The Hindu Business Line : Firm price trends keep JK Paper alive

A FIRM outlook on paper prices coupled with the perception that the company is best positioned to leverage the high prices has lent an optimistic undertone to the stock of JK Paper.

While the counter has over the last week or so has been going through a consolidation phase, dealers attribute it to short term correction in keeping with the broad market trend.

Brokers said that interest in the counter has perked up ever since the company went in for restructuring.

Foreign funds such as Templeton in the recent past have been actively supporting the counter.

Perceived as a market leader in the paper industry, the company has a very high focus on copier paper, which is reportedly the fastest growing segment. The company has already installed the pollution control equipment that is to be the norm by 2008. Its capacity utilisation is said to be almost 115 per cent.

Analysts maintain that the company will be re-rated on the bourses very soon. "Going forward only the integrated paper mills will survive," said an industry source.

There is a perception that the paper industry will go through a consolidation phase beginning end-2005 to 06. Thereafter, it is surmised that pricing power will shift to integrated paper mills.

"The ROE of JK Paper is better than BILTS. It should generate at least an EPS of Rs 7 for the full year," said an analyst tracking the company.

The only concern is that with wood availability in India coming down and with companies looking at capex, raw material prices could bring about a dampener to an otherwise optimistic trend. "This could see margins under pressure. However, given the company's better product mix, it would be easier for them to pass on any hike in raw material prices," said an analyst. Any further increase in coal prices could also be an additional area of concern.

Industry sources said that as a bid to increase its raw material source, the company has undertaken farm forestry programme, covering over 5500 hectares whereby around 290 lakh saplings have been distributed to farmers.

"The stock is a long term value stock. It is attractively valued," added a broker.

The stock ended at Rs 46.40 with around 4.76 lakh shares traded on the BSE.