Top 5 Paper Stocks to Watch Out as the Industry Prints Gains

The paper industry is making headlines! After a buzz-worthy June, paper stocks have continued their upward climb in the first few days of July 2024.

Leading paper stocks like JK Paper, Seshasayee Paper, West Coast Paper, among others witnessed a rally ranging 4-12% on 2 July 2024.

This bullish sentiment is driven by several key factors.

First, investors are placing their bets on anticipated revenue growth within the paper industry. Projections suggest a promising 6% to 9% increase in revenue for the current financial year, according to a leading rating agency in India.

This growth is expected to be fuelled by the recent commercialization of increased production capacity, allowing paper companies to meet rising demand.

Secondly, a recent government decision has provided a significant boost to the paper industry. The 53rd GST Council meeting resulted in a welcome change - a reduction in the Goods and Services Tax (GST) on paper boxes from 18% to 12%.

This move is expected to significantly reduce the overall cost of packaging materials benefiting paper companies and consumers.

Lower production costs for companies translate to potentially higher profit margins, while consumers can expect a decrease in product prices due to the cheaper packaging.

With the paper industry firmly in the spotlight, here are the top 5 stocks to keep an eye on.

Please note, these stocks are filtered using Equitymaster Stock Screener.

#1 JK Paper

Leading the list is JK Paper.

Founded in 1962, JK Paper is a top player in manufacturing and supplying packaging boards, and branded papers. It operates in 4 segments - writing and printing papers, coated printing papers, office and copier papers and high-end packaging boards.

It also provides packaging solutions for various industry applications like FMCG, pharma, etc.

JK Paper has 3 pulp and paper mills, including CPM in Songadh (Gujarat) on the Western coast, JKPM in Rayagada (Odisha) near the Eastern coast of India, and SPM in Kagaznagar, Telangana.

It serves customers in more than 60 countries across the Middle East, the USA, South-East Asia, Europe and Africa.

The company on 16 May 2024 approved the acquisition of a balance of 15% equity shares of its subsidiary companies Horizon Packs Private Ltd (HPPL) and Securipax Packaging Private Ltd (SPPL). Following this acquisition, HPPL and SPPL will become wholly-owned subsidiaries of the company.

For FY24, the company reported a marginal 3.4% YoY rise in revenue to Rs 66.6 bn. Meanwhile JK Paper reported a 6.2% YoY dip in net profit to Rs 11.3 bn.

Significant increase in raw material cost and lower realisation across all categories have impacted performance during the quarter and year as a whole. The selling prices continued to remain under pressure due to an increase in imports.

However, sales volumes grew by 2.3% in paper & boards during the year and the company continues to focus on operational efficiencies.

While the paper company posted a weak set of results, it has said that it expects higher volume growth in the paper and boards segment in the current financial year of 2024-25.

Further, JK Papers has taken price hikes in certain categories.

This combination of increased prices and anticipated growth is projected to boost profits. As a result, the company's shares have risen, gaining over 57% in the past month.

For more details, see the JK Paper company fact sheet and quarterly results.

#2 West Coast Paper Mills

Next on the list is West Coast Paper Mills.

The company is one of the oldest and largest producers of paper for printing, writing, and packaging in India.

The company's product segments include printing and writing papers, premium printing papers, security and HI-value grades papers, MG varieties, business stationery, cup stock and coated duplex board.

West Coast is the 5th largest paper manufacturer in India, with a consolidated capacity of 568,000 MTPA and has a strong market position in most segments.

The company in 2024 successfully doubled its manufacturing capacity for Optical Fiber Cable by setting up a new manufacturing unit at Fab City, Hyderabad, Telangana.

This development aligns with the company's commitment to meet the rising demand driven by global 5G rollouts and is in line with the objectives of Atmanirbhar Bharat and the Digital India initiative.

This newly commissioned plant commenced commercial production on 14 February 2024, ahead of the initially projected timeline of 1 April 2024. The Telangana facility marks the company's second unit after Mysore.

For FY24, the company reported a 9.6% YoY decline in revenue to Rs 44.5 bn. Meanwhile, the net profit declined 26.5% to Rs 6.9 bn.

The company has further gained attention after esteemed investor Mukul Agrawal increased his exposure by 1.7% in the March 2024 quarter.

Additionally, foreign institutional investors (FIIs) have maintained a bullish stance since the September 2022 quarter, consistently increasing their stake in the company.

Moving forward, the company plans to implement strategies to alleviate margin pressure.

For more details, see the West Coast Paper Mills company fact sheet and quarterly results.

#3 Andhra Paper

Next on the list is Andhra Paper.

Andhra Paper is engaged in the manufacturing and sale of paper, pulp and paper & paper board.

The company specialises in producing pulp, paper, and paperboard for various uses in businesses and homes.

It derives a major chunk of revenues from India and around 15% from the export market.

On 26 June 2024, Andhra Paper announced that it would install a new Advantage DCT100HS tissue line from Valmet at its Kadiyam mill in Andhra Pradesh, India.

This state-of-the-art line is designed to enhance production efficiency while reducing the environmental footprint. The start-up for this new tissue line is scheduled for the end of 2025.

The tissue machine will have a paper width on reel of 2,850 mm, a maximum operating speed of 6,560 ft/min (2000 m/min), and a yearly capacity of 35,000 tons of high-quality tissue grades dedicated for bath, towel, facial and napkin products.

Further, the company on 14 May 2024 announced and approved a 1:5 stock split. This means one fully paid-up equity share having a face value of Rs 10 each into 5 fully paid-up equity shares, having a face value of Rs 2 (each).

Andhra Papers is likely to complete the process of the stock split within 4 months from the date of approval.

For FY24, the company reported a 14.2% YoY decline in revenue to Rs 18 bn. Meanwhile, the net profit declined 34.9% to Rs 3.4 bn.

Going forward the company plans to expand its capacity.

For more details, see the Andhra Paper company fact sheet and quarterly results.

#4 Seshasayee Paper & Boards

Next on the list is Seshasayee Paper & Boards.

Seshasayee Paper and Boards (SPB) manufactures and sells paper and paper boards. It particularly focuses on printing and writing paper. The company operates plants in 2 locations - Tirunelveli and Erode, with a combined capacity of approximately 2,55,000 tons of paper per year.

On 14 May 2024, the company announced a revision of its investment plan for expanding pulp and paper capacity under the Mill Development Plan IV program.

Initially, the company planned a 40% capacity increase at its Pallipalayam manufacturing unit in Erode, Tamil Nadu, and applied for environmental clearances for this expansion.

However, after receiving feedback from the expert appraisal committee of the Union Ministry of Environment, Forest & Climate Change, SPB's Board approved a phased execution approach for the expansion.

The first phase will involve a 20% expansion, with a new application for environmental clearances to be submitted.

Following the successful completion of Phase I, the company plans to expand up to 40%, seeking exemption from fresh public consultations as indicated in its FY24 annual report.

Coming to its financials, for FY24 the company reported a 13.5% YoY decline in revenue to Rs 3.9 bn. Meanwhile, the net profit declined to Rs 2.7 bn.

The company's overall production in FY24 was lower at 240,383 tonnes compared to 241,145 tonnes in FY23, primarily due to planned maintenance activities in the first half of FY24.

Despite these challenges, SPB's strategic phased expansion plan and focus on securing necessary environmental clearances position the company for potential growth and increased production capacity in the future.

For more details, see the Seshasayee Paper company fact sheet and quarterly results.

#5 Tamil Nadu Newsprint (TNPL)

Last on the list is Tamil Nadu Newsprint.

The company is engaged in manufacturing paper and paper boards best suited for the printing, writing, and packaging industry.

It also produces cement and generates power through wind energy for captive use.

TNPL started with the capacity of producing 90,000 tonnes per annum. After continuously multiplying its capacity, today it stands at 4,40,000 tonnes per annum, that too in an eco-friendly manner.

The company is the world's largest bagasse-based paper mill, consuming 1.40 million MT bagasse per year and ranking third in installed capacity and second in printing and writing paper production in the country.

Coming to its financials, for FY24 the company reported an 8.2% YoY decline in revenue to Rs 47.6 bn. Meanwhile, the net profit declined 46% to Rs 2.1 bn.

According to a media report, Tamil Nadu Newsprint and Papers is planning to expand its business with the thought of setting up a new unit for tissue manufacturing. Production of 100 tonnes of tissues per day is being projected.

This expansion plan will not only bring financial benefits but will also make its position strong in the market.

For more details, see the Tamil Nadu Newsprint company fact sheet and quarterly results.

Snapshot of Top Paper Stocks in India

Here's a snapshot of top paper companies in India from Equitymaster's stock screener.

What Next for Paper Stocks?

The outlook for paper stock looks promising as we move into FY25.

Industry experts anticipate stabilization of prices and a projected uptick in volume growth compared to the previous year's low single-digit figures.

Revenue for FY25 is forecasted to expand between 6-9%, driven predominantly by increased volumes.

Of particular note, the packaging segment is expected to see stronger volume growth than printing, supported by robust trade activities.

This sector-wide positivity is underpinned by key trends favouring paper over plastic due to heightened environmental consciousness. As sustainability remains a driving force, the shift towards eco-friendly packaging solutions continues to bolster demand within the paper industry.

Advancements in paper manufacturing technology further bolster the industry's outlook, enhancing efficiency and product quality while reducing environmental impact. Strategic investments and expansions by major players are poised to amplify production capacities and drive innovation.

As per the International Project Management Association (IPMA), it is expected that the consumption of papers in India will hit around 30 million tons by 2027.

Conclusion

The paper industry in India is currently valued at around Rs 800 bn and produces over 25 million tonnes of paper annually.

Looking ahead, estimates suggest that by the 2029-30 fiscal year, the industry's contribution to the GDP will reach 1.3 trillion (tn).

While investing in paper stocks may seem appealing, it comes with its own set of considerations and challenges.

The paper industry faces economic fluctuations, impacting the performance of paper stocks.

Moreover, the volatility of raw material costs, such as wood pulp and energy, can also affect the profitability of paper companies.

Additionally, technological advancements, like the rise of digital media and e-books, pose a long-term threat to the demand for traditional paper products, potentially impacting paper stocks.

Moreover, there are also environmental concerns in this sector as paper mills are major polluters and face increasing regulations.

Therefore, before buying paper stocks one should consider company finances, raw material prices, and industry outlook.

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