Paper stocks have outperformed the benchmark indices so far in 2022. Stocks in the paper industry have increased by 50-110 percent year to date. The bull run in paper stocks began after the government issued guidelines for a ban on certain single-use plastic items to reduce plastic pollution.
Single-use plastics are typically items that are discarded after being used only once and do not go through the recycling process. Plastic forks and spoons, earbuds with plastic sticks, plastic sticks for balloons, plastic flags, candy sticks, ice-cream sticks, polystyrene (Thermocol) for decoration, plastic plates, and cups, glasses are some of the many single-use plastics.
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.
Further, as the economy recovered from Covid lockdowns, demand for paper increased as educational institutions, offices, schools, courts, and other organizations operating fully.
Since the single-use plastic ban went into effect on July 1, shares of paper and paper products have continued to rise. The surge in stock prices has also been supported by the multiple price hikes taken by the companies. According to the Economic Times report, paper companies have increased prices during FY22 starting from the year's third quarter. Price increases continued in the June quarter, with another round of ₹3–4 per kg increases expected in September 2022.
Meanwhile, the European Union (EU) lifted its ban on waste paper exports to India on April 1, providing relief to the Indian paper industry affected by the raw material shortage.
Waste cuttings or paper are important raw materials for the paper industry, particularly for the production of kraft paper, which is then used to make brown or corrugated boxes, which are used to pack everything from FMCG to electronics.
The EU decision comes at a time when the Indian paper industry has been crushed by the shortage of waste cuttings since Covid-19 set in. Before the lifting of the ban on exports, the prices of recycled papers surged above mills’ paper for the first time in 40 years, said Centrum Broking.
Apart from this, Importing all paper products, such as newsprint, handmade paper, and envelopes, among others, on or after October 1 will fall under the paper import monitoring policy, which will necessitate full registration under the scheme. This benefits both the listed players and the organized market, according to media reports.
Shares of West Coast paper mills have accelerated by 133.25 percent in the last six months, while JK Paper, Tamil Nadu Newsprint & Papers, Ruchira Papers, and Andhra Paper have increased by 70 to 120 percent.
|% 6 Month Returns
|West Coast Paper Mills
|Seshasayee Paper & Boards
|Tamil Nadu Newsprint & Papers
|TCPL Packaging Ltd
West Coast paper mills reported a 480.87 percent YoY increase in consolidated net profit of ₹185.3 crore in the first quarter of the fiscal year 2022-23 (Q1FY23), compared to ₹31.9 crore in the same quarter last year. Revenue from operations increased 103.98 percent year on year to ₹1,125.4 crore, up from ₹551.7 crore in the previous quarter.
JK Paper reported a two-fold increase in consolidated net profit at ₹264.23 crore for the quarter ended June as against a net profit of ₹104.22 in the same quarter of last year. The net profit of the company has been consistently increasing in the last four quarters.
The Revenue from operations increased by 110.82% to ₹1,465.2 crore in Q1, compared to ₹695 crore in the same quarter last year. In Q1FY23, the operating profit increased 88.952%, from ₹190.3 crore to ₹423.1 crore. EBITDA margin for the June quarter stood at 29.58%, up by 0.78% YoY.
Similarly, Andhra papers delivered strong numbers for Q1FY23 and beat analyst expectations. The company's revenue was up by 70.31 percent to ₹460.7 crore compared with ₹270.5 crore in the same quarter last year.
The Standalone net profit increased by 225.28% year on year (YoY) to ₹84.9 crore in the June quarter, compared to ₹26.1 crore in the same quarter last year.
Going forward, Experts predict that the paper industry will deliver strong earnings in the second and third quarters of FY23, supported by robust growth in the packaging sectors.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.