Paper stocks trail market

Stocks of the paper industry have under-performed the broader market over the last one month. Analysts in domestic brokerage houses pointed out that investors' sentiment was soured by rising operational costs coupled with higher power, fuel and water charges.

Meanwhile, the Ballarpur Industries' stock declined 8.5 per cent over the past one month as compared with a 0.4 per cent fall in the Sensex in the previous month.

Other paper stocks such as JK Paper declined 4.5 per cent during the period, while Sirpur Paper dropped by 12.5 per cent and for Orient Paper, there was a dip of 2.8 per cent.

Rising operational costs had earlier led to Ballarpur's operating profit margin declining by 146 basis points y-o-y to 24.82 per cent in the September 2006 quarter. JK Paper's operating profit margins also declined by 150 basis points y-o-y in the last quarter.

However, paper companies have been focusing on enhancing their captive raw material supplies and building capacities in a bid to offset the tougher operating environment.

For instance, Ballarpur has entered into a conditional agreement to buy Malaysia-based Sabah Forest Industries for $261 million (approximately Rs 1,170 crore).

JK Paper is investing approximately Rs 235 crore for setting up a 60,000-tonne per annum plant to manufacture packaging board, which is a high-end paper.

The steps taken by paper companies have not gone unnoticed and domestic mutual funds have ramped up their stake in paper companies. Mutual funds' stake in Ballarpur reached 7.6 per cent at the end of the September 2006 quarter from 7.08 per cent in the June 2006 quarter.

Similarly, in Orient paper, mutual funds' stake was 17 per cent at the end the second quarter of the current financial year as compared with 14.37 per cent at the end of the first quarter.