HIGHLIGHTs of JK Paper Stock Analysis:
- Import Duty on Paper imported from China will be increased- Sources (Trigger)
- Total import from china was around 1778cr in FY17 while registered already 1215cr in 1HFY20.
- Total Paper Imported from April-Sep 2019 was around 5295cin 1HFY20 up 30% YoY.
- Existing import duty is 10% while proposed by Indian Paper Manufacturers association to raise it to 25%
- The ratio of Import/Export of Paper product in FY19 was 1.9 times.
- Capacity utilization in FY19 was 90.5%
- Per Capita paper consumption in India is 13 Kg while the global average is 57kg.
- History of more than 75 years under the Trusted JK group with a history of 125 years.
- Board approved buyback at Rs. 130 per share on 18 April 2020.
- Current capacity of 5.91 lac MT p.a. (Uncoated paper 67%,Coated Paper 9%,Packaging 21% & Pulp 3%) –
- JK paper is present in segments serving 22% of Total Market.
- Market leader in Copier paper -23% market share(Forms parts of Uncoated Paper used as printing paper)
Coated paper (Amongst leading player)-12% market share (Wedding cards, Magazines, and Brochures)
Packaging Product (Amongst Leading Player)-10% market share
- In FY19 company registered the highest ever production of 4.95 lac MT and Highest ever sales of 5.23 lac MT.
- It has 3 plants in Odisha (JKPM), Gujurat (CPM) and acquired in Aug 2018 facility in Telangana (Sirpur paper mills)
- JKPM Unit is the lowest cost paper manufacturing facility in India.
- Although sales grew by around 26% in 4 years from FY16 to FY20 profit grew by 8.5times
- From the above point, it is evident that operationally the company has performed a lot better. Hence, we have seen operating profit rising from just 16% in FY16 to 28% in FY20 mostly due to raw material procurement decisions.
- Raw material procurement from Local area to manufacturing facilities rose from 41% in 2015-16 to 96% in 2018-19 (local area within 200km radius of its manufacturing facility)
- DE ratio in 4 years reduced from 1.71 as of 31 March 2016 to just 0.65 as of 31 March 2020.
- Interest coverage ratio currently at 6.4 times.
- Fixed assets got increased by 390cr during the same time that means the company generated good internal cash flows.
- Company is trading at a PE of just 4, PB of just 0.84 and dividend yield of 4.09%
- ROCE and ROE is good stands at 22% and 21.3%
- Digitalization, Work from Home culture may reduce paper dependence and its packaging segment which can cause a major turnaround is only 21% of its total capacity
- For the last 2 years, borrowing has been increasing mainly due to acquisition and CAPEX. Hence, Free Cash flow for the firm has been negative.
Cover Image: The Sunday Guardian