The paper industry has shown mo­stly positive growth keeping pace with the overall economy. Although there have been a few laggards, the sector has been ab­le to post better figures as a whole.

Rainbow Papers, one of the fastest gr­owing firms in the sector, posted 112 per cent jump in revenue in the past quarter, which was at Rs 109.8 crore, against Rs 51.8 crore previous year.

Better known names such as Sesha­sayee Paper & Boards, JK Paper and Ta­milnadu Newsprint & Papers (TNPL) ha­ve also seen good growth in the first qu­a­rter of the financial year.

During the quarter, Seshasayee Pa­per’s profit rose 44.04 per cent to Rs 14.6 crore from Rs 10.1 crore in the sa­me quarter previous year. Net sales for the quarter dropped marginally by 0.41 per cent to Rs 120.1 crore.

JK Paper reported 44.39 per cent jump in net profit for the quarter ended June 30 to Rs 29.11 crore as all segments of the business performed well and higher product prices helped sales realisation. Total income went up by 11.65 per cent to Rs 291.18 crore from Rs 260.80 crore previous year.

Net profit of TNPL rose a whopping 458.40 per cent to Rs 39.87 crore. Net sales for the quarter were Rs 290.11 cr­ore, up 62.26 per cent. However, revenue dipped 16 per cent sequentially, with the company liquidating surplus inventory in Q4 of FY10.

Smaller players catching up

Some of the smaller players such as Or­ient Paper & Industries, West Coast Pa­per Mills and Andhra Pradesh Paper Mills did not do badly either.

Orient Paper’s profit rose 2.36 per ce­nt to Rs 34.2 crore from Rs 33.4 crore previous year. The slightly disappointing showing was partly due to the shutdown of its plant for almost the entire quarter on ac­count of water shortage. Net sales went up 27.90 per cent to Rs 441.5 cr­ore. But net sales for the paper segment declined by 23.3 per cent year-over-year and 72.7 per cent quarter-over-quarter to Rs 21.4 crore on account of lower volumes.

West Coast Paper’s net profit jumped 133 per cent year-over-year to Rs 54.7 crore, compared with Rs 23.5 crore a year ago. Total revenue shot up four times to Rs 628.8 crore from Rs 155.5 crore.

Andhra Pradesh Paper Mills net profit for the quarter almost doubled to Rs 16.17 crore from Rs 8.20 crore a year ago. Net sales for the quarter rose 24.30 per cent to Rs 171.2 crore.

Low base, high prices

The strong growth witnessed in the qu­arter was largely the result of a low base as previous year was marred by poor de­mand and inventory destocking by dealers. Another positive factor was an in­crease in paper prices.

TNPL was helped by an increase in paper prices to the tune of about Rs 2,500-3,000 per tonne in April, which co­ntributed to the earnings before interest, taxes, depreciation and amortisation (Ebitda) margins improving to 30.2 per cent. Volume grew by 54 per cent to 63,000 tonnes, while average realisati­ons increased by 6 per cent year-over-year to Rs 44,640 per tonne.

JK Papers was one of the biggest gainers with volume going up to 64,500 to­nnes and average realisation rising by 9 per cent to Rs 45,050 tonnes.

Capex plans

Although most companies refrained fr­om announcing major capital expendit­ure plans due to previous year’s ordinary performance, some companies have set aside funds for capacity expansion.

TNPL’s plan to increase paper capacity from 255,000 tonnes to 400,000 to­nnes with capex of Rs 1,000 crore is ex­pected to be completed by Q3FY11. This is expected to fuel growth of the co­m­pany’s revenues and earnings going fo­r­ward. This capex is fully funded and wi­ll help the company utilise its surplus captively.

Ballarpur Industries is also expected to conclude its capacity expansion plans this year. “We expect Ballarpur to complete its paper capacity expansion this ye­ar itself, which, in our view, will im­prove the company’s economies of scale and strengthen its cash flows over the medium term,” ratings agency Standard & Poor's credit analyst Yasmin Wirjawan said.

West Coast Paper recently invested

Rs 1,400 crore for capex. The funding was done through 55 per cent debt and 45 per cent with equity and internal accruals.

Ajay Goenka, chairman and managing director of Rainbow Papers, said, “As far as domestic capacity is concerned, cap­acity has defin­itely increased a lot. But at the same time, there is an increase in de­­mand also on account of a better ec­onomy, literacy drive from the Central and state governments and better export demand.” The company is planning to hike capacity by 350 tonnes at a total cost of Rs 327 crore.

Import worries

The US government’s recent move to en­force anti-dumping duty on paper im­ports from China and Indonesia is a worry for Indian paper makers.

However, Goenka of Rainbow Paper differs. He said imported paper is not a th­reat to domestic manufacturers beca­use it is not cheap. “In the past few months, there are indications from the local market regarding a major delay in shipments of imported paper on account of limited availability of vessels. So, we don’t think there is any threat because of imported products at least for our local market.”

Meanwhile, the Indian Paper Manu­facturers Association (IPMA) has asked the government to raise tariff to ward off large amounts of paper being diverted to India.

Positive outlook

The domestic demand for paper has se­en a growth of 10-11 per cent, annually. The total production is around 10 million tonnes, while consumption is about 12 million tonnes. Thus, demand exce­eds supply at present, which augurs well for the industry.

Also, with literacy levels rising in the country, the demand for paper is expected to grow exponentially, which could prompt fresh investments in the sector.

Stock performance

Most of the paper stocks have outperformed the market year to date. Against a 4 per cent rise in Sensex, paper stocks have returned as much as 80 per cent this year.

Andhra Pradesh Paper Mills, with a 91.44 per cent return, led the gainers. Following suit, Pudumjee Industries, Ta­milnadu Newsprint, Seshasayee Paper and Ballarpur Industries climbed 63.65 per cent, 52.44 per cent, 40.45 per cent and 39.67 per cent, respectively, during the period.

West Coast Paper, JK Paper and Pu­dumjee Pulp have risen 36.67 per cent, 31.24 per cent and 25.30 per cent, respectively.

On the flip side, Rama Newsprint, My­sore Paper and Shreyans Industries, dr­o­pped 66.81 per cent, 37.93 per cent and 3.51 per cent, respectively.

Crisil Equities has assigned a grade of three on five to West Coast Paper. The rating agency believes the company's fundamentals are 'good' relative to other listed equity securities in India. West Coast Paper is owned by Bangur group, which has 54 per cent stake in Rama Newsprint.

(With inputs from Amit Mudgill)