J K Paper Ltd - Rs 16.00

Incorporated in 1960, J K Paper Ltd (JKPL) belongs to one of India’s leading business houses – JK organisation, which has a diversified presence in automotive tyres, cement, v-belts, oil-seals, power transmission system, clinical research, food & dairy products, sugar, agri-seeds and pulp & paper. Today with more than dozen of popular brands, JKPL is India’s largest producer of branded papers and commands 40% market share in branded cut size papers. Infact it has played a pioneering role in converting paper from a commodity to a branded product. So apart from being the first to brand paper in Indian market, JKPL is also the first to introduce surface-size woodfree paper. Thus, company is primarily engaged in production of writing & printing paper and has recently ventured into high-end coated packaging boards as well. Notably, it commands top 2 position in most of its segment and the value added products like coated and branded papers constitute more than 70% of its sales. With a broader product basket, JKPL has emerged as a leading one-stop-shop paper company in India.

Office Documentation: It offers a range of office documentation papers from economy to premium grades which include multi purpose papers for use in desktop, inkjet and laser printers, fax machines, photocopiers and multi-functional devices. Company’s “JK Copier” brand is the undisputed leader with “Easy” and “Sparke” as value for money brand and “JK Excel Bond” being in premium category

Uncoated Paper & Board: JKPL manufactures a range of uncoated writing & printing paper for varied needs including premium diaries, Hi end exercise book, notepads, quality books, calendars, maps etc. Apart from this, it also produces MICR cheque paper as well as high-end pulp boards, ledger papers and parchment grades. It “JK Evervite” and “JK Maplitho” paper have been acknowledged in the market for its superior performance and excellent printability.

Coated Paper & Board: During 2005, JKPL commissioned a 46,000 TPA state-of-the-art coating plant and since then offers a range of single sided / two sided coated paper and board made from in-house base paper for better quality control. Its “JK Eco Cote” & “JK Cote” brand are extensively used for making posters, brochures, folders, premium Books, calendars, direct mailer, catalogue, pamphlet etc. It also markets photo paper under the brand name “JK Phtovista’

Packaging Board: Last year in Oct 2007, JKPL also forayed into high-end coated packaging board to exploit opportunities in fast growing segments of the economy like pharmaceuticals, FMCG products, ready to eat food segments etc. and growing exports of cartons to the West. Within months of market launch, “JK TuffCote”, “JK Ultima” “JK PureFil” & “JK Tuffpac” have been accepted as strong brands in the packaging board market. Accordingly, JKPL has already captured 20% market share of this segment in less than one year from production start up.

JKPL operates two integrated plants in India one in the East - in Rayagada, Orissa with a capacity of 125,000 TPA and the other in the West - located in Songadh, Gujarat with a production capacity of 55,000 TPA. Last year it commenced commercial production at its Rs 300 cr state-of-the art multi layer packaging board plant having a name plate capacity of 60,000 TPA, thereby taking the total installed capacity to 240,000 TPA. As of now, all its plants are working at more than 100% capacity utilization. Importantly, JKPL continues to remain self sufficient for its power requirement as it also augmented its power generation capacity by 12MW for the new board plant. To ensure better availability of raw material, JKPL is aggressively pursuing its social forestry programme by distributing nearly 35 million seedlings to farmers annually and has now brought over 65,000 hectares under this project. It also has one of the strongest distribution networks which include 11 warehouse, 140 distributors & 2500 Dealers covering the remotest corners of India. Moreover, it is exporting to more than 40 countries including Sri Lanka, Bangladesh, Middle East, Africa, Australia, Singapore, Malaysia etc.

On the macro front, 8~8.5% demand growth for paper & boards in India is among the fastest in the world. In printing and writing papers, demand is being led by factors like increasing thrust on education, growing requirements from printers and publishers originating from accelerated industrialization, increased economic activity and enhanced advertising and communication needs. Paper based packaging will get a boost with increasing rural demand for FMCG and consumer durables, growing penetration of modern and urban retailing and India's rising exports. In addition, there is a progressive shift in consumption towards branded and value added paper and board products. Despite such healthy growth, the per capita consumption of paper in India is only 7 kg against 324 kg in USA, 20kg in China and 24 kg in Indonesia.

Financially company has been doing well and has reported 40% growth in sales to Rs 546 cr for H1FY09. However the PAT remained flat at Rs 19 cr due to provisioning of unrealised foreign exchange loss of Rs 8.40 cr during the six months ended September 30, 2008. At the same time company didn’t recognize Mark to Market unrealised gains on currency and interest rate swaps amounting to Rs 13.50 cr. Although the recent softening of pulp prices is likely to have positive impact on company’s margins in coming quarters still its availability and volatility in price remains an impediment in the growth of the industry. Accordingly for FY09 it may clock a turnover of Rs 1100 cr and net profit of Rs 35 cr leading to an EPS of Rs 4.50 on current equity of Rs 78.20 cr. At the same time it may post a Cash EPS of more than Rs 15. Well as of today, FCCB of approx Rs 20 cr is outstanding and may come up for redemption in 2011 as the bondholders may not opt for conversion @ Rs 95 per share. To conclude, although its debt equity ratio and interest cost is alarmingly high, still investors can accumulate at sharp declines as it can appreciate 50% within a year.

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