Paper stocks turn soggy on higher input costs

Lagged behind the Sensex in one month; Orient Paper was the only exception.

The stocks of paper manufacturers have lagged behind the Sensex over the past one month. In fact, they have fallen further behind in the last fortnight.

For instance, Ballarpur Industries has had a negligible gain of just about 0.78 per cent over the past fortnight against the Sensex appreciation of 3.92 per cent. The J K Paper stock has declined 5.5 per cent and the Sirpur Paper counter 2.1 per cent during the same period.

The Ballarpur Industries counter, over the past one month, has appreciated about 6.86 per cent vis-a-vis 7.15 per cent gains by the Sensex. The J K Paper scrip has remained at more or less the same level during the same period, while Sirpur Paper has shed almost 3.8 per cent.

Analysts said the investor sentiment has been dampened by the fact that the government might remove the priority status, aimed at improving coal supplies to the industry, given to the paper industry.

The markets fear that paper being energy-intensive, such a move can substantially push up the power and fuel costs for paper manufacturers. Ballarpur Industries, for instance, saw its power, fuel and water charges as a percentage of sales rise by 63 basis points to 11.4 per cent in the September 2005 quarter.

Besides, investors' sentiment in the sector has been hit by rising cost of inputs, such as chlorine. The price of the chemical has risen about 8 per cent over the past years to almost Rs 4,750 per tonne, analysts pointed out.

To offset these increases in input costs, paper manufacturers like J K Paper had hiked prices by Rs 1,000 a tonne during July-October 2005.

An exception to this trend has been Orient Paper & Industries, which has gained almost 12.4 per cent during the past fortnight. The stock's appreciation over the past one month has been even higher at 21.6 per cent.

The Orient Paper counter has been buoyed by the company's plans to set up a captive power plant to keep fuel costs in check, coupled with its expansion in terms of foraying into the high-margin tissue paper business.

Clearly, the improvement in demand has led to several other players also announcing their expansion plans. J K Paper, for instance, is investing approximately Rs 235 crore for setting up a 60,000-tonne a year plant to manufacture packaging board, a high-end paper.

Ballarpur Industries is also slated to invest Rs 150 crore this financial year in a bid to raise its production capacity by 35,000 tonne a year. Analysts believe that larger capacities could help leading paper players offset rising input costs, and this could even help revive the investor sentiment.