspapers, and we built a plant for newspaper inks [in Gujarat], and if we are going to run it at 40 or 50% of its capacity, it will become loss-making. Even after the pandemic, we expect a loss of sales volumes of about 20 to 25% from earlier levels.
Please understand, in the April-June quarter, if we earlier sold 850 or 900 tons of ink each month, this declined to 200 tons a month in that quarter; it was very serious. Before March, some of the prominent newspapers bought three months supplies at a time. Once the lockdown happened, and circulation collapsed, newspapers stopped buying because they had a large inventory build-up in anticipation of the lockdown. This is also a reason why there is a distortion between the purchase and consumption figures. However, my impression is that the newspaper industry is back to 50 to 60% in production and consumption volume.
MK and NK – Are you supplying to the top of the pyramid in the newspaper industry? How do you see the future of the Indian dailies as a raw material supplier? We have recently been writing about newsprint consumption in India declining and paper mills globally, taking publication papers, including newsprint, out of production. The newsprint market is so depressed globally that we expect its price to remain between US$ 400 to 430 until March of 2021.
VK Seth – Yes, we are also supplying to the leading and larger circulated dailies. The October sales of inks are at 50% of last year. Some of the large Hindi dailies seem to be doing better than some of the English papers.
There could be a problem in the business model of the Indian dailies. So far, the per-copy newspaper pricing has only aimed at the mass-circulation and volume game. If there will be a 25% cut in daily circulations, the current newspaper price of anywhere from Rs 3.50 to Rs. 8 will make the entire business of newspapers unsustainable in the long run.
Similarly, let’s say the newspaper ink plants were to operate at 75-80% capacity then sustainability at the current prices will also be questionable. The newspapers will have to reposition their pricing strategy so that their circulation revenues cover more of their costs and circulation revenue and advertisement revenues will need to be recalibrated.
Everyone wants to be a part of the rural economy and the growing middle class in the country. Newspapers were already at a cost and quality threshold, where they exploited the circulation numbers to operate at marginal profits. If the whole pie shrinks, then the current business model of revenue will need to be reworked.