Paper stocks on a roll; Star Paper, Seshasayee Paper rally up to 15%

The demand is expected to pick up and grow by 11-15 per cent year on year in fiscal 2022 with schools, colleges and office spaces are likely to open and drive the demand

Shares of paper manufactures were on a roll with most of the frontline stocks trading up to 15 per cent higher, and many of them quoting at their respective 52-week highs levels in intra-day trade on Wednesday on demand revival.

Star Paper Mills (up 15 per cent at Rs 178), Orient Paper & Industries (up 13 per cent at Rs 33.30) and Seshasayee Paper & Boards (up 12 per cent at Rs 222.80) rallied over 10 per cent on the BSE. Astron Paper & Board Mill, JK Paper, Andhra Paper, Tamil Nadu Newsprint & Papers, Ruchira Papers and West Coast Paper were up 5 per cent to 8 per cent on the BSE. In comparison, the S&P BSE Sensex was up 0.20 per cent at 52,965 points, at 09:36 am.

According to experts, demand is expected to pick up and grow by 11-15 per cent year on year in fiscal 2022 with schools, colleges and office spaces likely to open and drive the demand.

The paper & paper products industry is one of the worst-affected industries due to the outbreak of Covid-19 pandemic. Closure of education institutions, adoption of work from home by offices, muted demand for printing of newspapers among others disturbed the consumption of paper & paper products. Moreover, subdued demand also had an impact on prices of paper & paper products which further affected the revenues of industry.

“The long-term demand outlook for the Indian paper industry remains favorable, driven by increasing literacy levels, growth in print media (particularly in the vernacular languages), higher government spending on education sector, changing urban lifestyles as well as economic growth. Given that these factors are likely to be sustained, the paper industry is likely to continue growing at a rate of 6-8 per cent per annum in the medium to long term although there may be aberrant years given the cyclical nature of the industry,” Seshasayee Paper and Boards said in the financial year 2020-21 (FY21) annual report.

Going ahead, CRISIL expects demand for printing and writing (P&W) paper to grow at a muted 1-3 per cent CAGR and reach 5.5 million tonnes by fiscal 2025. Enrolment of students is expected to increase at a relatively faster pace of 0.5 – 1 per cent CAGR over the next 3 years, compared with de-growth of 0.4 per cent CAGR during the past 3 years. Also with new education policy, coming into effect and a gradual rise in education spend by the Govt (~20 per cent higher spend) and increased thrust on education are likely to support demand for creamwove and maplitho (60-65 per cent P&W segment), the company said in annual report.

Among individual stocks, JK Paper hit a new high of Rs 237.25 after rallying 8 per cent on the BSE on Wednesday. The stock has now surged 45 per cent in a month. In the January-March quarter (Q4FY21), JK Paper reported a more-than-doubled consolidated net profit at Rs 135.79 crore, as compared to Rs 65.94 crore in Q3FY21. Net revenue from operations grew 20.5 per cent to Rs 898 crore from Rs 745 crore in the previous quarter.

The company said that higher production and sales volume with improved realisation over the preceding quarter led to better performance. The revival of demand, which started in the third quarter (October-December), continued to gather momentum. While, the impact from second wave of Covid-19 is yet to be seen, the management said it expects some disruptions in the coming months.