Paper sector shares gain on price hike

Prices have spurted by about 5-10% a tonne in the last two months

Paper stocks have seen a sharp upward swing over the past few days following an increase in prices of paper. According to sector analysts, paper prices have spurted by about 5 per cent to 10 per cent a tonne in the last two months.

As a result, Ballarpur Industries, South India Paper Mill, Oriental Paper, Bilcare, Star Paper Mills and a few smaller companies have seen renewed buying interest, bucking the overall negative market trend.

Among the big gainers in the past one month, Orient Paper increased 21.89 per cent from Rs 46.15 on July 18 to Rs 56.25 at close.

Simliarly, Ballarpur Industries gained 20.08 per cent from Rs 61.70 to Rs 74.09 in the last one month, Bilcare gained 34.22 per cent from Rs 162.05 to Rs 217.50. Star Paper appreciated from Rs 26.05 to Rs 33.50, up 28.60 per cent.

Smaller stocks too followed suit by more than 50 per cent in the last one month. However, selected stocks have also lost value.

These include West Coast Paper, which is down 6.64 per cent from Rs 187.50 to Rs 175.05, Tamil Nadu Newsprint, which has fallen 6.95 per cent to Rs 52.20 and Rama Newsprint & Papers, which has slipped 6.98 per cent to Rs 9.19 between July 18 and.

As a result, the combined market capitalisation of all paper companies has increased 8.5 per cent from Rs 2,856.49 crore on July 18 to Rs 3097.87 crore.

This upward momentum is largely owing to the increase in prices of paper. According to sector analysts, paper prices have jumped by about Rs 2,000-3,000 a tonne in the last few days.

Foreign brokerage firm, CLSA in its latest report notes, "The paper cycle upswing has gathered momentum and paper prices in the domestic market have increased by 4-10 per cent in the last two months, mitigating the impact of cost increases."

In June and July, paper prices in the domestic markets increased by Rs 2,000-3,700 per tonne (4.0-10.0 per cent from the lows of April-June 2004) in different grades of writing, printing and coated paper.

While coated paper prices have been increased by Rs 3700 a tonne, prices of uncoated paper have increased by about Rs 2,300 a tonne.

The price increases have been sustained in the domestic market led by better demand."

A fund manager with Canbank Mutual Fund said, "There is considerable focus in the markets on the paper sector after the recent surge in domestic prices and paper prices are expected to firm further in the international markets resulting in domestic players gain substantially from increasing exports. As a result, the valuation of few stocks have turned attractive at current levels."

The paper industry has expanded by around 6 per cent per annum in the recent past and the current trend is expected to continue owing to improving demand prospects, especially on account of increased demand from corporates.

Also demand from packaging industry is likely to grow, sector analysts said. The demand for writing and printing paper is expected to grow around 5.3 per cent a year in the medium term. Demand for industrial paper, on the other hand, is expected to improve at 6.5 per cent a year.

The sector has huge growth potential primarily on account of the low per capita consumption in India at 5 kg compared with a global average of 54 kg, analysts said.