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Analysts on Dalal Street have turned bullish on select paper stocks on hopes of significant growth in earnings and return ratios amid rising paper prices in the domestic market. Almost every stock from this sector has delivered  good returns to investors in the past one year.

With a rally of 199%, Magnum Ventures has jumped the most to Rs 5.98 on June 2, 2021 from Rs 2 on the same day in 2020. Rushil Decor, Yash Pakka, Ballarpur Industries, Pudumjee Paper, Emami Paper and TCPL Packaging have also rallied over 100% during the same period.

What’s next?

With the recent sharp rally in waste paper and pulp prices led by the Chinese ban on all kinds of paper imports, integrated players with plantation linkages are likely to benefit as demand for packaging paper continues to be strong and writing & printing paper demand set to recover with the opening up of the economy.

“As China, and gradually other Asian countries, have increasingly restricted the import of waste paper and solid waste, the dynamics have shifted for the whole paper industry,” B&K Securities said.

Besides, India is one of the few countries with growth in writing & printing paper, as the government extends education to all to improve literacy rate, as well as proposed, revamp in ICSE/CBSE syllabuses are expected to revive demand for textbooks.

“With e-learning still a long way from reaching the interiors of the country due to preference for in-school learning as well as infrastructural bottlenecks, demand growth can be expected even in writing & printing paper, and an easier explained growth of packaging paper,” B&K Securities said.

B&K initiates coverage on JK Paper

According to industry watchers, a 30-35% rise in global pulp prices in the last three months have led to the closure of a number of smaller units in India based on waste paper and recycled fibre, where production has become unviable. With imports also not coming in due to the sharp rally in regional pulp or paper prices, the domestic market is in short supply.

“This has started pushing up the average prices of paper in the domestic market, especially the coated papers which are largely governed by global pulp prices and landed cost of imports. This hugely benefits the leading organised market players with well backward integrated plants like JK Paper and West Coast Paper. With access to domestic raw materials within a short distance, these players would be able to keep their cost lower and enjoy the higher realisation,” B&K Securities said.

The brokerage is bullish on JK Paper with a price target of Rs 237, indicating an upside of around 54% from the current market price of Rs 154.