Flash Equity Research Report: JK Paper Stock Analysis

thumbnail
Reading Time: 2 minutes

HIGHLIGHTs of JK Paper Stock Analysis:

INDUSTRY OVERVIEW

  • 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.

JK Paper

  • 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.

FUNDAMENTALS

  • 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%

CONCERNS

  • 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.

Arman’s Linkedin Profile
Click here to read more Research Reports

Also Read on FinMedium:  Parle-G Success Story: The Biscuit of India

Cover Image: The Sunday Guardian

Every Wednesday and Saturday, we send Info-Graphic and FinMedium Weekly Digest newsletters to our 25000+ Subscribers.

Join Them Now!

Please Share :)
Arman Nahar
C.A. who is a USA CFA L3 candidate | Cleared L1 & L2 | Doing independent equity research since 2016 | Screens stocks for investment | Makes in-depth valuation models | Crafts portfolios.
Back To Top