"Investors wishing to make fresh purchases in paper stocks now should be mindful of the run-up witnessed in many months as many of the leading players are not compelling enough on valuation parameters now," said S Ranganathan, head of research at LKP Securities.
"A few backward integrated paper companies are doing well such as JK Paper, West Coast Paper, and Andhra paper," said Jitendra Upadhyay, analyst, Bonanza Wealth Management.
Mumbai: Shares of paper manufacturers rallied up to 10% on Wednesday on speculation there could be a price hike from September 1. But analysts warned against buying afresh at current levels as the stocks have run up substantially in 2022.
"Investors wishing to make fresh purchases in paper stocks now should be mindful of the run-up witnessed in many months as many of the leading players are not compelling enough on valuation parameters now," said S Ranganathan, head of research at LKP Securities.
While shares of West Coast Paper Mills gained 60% in the last one month, Andhra Paper and JK Paper have gained 42% and 31% during this period, respectively.
Paper stocks have been among the top performers in 2022 on the back of robust demand, consolidation in the sector, stable margins, and ban on single-use plastic. JK Paper, West Coast Paper, Andhra Paper, Seshasayee Paper, and TN Newsprint have nearly doubled since January. Barring Andhra Paper, all top 10 paper stocks are currently trading above their five-year average Price to Earnings (PE) ratios.
Analysts said the rich share valuations are reflecting the strong growth prospects of the industry.
"With many players expanding their board capacity, the profitability has improved substantially in the first quarter. We expect the momentum to continue in the second quarter with the opening of educational institutions and price hikes in bond and copier paper," said Ranganathan.
Paper companies have increased prices during FY22 starting from the year's third quarter. Price hikes continued in the June quarter, while another round of Rs 3-4 per kg hike is expected to be taken in September 2022, according to dealers.
According to Akhil Parekh, analyst, Centrum Broking, sales are expected to grow at a CAGR of 8-9% over the next five years. "The implementation of National Education Policy (NEP) should lead to huge demand with changes in education policy and curriculum."
"A few backward integrated paper companies are doing well such as JK Paper, West Coast Paper, and Andhra paper," said Jitendra Upadhyay, analyst, Bonanza Wealth Management.
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