JK Paper, ITC and others gain as paper sector shows promise

In a recent trend, pulp and paper stocks are witnessing a steady rise as prices in the sector stabilize. Companies like JK Paper, ITC, West Coast Paper Mills, TNPL, and Seshasayee Papers & Boards are gaining traction in the market.

After a zig-zagging performance on the bourses over the last six months, stocks of pulp and paper companies are on a steady rise now as pulp and paper prices have begun to stabilise.

Shares of players such as JK Paper, ITC, West Coast Paper Mills, TNPL, and Seshasayee Papers & Boards are gaining. On the BSE, JK Paper is at ₹366.10 (-0.44 per cent). The shares were in green for most of 2022 but started declining at the start of CY2023 and were in red till H1 of CY23. From July, it recovered and is on a steady rise. West Coast Paper Mills is traded at ₹625 (0.4 per cent) and is near its 52-week high of ₹663.80. Shares of TNPL are now trading at ₹260 – up 0.68 per cent and not far from its 52-week high of ₹283. For Seshasayee Papers & Boards, the first half of CY2022 proved beneficial, while the latter half of the year saw mixed fortunes. The stock has been on the rise since April 2023. On the BSE, it is now trading at ₹318 (-1.12 per cent) and its 52-week high stands at ₹349.

Gaurav Bissa, VP, InCred Equities, said: “After witnessing a strong upside, paper stocks have been consolidating over the last few weeks. The outlook for the sector remains positive. However, the sector is expected to have a consistent and gradual upward move rather than a short-term blip.

“Stocks like JK Paper and West Coast Paper will be at the forefront of this gradual move. While JK Paper has reversed from a multi-year ascending channel pattern which can push the price in a fresh uptrend, West Coast Paper is gearing up for a consolidation breakout on the weekly charts. Both the stocks can witness 20-25 per cent upside going forward.”

India is among the fastest-growing markets for paper, and the domestic market’s size is pegged at over Rs 80,000 crore. The country’s economic growth is expected to accelerate, which means that paper consumption is also expected to increase. Per the Indian Paper Manufacturers Association (IPMA), there are 800-850 mills in India and they use a variety of raw materials such as wood, bamboo, recycled fibre, bagasse, wheat straw, rice husk, etc. It has strong backward linkages with the farming community and the government, too, has taken steps to support the industry with initiatives such as the National Bamboo Mission.

Gaurang Shah, Senior Vice-President at Geojit Financial Services, said, “the transformation that the paper sector is going through on fallback of the ban that has been put in place for use of plastic bags, etc can transform into possibilities for the paper sector. It remains to be seen how effectively this is put in place at ground level because there are still some grey areas. But as and when the authorities become vigilant and strict, there can be a transformation for the entire sector.

“Price rise can reflect upon the numbers also, but it depends upon the company as to how much of a price rise is put in place and how it impacts the input costs and profit margins. We have positive coverage and a Buy recommendation on ITC. But I think it is going to be very crucial for any benefits being transferred to the paper sector/companies will totally depend on how effectively the ban is put in place.”

Prices of writing and printing paper have been raised since August, giving a ray of hope to the industry. Corrugated box makers are pinning their hopes on the upcoming festival season and the growing e-commerce trend. Industry experts say as no expansion or new capacity is coming up in the next 12-15 months and Assembly and Parliament elections are approaching, demand for paper will likely increase. The New Education Policy is also seen as a factor that will boost demand for paper.

Experts see the paper industry’s consolidation over the next 2-3 years. Paper prices had shot up after Covid as rates of coal increased by 4-5 times, while gas prices went through the roof since the Ukraine war broke out. Chemical prices, too, increased, and as a result pulp prices, topped $900 a tonne.

In 2022, paper stocks put a good show on the back of robust demand owing to factors like the easing of pandemic-related restrictions and a ban on single-use plastic, etc. Global demand has also grown, as seen from the rising exports in the last few years. Exports of paper products grew 80 per cent to reach an all-time high in FY22. The UAE, China, Saudi Arabia, Bangladesh, Vietnam, and Sri Lanka are key export partners.  Bright Prospects

Thee paper industry’s fortunes are linked to a number of economic indicators, such as literacy rates, spending on education, and sales of fast-moving consumer goods. Most of such indicators show positive momentum, boosing paper stocks.

According to the IPMA, paper consumption in India will likely reach 30 million tonnes by March 2027. There is growing demand from sectors such as FMCG and retail for innovative packaging solutions as they reduce dependency on plastics. Paper stocks can also benefit from the rising e-commerce shopping as well as ready-to-eat and packaged foods.

Key Challenges  

Investors must note changing consumer behaviour with a growing preference for digitisation. There are efforts taken by companies and even the government to cut down on paper usage and instead use digital mediums. Changes in the recycling policies in the European market can pose several challenges to the Indian paper industry. In November 2021, the EU banned exports of waste paper, a key raw material for manufacturing kraft paper, to India. But it was lifted in April.

News courtesy : Business line

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