After two revisions in April and July, manufacturers across the country are now planning to hike price by Rs 1,000 per tonne in the first week of December. Another round of price hike is likely by the month-end. Coming at a time when global paper prices have risen by 10-15 per cent, the hike is unlikely to provide much succour to the bottomlines of most domestic paper manufacturers. The rise in wood pulp prices (the key raw material) as well as the sharp rise in transportation costs (post-diesel price hike) will negate the benefits of a hike.

According to PG Mukundan, secretary-general of the Indian Agro Paper Mills Association, the proposed increase (in two stages) has been necessitated by the ballooning operating costs. ``The 40 per cent increase in diesel prices and the resultant freight hike have adversely affected paper producers.

Transportation of raw materials to the plant site is expensive due to the low weight-high volume nature of the product. Post-diesel price hike, paper producers are facing a sharp rise in transportation costs. Besides, paper units, which use diesel as their main source of power (true of most medium and small plants), have been hit badly.

Add to this is the rise in wood pulp prices. For an industry which is yet to come out of the recession, this kind of an increase in operating costs will only make matters worse.''

Says an industry analyst, ``Forget about any addition to the bottomline, the proposed two-phased rise in paper prices will just about compensate for the rise in operating costs. Bigger companies like ITC Bhadrachalam and Ballarpur Industries will be better off as they have a lower transportation cost apart from captive power plants. Most other units will be hard hit. An uptrend in paper stocks is, therefore, unlikely on the price rise news.''

While BILT has been hovering between Rs 65 andRs 80, ITC Bhadrachalam has been quoting in the Rs 55-65 band. West Coast Paper is on the downhill, while Andhra Paper has been range-bound at Rs 650-750. In fact, most paper scrips have followed a similar trend - shooting up in August and then staying flat.

Mukundan says that in the current fiscal, paper producers should see a growth of only 5-7 per cent. However, he is hopeful of improved prospects in FY 2001. ``With the economy turning around, demand for paper in the domestic market should pick up. The government's stress on education and increased outlay for this segment should aid this recovery. At present, domestic demand is more or less static,'' says Mukundan, adding that in the newsprint segment, the declining prices could affect manufacturers like Tamil Nadu Newsprint. The TNPL scrip has been on a downhill, falling from a high of Rs 70 to its current level of Rs 45.