Paper stocks extend gain, jump up to 11% intraday – what makes JK Paper, West Coast Paper most lucrative, brokerage decodes

Stocks of paper companies surging up to 11 per cent on the BSE in the intraday trade on Tuesday on improved business outlook and heavy volumes. With Covid concerns fading now, the re-opening of offices, educational institutions, and courts, demand for paper is expected to get back.  

The paper companies’ stocks have been in focus over a couple of trading sessions, helped by the unlock theme. West Coast Paper Mills shares surged most today and were up by almost 11 per cent, followed by Andhra Paper, which was up nearly 9 per cent. Meanwhile, Pudumjee Paper which gained over 8 per cent on the BSE was at the third biggest gainer.  

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While JK Paper gained 7.5 per cent and Orient Paper around 6.5 per cent; Balkrishna Paper touched an upper circuit of 5 per cent intraday on the BSE.  

JK Paper and West Coast Paper also touched their new 52-week highs to Rs 297.95 and Rs 304.65 per share respectively. Both have been on an upswing over the past 5 sessions. The former gained over 25 per cent and latter around 24 per cent on the BSE, as compared to nearly 5 per cent jump in the BSE Sensex.  

According to Centrum Broking, “With impact of pandemic receding schools, colleges, offices, and courts have opened full-fledged. Distributors have started stocking inventory with uptick in demand, also, inflationary trend has led to higher-than-normal demand at distributor level.” 

The troika of demand normalization, higher level of demand at channels and favourable pricing has created a happy scenario for likes of JK Paper, West Coast Paper and Andhra Paper, the brokerage said. It added, the windfall gains can be expected for these companies over next couple of quarters. 

On valuations front, JK Paper is currently trading at 7.5x EV/EBITDA while West Coast Paper and Andhra Paper are trading at 3.9x and 4x of trailing EBITDA. Debt/Equity of all three companies stands at 1.2x/0.5x/0.1x, as per the Centrum report. 

S Ranganathan, Head of Research at LKP Securities said, “Paper stocks have seen good accumulation this week as almost all players have raised prices and traditionally the fourth quarter is always the best quarter more so this time around in view of the opening up Theme gaining momentum.”

“JK Paper has recently commenced its board facility and the outlook is promising going forward. West Coast Paper despite the absence of Boards has large capacities and is a formidable player with a positive outlook going forward,” the market analyst added.