Paper stocks in focus: What’s really driving this sector – Analysts decode triggers; check price target

From unlock theme to government’s measures, the paper companies’ stocks have a huge scope to grow going forward, say the analysts while being bullish on the entire sector. The paper stocks were on a roll-on Thursday as the majority of them traded in positive and closed up to 3 per cent higher.

“The paper stocks opened higher after Directorate General of Trade Remedies issued a notification to recommend anti-dumping duty on decor papers, however, profit booking is being seen at higher levels," says Santosh Meena, Head of Research, Swastika Investmart.

Swastika Investmart research head further said that the power shortage in China is also leading to higher prices for paper and that is another positive trigger for the industry. 

Stating that the outlook for paper stocks is bullish, Meena said, “JK paper will remain our top pick amid its strong presence and growth momentum in financials. Any dip around Rs 200 per share will be a good buying opportunity for the target of Rs 300 apiece with a stop loss of Rs 170 per share.”

JK Paper shares on Thursday concluded highest than its peers from paper segment, it ending over 3 per cent higher to Rs 229.3 per share, as against 0.48 per cent decline in the S&P BSE Sensex.

Similarly, TradeSwift Director Sandeep Jain explains the unlock theme is playing well in the paper segment as the schools and colleges is gearing to resume offline studies. The government is being protective for ‘Make In India’ while issuing DGTR notifications, which it did for décor paper, he adds.

Any negative news regarding single-use plastic, will directly help the paper companies and their stocks to grow, besides, the e-commerce companies are pre-dominantly using paper packaging for each of their delivery irrespective big or small, even this will aid the sector, Jain further explained.

While another analyst and Founder & Director of Proficient Equities Manoj Dalmia also adds to the tune of Jain and affirms, the government will ban single-use plastic from next year, moreover, paper is the best alternative in packaging.

Dalmia pointed out that Lumber, a key commodity to manufacturer paper, its prices have surged globally in between, currently at 603.6$ per thousand board feet. 

Besides, China banned imports of old corrugated boxes and waste paper instead they import pulp paper (or kraft paper) leading to a shortage of supplies to corrugated box makers in India, the analyst quotes this as an opportunity for the paper sector.

In his favourite paper stocks pick, Proficient Equities founder says, one can invest in stocks such as JK Paper, Emami Paper, West Coast Paper Mill and Satia Industries (all three closed almost 1 per cent higher) and could show good movements, especially in Q3 and Q4 of the current fiscal as single-use plastic might get banned on July 1, 2022.

Meanwhile, Kotak Securities Head - Equity Research (Retail) Shrikant Chouhan said, “We foresee paper industry to report expansion in EBITDA margin in the near term, driven by higher realisation and improvement in operating leverage.”

He added, “We are positive on JK Paper, as the company is well placed to capitalize on recovery of paper demand once the economy fully opens up along with strengthening of balance sheet, as all capex are completed and higher performance is expected.” JK Paper – Target – 295; CMP: 230.