 "Paper stocks extend rally; JK Paper zooms 75% in one month")
Shares of paper companies were trading higher on the bourses on expectations of a positive outlook for the current July-September quarter.
JK Paper, Ruchira Paper, West Coast Paper, Star Paper Mills, NR Agarwal Industries, Shreyans Industries and Kuantam Paper were trading higher in the range of 4% to 10% on the BSE. In comparison, the S&P BSE Sensex was up 0.81% or 305 points at 37,969 at 01:05 pm.
In past one month, JK Paper, International Paper APPM, Ruchira Papers, Nath Pulp & Papers, West Coast Paper, Emami Paper, Tamil Nadu Newsprint and Seshasayee Paper Boards have rallied in the range of 25% to 75% after reported a strong set of numbers for the quarter ended June 2018 (Q1FY19). The benchmark index was up 4% during the same period.
Total 54 paper companies announced their Q1FY19 results had posted a combined net profit of Rs 2.24 billion against net loss of Rs 3.46 billion in the year-ago quarter. Net sales of 54 companies increased 19% from Rs 56.62 billion to Rs 67.49 billion during the quarter.
“Major factors that contributed to improved profitability were, improved production, improved wood and water availability augmenting pulp production and replacing high cost imported pulp and improved market conditions resulting in better realisations, enabling the Company to offset, in part, cost increases,” Seshasayee Paper and Boards said.
The market conditions remained favourable during April to June with better demand. The outlook for the current quarter is positive, it added.
Ruchira Paper said the domestic demand for paper in India has been growing at a CAGR of 6.6% and is likely to touch 18.5 million tonnes in 2018-19.
Of which, printing and writing segment demand is expected to grow at a CAGR of 4.2% and reach 5.3 million tonnes in FY19. The packaging paper and board segment are expected to grow at a CAGR of 8.9% and reach 9.7 million tonnes in FY19, it added.
JK Paper hit a new high of Rs 184, up 8%, rallied 75% in past one month. Thus far in the month of August, it surged 45% after the company reported net profit at Rs 951 million in Q1FY19 on back of strong operational performance. It had a profit of Rs 601 million in the year-ago quarter. EBITDA (earnings before interest, tax, depreciation and amortization) margin improved 203 bps at 24.18% from 22.15% in the year-ago quarter.
Analysts at Edelweiss Broking have revised estimates upward for revenue (+5%/8%) and EBITDA (+18%/22%) for FY19 & FY20 mainly due to increased sales volumes and better operating margin (revised from 21% to 24%). The brokerage firm revised target price from Rs 195 to Rs 260 due to revision in estimates and assignment of Rs 29/share for the Sirpur Paper Mill (SPM).
“Given that JK Paper would ramp up the capacity of SPM in a staggered manner, we believe the valuation based on FY20 EBITDA will not reflect the true potential of SPM. Thus, we have valued the SPM by applying 6x multiple on FY23 EBITDA estimates and then discounted (assumed the weighted average cost of capital or WACC of 10%) back to FY20,” it added.
JK Paper, Ruchira Paper, West Coast Paper, Star Paper Mills, NR Agarwal Industries, Shreyans Industries and Kuantam Paper were trading higher in the range of 4% to 10% on the BSE. In comparison, the S&P BSE Sensex was up 0.81% or 305 points at 37,969 at 01:05 pm.
In past one month, JK Paper, International Paper APPM, Ruchira Papers, Nath Pulp & Papers, West Coast Paper, Emami Paper, Tamil Nadu Newsprint and Seshasayee Paper Boards have rallied in the range of 25% to 75% after reported a strong set of numbers for the quarter ended June 2018 (Q1FY19). The benchmark index was up 4% during the same period.
Total 54 paper companies announced their Q1FY19 results had posted a combined net profit of Rs 2.24 billion against net loss of Rs 3.46 billion in the year-ago quarter. Net sales of 54 companies increased 19% from Rs 56.62 billion to Rs 67.49 billion during the quarter.
“Major factors that contributed to improved profitability were, improved production, improved wood and water availability augmenting pulp production and replacing high cost imported pulp and improved market conditions resulting in better realisations, enabling the Company to offset, in part, cost increases,” Seshasayee Paper and Boards said.
The market conditions remained favourable during April to June with better demand. The outlook for the current quarter is positive, it added.
Ruchira Paper said the domestic demand for paper in India has been growing at a CAGR of 6.6% and is likely to touch 18.5 million tonnes in 2018-19.
Of which, printing and writing segment demand is expected to grow at a CAGR of 4.2% and reach 5.3 million tonnes in FY19. The packaging paper and board segment are expected to grow at a CAGR of 8.9% and reach 9.7 million tonnes in FY19, it added.
JK Paper hit a new high of Rs 184, up 8%, rallied 75% in past one month. Thus far in the month of August, it surged 45% after the company reported net profit at Rs 951 million in Q1FY19 on back of strong operational performance. It had a profit of Rs 601 million in the year-ago quarter. EBITDA (earnings before interest, tax, depreciation and amortization) margin improved 203 bps at 24.18% from 22.15% in the year-ago quarter.
Analysts at Edelweiss Broking have revised estimates upward for revenue (+5%/8%) and EBITDA (+18%/22%) for FY19 & FY20 mainly due to increased sales volumes and better operating margin (revised from 21% to 24%). The brokerage firm revised target price from Rs 195 to Rs 260 due to revision in estimates and assignment of Rs 29/share for the Sirpur Paper Mill (SPM).
“Given that JK Paper would ramp up the capacity of SPM in a staggered manner, we believe the valuation based on FY20 EBITDA will not reflect the true potential of SPM. Thus, we have valued the SPM by applying 6x multiple on FY23 EBITDA estimates and then discounted (assumed the weighted average cost of capital or WACC of 10%) back to FY20,” it added.
| COMPANY | LATEST | ONE-MONTH BEFORE | GAIN(%) |
| JK PAPER | 180.90 | 104.10 | 73.78 |
| INTERNAT. PAPER | 485.00 | 323.20 | 50.06 |
| SATIA INDUST. | 533.70 | 376.00 | 41.94 |
| RUCHIRA PAPERS | 147.00 | 108.00 | 36.11 |
| SANGAL PAPERS | 161.00 | 121.05 | 33.00 |
| NATH PULP & PAP | 49.80 | 37.55 | 32.62 |
| WEST COAST PAPER | 345.00 | 261.25 | 32.06 |
| EMAMI PAPER | 269.00 | 204.70 | 31.41 |
| RAMA PAPER MILLS | 12.67 | 9.80 | 29.29 |
| SESHASAYEE PAPER | 1090.05 | 858.35 | 26.99 |
| SHREYANS INDS. | 165.00 | 130.15 | 26.78 |
| MALU PAPER | 48.05 | 38.00 | 26.45 |
| KUANTUM PAPERS | 725.00 | 580.00 | 25.00 |
| SH. AJIT PULP | 287.50 | 230.00 | 25.00 |
| T N NEWSPRINT | 310.85 | 248.80 | 24.94 |
| N R AGARWAL INDS | 488.30 | 402.55 | 21.30 |
| RAMA PULP & PAP | 55.90 | 46.10 | 21.26 |
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