Reviews
In this edition, we have reviewed JK Paper Limited and Marico Limited. We suggest our reader-investors to HOLD in JK Paper Limited and Marico Limited.
We had previously recommended JK Paper Limited in Volume 35, Issue No. 7, dated March 2-15, 2020, in the ‘Low Scrip’ section. The stock was then trading at Rs121.05 and was recommended based on market leadership position, growth prospects and large distribution networks. JK Paper is a producer of office papers, printing, writing and speciality paper. The company offers a range of high-end coated packaging boards to service the varied needs of the packaging industry.
On a consolidated quarterly front, a decline in net sales of 8.83 per cent to Rs735.86 crore was reported in Q4FY20 from Rs807.16 crore in Q4FY19.
Operating profit was reported atRs207.25 crore in Q4FY20 from Rs239.58 crore in Q4FY19. Subsequently, net profit decreased by 17.92 per cent to Rs92.72 crore in Q4FY20 fromRs112.96 crore in Q4FY19.
On an annual basis, net sales decreased by 6.03 per cent to Rs3,060.19 crore in FY20 from Rs3,256.71 crore in FY19. Operating profit increased by 6.21 per cent toRs975.17 crore in FY20 from Rs918.12 crore in FY19. Net profit saw a growth of 10.23 per cent and was reported at Rs468.41 crore in FY20 fromRs424.94 crore in FY19.
Due to the closure of plants and muted demand during the virus-driven lockdown phase, the company reported drop in sales volume. JK Paper is comparatively better placed amongst its peers owing to its superior product mix and backward integrated operations. This should help the company to continue to outperform the industry growth rate as and when things return to normalcy.
Hence, we recommend a HOLD.
We had previously recommended Marico Limited in Volume 34, Issue No. 17, dated July 22 – August 4, 2019, in the ‘Choice Scrip’ segment. The stock was then trading at Rs368.15 and was recommended based on the company’s sturdy growth momentum across segments, better performance than peers and healthy product profile. Marico manufactures consumer products and services in the beauty and wellness space. The company’s principal products include edible oils and value-added hair oils.
On the consolidated quarterly front, net sales declined by 7.02 per cent to Rs1,496 crore in Q4FY20 from Rs1,609 crore in Q4FY19. Operating profit was reported at Rs314 crore in Q4FY20, down by 2.48 per cent from Rs322 crore in Q4FY19. Net profit came in at Rs200 crore in Q4FY20 and Rs404 crore in Q4FY19, falling by 50.5 per cent.
Looking at the annual trends, net sales fell marginally by 0.26 per cent in FY20 toRs7,315 crore from Rs7,334 crore in FY19. The company reported an operating profit of Rs1,593 crore in FY20, increasing by 11.48 per cent from Rs1,429 crore in FY19. Net profit came in at Rs1,043 crore in FY20 andRs1,132 crore in FY19, declining by 7.86 per cent.
The company has a more resilient portfolio of products than its peers to withstand the virus-led sales and earnings’ decline in FY21. It is largely expected to strengthen its leadership in the edible oil category during this time as in-home consumption increases and small players are affected due to liquidity and distribution challenges. We therefore recommend a HOLD.
(Closing price as of July 15, 2020)