There is one sector, which has quietly defied market downs, remaining in the green, even on some of the most dire days.
The paper industry. The Indian paper industry has been having a good run, both financially as well as on the bourses. It is being tracked by analysts and fund houses alike. Seshasayee Paper, West Coast Paper, Ballarpur Inds, Tamil Nadu Newsprint and JK Paper have been rallying, with prudent investors accumulating the stocks to ride the upward wave.
This sudden love for paper stocks in 2018 can be attributed to a few logical reasons:
- First and foremost, it is thanks to China that Indian paper stocks are doing so well. China restricted import of low-grade recycled paper; this automatically meant that demand for wood pulp based paper, which is made in India has gone up manifold.
- The Chinese ban created shortage of raw material and impacted paper production, leading to jump in packaging paper price rise. Supply from China and others like Indonesia to India has virtually stopped.
- China was the largest importer of recycled paper; now with that gone, global price of recycled paper has crashed, leading to excess supply; this in turn has benefitted the Indian paper makers who use waste paper and getting a higher realization on recycled paper.
- Paper prices are on a consistent rise mainly account a hike in pulp prices, globally. It has gone up to unprecedented levels on account of increased demand.
- In the first week of Dec’18, the Govt imposed anti-dumping duty (ADD) on uncoated copier paper imported from Indonesia, Thailand, and Singapore for a period of three years to protect the interest of domestic companies against low-cost shipments.
- Paper demand, as per rating agency, CARE, is expected to grow at an annualized rate of 6.6% to 18.5 mtpa in 2018-19.
- Printing and writing segment demand to grow at 4.2% annualized to 5.3 mtpa in current fiscal.
- Demand for packaging and board to rise at 8.9% to 9.7 mtpa.
- Paper plants are working at full capacity and most expanded facilities are yet to go on stream; JK Paper recently increased its paper capacity from 436 kilotonnes a year to 471 ktpa by removing bottlenecks. This will give it the advantage of higher volumes and better realisations.
- Global pulp and paper prices are higher now thus domestic manufacturers have some advantage of pricing these days.
- Demand boosters for paper in India – more usage in eady-to-eat food products due to the ban on the use of plastic bags; high usage in FMCG packaging in organized retail and manifold growth in education sector.
Stocks to watch out for – JK Paper, Seshasayee Paper, NR Agarwal, Nath Pulp, Ballarpur Inds, Tamil Nadu Newsprint, Emami Paper Mills. All these companies have had a superlative first half and second half is expected to be equally scintillating.