Paper stocks up on better financials

Star Paper Mills, Ruchira Papers, Balkrishna Paper, TN Newsprint, N R Agarwal Industries, Seshasayee Paper and West Coast Paper were up in the range of 6% to 20% on the BSE

Shares of paper manufacturers saw sharp gain on Monday, on expectation of robust growth demand. 

That of Tamil Nadu Newsprint & Papers rose the highest at 8.8 per cent, to close at Rs 419.8. Emami Paper Mills rose 8.1 per cent to Rs 898.1. West Coast Paper Mills and JK Paper rose six and 5.2 per cent, respectively.

Experts estimate 12 per cent and four to five per cent growth in demand for packaging and writing & printing paper, respectively, next year. Writing & printing paper continues to face margin pressure in cheaper shipments from Southeast Asia.

“Paper mills in India have reduced debt over the past few quarters and reported good financials in the quarter ended September. Probably, (stock) traders have noticed now the overall improvement in top line and bottom line. Based on financial performance, overall sentiment in the paper sector is positive,” said V Kumaraswamy, chief financial officer at JK Paper.

According to reports, China has stopped import of waste paper and has shifted to use of virgin pulp as raw material, to reduce environmental pollution. 

Consequently, Chinese paper mills are now facing a shortage of raw material. Industry sources believe Chinese mills have lost around three million tonnes of  production capacity, as a result. Thus, their export to other countries in the region could decline for a while.

“Paper companies have reported growth in profitability over the past few years, with reduction in debt to equity ratio to 1.1 for financial year 2017, compared to 1.6 for financial year 2015. Similarly, their debt and Ebitda (operating earnings) ratio fell to 3 for FY17, from 5.6 in FY15. This indicates their financials have improved over the past three years. The trend is likely to continue,” said an analyst with a large brokerage. 

Rohit Pandit, secretary general of the Indian Paper Manufacturers Association, said the writing and printing segments of the paper sector were growing but also faced import pressure from Southeast Asian countries.