Paper stocks have become investors' hot picks in recent times. After being severely impacted by the Covid-19 pandemic, the Indian paper industry has been steadily improving over the past year, and experts anticipate this trend to continue in the years to come.
The shift to online shopping in the aftermath of the pandemic has increased demand for packing board boxes, as has the demand for quality packaging of FMCG products, textiles, and organised retail, which has boosted the paper industry.
However, the price of raw materials has gone up due to geopolitical unrest and logistical issues, and paper companies have had to raise their prices repeatedly so far this year to make up the difference.
Paper stocks came into action after the government ban on single-use plastics on July 1. Single-use plastics are typically items that are discarded after being used only once and do not go through the recycling process. According to experts, paper can be a viable option because bamboo, as a raw material, is abundant in the country and is a highly biodegradable item.
The majority of stocks in the sector have delivered multi-bagger returns over the last one year, with JK Paper standing out with a nearly 101% return so far in 2022. The stock delivered a staggering return of 222.92% over the previous three years, and it had gained nearly 257.85% over the previous five years.
At the prevailing price of ₹403.75, the stock traded at 9.76 times its trailing 12-month EPS of ₹41.36 per share and 2.28 times its book value.
The stock's 52-week high and low levels were Rs. 450 apiece and Rs. 192 apiece, respectively. Taking the current price into consideration, the stock is up by 110% from its 52-week low.
In the first quarter of the current fiscal, JK Paper reported a 123% YoY jump in its operating profit to ₹423.1 crore. This was due to strong demand as well as the impact of the single-use plastic ban.
Higher volume and sales realisation in Q1 FY23 over the corresponding quarter have contributed to better quarterly performance, despite increased input costs. To offset the raw material cost pressure, JK Paper announced a price hike in August for packaging products used in delivering orders by eCommerce companies.
The company reported a two-fold jump in its consolidated net profit in Q1 to ₹262 crore as against ₹104 crore in the corresponding quarter of the previous fiscal. The EBITDA margin in Q1FY23 jumped to 29.58% year on year from 28.80%, expanding by almost 78 bps, which is the highest to date.
Further, the company maintained its long-term credit rating of AA-/Stable with CRISIL and India Ratings and continues to enjoy the highest A1+ short-term credit rating.
JK Paper is a leading Indian player in office papers, coated papers, writing and printing papers, and high-end packaging boards. It had three integrated pulp and paper mills, including the JKPM unit at Rayagada (Odisha) near the eastern coast of India and Unit CPM at Songadh (Gujarat) on the western coast; and Unit SPM at Kagaznagar, Telangana. Its website shows The company's present installed capacity is 7,61,000 TPA, including the recent capacity expansion in the packaging board at unit CPM.
According to the industry body IPMA, paper consumption in India is likely to witness 6-7% annual growth and will reach 30 million tonnes by FY2026-77, largely driven by an emphasis on education and literacy coupled with growth in organised retail. This bodes well for the company going forward.
The paper industry holds immense potential for growth in India as per capita consumption globally is one of the lowest. The Indian Paper Manufacturers Association said around 15 per cent of the world population stays in India but consumes only 5 per cent of the total paper produced in the world.
An average of 03 analysts polled by MintGenie have a strong ’buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.