Paper stocks in demand; JK Paper, Seshasayee Paper surge up to 14%

Paper stocks rallied on expectation of strong earnings supported by robust growth in the packaging board segment and continued demand in the writing and printing paper segment.

Shares of paper companies were in demand as most of the frontline stocks traded higher in an otherwise weak market. The surge comes after strong demand in paper segment and growth in packaging board segment brightened earnings growth outlook.

Shares of Seshasayee Paper & Board rallied 14 per cent to Rs 230.65 after registering a jump of over three-fold in trading volumes. Meanwhile, shares of JK Paper hit a new high of Rs 387.40 as it surged 12 per cent on the BSE.

Among the paper pack, shares of Tamil Nadu Newsprint & Papers, Andhra Paper, West Coast Paper and Orient Paper & Industries were up between 3 per cent and 6 per cent. In comparison, the S&P BSE Sensex was down 2.2 per cent at 57,044 points.

In the past one month, paper companies have outperformed the market by surging up to 37 per cent, as compared to 1.4 per cent decline in the benchmark index.

JK Paper zoomed 74 per cent in the past three months, after the company reported 134 per cent year-on-year (YoY) growth in profit after tax at Rs 151 crore for the October-December quarter (Q3FY22). The management remained optimistic of the company's growth trajectory due to recovery in paper segment and growth in production and sales volume over higher realisation.

"The outlook for the paper sector is optimistic in India due to intrinsic use of paper in education in India. The market for writing and printing paper in India is expected to grow around 4 per cent per annum, higher than the global average," the management said in a statement. 

Last month, rating agency CRISIL Ratings reaffirmed its ‘CRISIL AA-/FAA/Stable/CRISIL A1+’ ratings on the long-term bank facilities, non-convertible debentures, fixed deposit and commercial paper programmes of JK Paper.

Highlighting the rationale behind the ratings upgrade, CRISIL Ratings said, "The ratings continue to reflect the company’s strong market position in the writing and printing paper industry, backed by its established position in the copier segment and superior market reach and dealers’ network. With improvement in demand and supported by better realisations, the company’s revenue grew strongly by 41.9 per cent YoY to Rs 2,629 crore in the initial nine months of fiscal 2022."

The ratings agency also expects net debt to EBITDA ratio to improve nearly 2 times by March 2023 and 1.5 times by March 2024. "As capex is expected to moderate over the near term, repayment of scheduled debt obligation shall reduce the debt level, while ramp up of additional capacities will translate into robust growth in EBITDA and internal accrual," the ratings agency added.