JK Paper, West Coast Paper, Orient Paper, Seshasayee: Paper stocks rally up to 52% in 30 days. Here's why

After defence and railways, one sectoral theme that has delivered solid gains to investors recently is paper. Shares of at least nine paper manufacturers rallied 30-50 per cent in the last one month while 11 others climbed 10-30 per cent during the same period on positive sectoral outlook. Analysts said global pulp prices fell quite a bit between January-May and that Indian industry did not make price corrections. They said the new education policy may boost revenue for the sector in the medium term and that ban on single-use plastics also augers well for paper industry. Many paper companies have also seen improvement in balance sheets over last couple of years, they noted.

According to IPMA, paper consumption in India will likely reach 30 million tonnes by March 2027. There is growing demand from sectors such as FMCG and retail for innovative packaging solutions as they reduce dependency on plastics.  "Paper stocks can also benefit from the rising e-commerce shopping as well as ready-to-eat and packaged foods," Nuvama said in a note.

Shares of West Coast Paper Mills climbed 52 per cent to Rs 740 a piece from Rs 486.60 level a month ago. Ruchira Papers climbed 41 per cent during the same period. It was followed by Seshasayee Paper and Boards Ltd (37 per cent),

Star Paper Mills Ltd (35 per cent), Astron Paper & Board Mill Ltd (35 per cent) and Tamil Nadu Newsprint & Papers Ltd (33 per cent).

Paper companies are also optimistic on future prospects. In its annual report, Tamil Nadu Newsprint said exports of paper and converted paper products may stay robust in future. A strong and robust domestic demand coupled with strategic exports of both paper and converted paper products augers well for the Indian paper industry, it said. 

"All the major paper companies have entered next phase of expansion due to high-capacity utilisation and strong balance sheet position, which provides good upside potential to the stock from FY26-FY27 perspective. Our pecking in this space is JK Paper followed by West Coast Paper Mills," Nuvama said.

Nuvama said that since the new curriculum is being developed after a gap of 15 years, it would eliminate sale of second-hand books and would lead to strong growth for at least 2-3 years. Completely replacing second-hand textbooks can be a huge opportunity for paper companies with a higher realisation, it said.

Besides, it noted that there is a lot of plastic substitution happening with the single-use plastic ban. The substitution will create an additional 2-3 lakh TPA. Due to the high capital investment required to set up a new packaging board plant, only a few large players, such as ITC Ltd, JK Paper, and West Coast Paper Mills, can capitalise on the opportunity, Nuvama noted.

Genus Paper & Boards, Orient Paper & Industries, Andhra Paper, Pudumjee Paper Products Ltd, Malu Paper Mills and Mohit Paper Mills surged 20-30 per cent in the last one month. JK Paper is up 19 per cent in the one month period. Balkrishna Paper Mills and  Emami Paper Mills gained 14-15 per cent for the period.

Global pulp prices reached a record high level in 2022-23 as the demand increased sharply post Covid period. This was further aggravated by higher energy cost in Europe triggered by Russia-Ukraine war, JK Paper said in its annual report las month.  

“The low inventory of pulp led to panic buying which also pushed the prices further higher. Consequent to this paper prices also moved up significantly. Opening up of China post Covid restrictions was expected to keep demand buoyant. However, Q4 of 2022-23 witnessed demand slowdown as China buying did not pick up as expected resulting in inventory of pulp producers shooting up from normal levels of 30 days to 60 days. This triggered a price correction in pulp prices and may hit their lowest level in coming months,” JK Paper said last month.

"Now with the softening of international demand, the pulp quantities available for the Indian markets from China and Indonesia have considerably increased. Furthermore, international pulp prices have moderated considerably which has aided the drop in prices of finished paper. In this background, we are currently witnessing a surge in imports of woodfree grades in large volumes. This trend is likely to continue. Further, the Indian industry did not make price corrections at the appropriate time, which made the imported woodfree grades attractive for an Indian convertor/market," Nuvama said.

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