Paper stocks: Paper stocks continue rally on likely price hike; analysts sound caution

MUMBAI: Shares of paper makers on Wednesday rose up to 10% on speculation that prices may rise from September 1. But analysts warn of fresh buying at current levels as the stock has moved higher in 2022. Mills, and gained 5% each while on Wednesday rose 8%. And shares rose more than 10%.

S Ranganathan, head of research, LKP Securities, said, “Investors looking to make fresh purchases in paper stocks should now be wary of the bullish momentum seen in several months now as many key players are no longer adequately bound on valuation parameters.”

While the shares of West Coast Paper Mills have gained 60% in the last one month and JK Paper has gained 42% and 31% respectively during this period.

Paper stocks have been among the top performers in 2022 due to strong demand, sector consolidation, stable margins and a ban on single-use plastics. JK Paper, West Coast Paper, Andhra Paper,

, and TN newsprint has nearly doubled since January. Barring Andhra Paper, all top 10 paper stocks are currently trading above their five-year average price-to-earnings (PE) ratio.

Analysts said the rich valuation of the stocks reflects strong growth prospects of the industry.

Ranganathan said, “With many players expanding their board capacity, profitability improved significantly in Q1. Will continue.”

Paper companies have increased prices during FY22, starting from the third quarter of FY22. According to dealers, the hike in prices continued in the June quarter, while another round of hike of Rs 3-4 per kg is expected in September 2022.

According to Akhil Parekh, Analyst, Centrum Broking, sales are expected to grow at a CAGR of 8-9% over the next five years. “The implementation of the National Education Policy (NEP) should be accompanied by a huge demand for changes in education policy and curriculum.”

“Some backward integrated paper companies are doing well like JK Paper, West Coast Paper and Andhra Paper,” said Jitendra Upadhyay, analyst at Bonanza Wealth Management.


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