Recommendation From Paper Industry

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

SECURING A SURE-SHOT WAY AHEAD 

JK PAPER LIMITED 

HERE IS WHY

Market leadership position

Good growth prospects

Large distribution network. 

JK Paper is one of India’s largest producers of office papers, printing, writing, specialty paper, and packaging boards with two fully-integrated manufacturing facilities. It is a market leader in the writing and printing segment and among the top players in the packaging and paperboard segment. JK Paper has an approximately 23 per cent market share. It has the largest-selling copier paper brand in India and offers a range of high-end coated packaging boards to service the varied needs of the packaging industry. Its pan-India distribution network comprises 229 trade partners, more than 4,000 dealers, 18 depots and four regional marketing offices. It exports its products to around 62 countries, including US, UK, Sri Lanka, Bangladesh, Singapore, Malaysia, Africa and Middle East. 

JK Paper had acquired a plant at Sirpur (Telangana) in FY19 for Rs. 371 crore. The Sirpur mill has a huge land asset in the form of industrial infrastructure which would benefit JK Paper for future expansion. This acquisition will provide a synergistic advantage to JK Paper, both in terms of a strategically located manufacturing facility as well as access to raw material. River Peddavagu, which is a tributary of Godawari, is in the vicinity of the Sirpur plant and Singareni Collieries is 40 km away from the plant. Thus, availability of water and coal is in abundance, these being essential raw materials for the company. 

It will double JK Paper’s uncoated printing and writing paper capacity and also supplement its product portfolio, including some specialty products. The acquisition will take the combined capacity of the company to 5,91,000 MT. The output from the commercial production of the acquired plant is expected to manifest from H2FY21. With this acquisition, the company would be able to address the growing demand from South India. CRISIL expects its net debt to EBITDA to remain below 2.5 times in fiscal 2021 despite the large capacity expansion plan due to solid EBITDA, which should also be boosted by incremental volumes from Sirpur Paper Mills (SPM), especially in fiscal 2021. 

In January 2019, the central government had imposed a three-year anti-dumping duty with a threshold price of USD 855 per tonne towards the import of uncoated copier paper from Indonesia, Singapore and Thailand. This is proving beneficial to the paper industry as a whole. The single-use plastic ban initiative is on its way to attain its target by 2022 and would attract an additional demand for the paper packaging board segment. The per capita paper consumption is projected to increase to about 17 kg by 2024-25 from the current 13 kg. 

On a consolidated basis, the company’s gross sales have decreased 5.61 per cent to Rs. 820.65 crore in Q3FY20 from Rs. 869.39 crore in Q3FY19. EBITDA showed a decrease of 6.09 per cent to Rs. 230.65 crore in Q3FY20 from 245.61 crore in the same quarter last year. PAT for Q3FY20 stood at Rs. 131 crore as against Rs. 111 crore in the same quarter last year, showing an increase of 18.31 per cent. The stock is trading at a PE multiple of 4.23x. By virtue of these factors, we recommend our readerinvestors to BUY this stock.