Paper company stocks rally on demand pickup hopes

Mumbai: Shares of paper and paper product makers surged as high as 20% on Wednesday on expectations of a revival in demand as states begin lifting the restrictions over the next few months.

Pudumjee Paper Products and Emami Papers ended at 20% upper circuit limits while Malu Paper Mills gained 19% to Rs 38.9. Star Paper, Orient Paper, JK Paper, Shree Rama Newsprints, and Seshayee Paper gained over 5-19%.

“It is more sentiment-driven than anything else. As the economy opens up, demand for paper will increase ... schools, colleges may open in the next few months,” said independent market expert Ambareesh Baliga.

Analysts said companies involved in packaging are likely to fare better than those which make writing paper.

“Lumber prices in China have gone up. This makes the Indian paper companies slightly more competitive. We don’t know how much paper requirement will happen,” said Baliga. He said demand will be higher than the last few months, particularly for packaging companies. Writing paper and newsprint demand may not go back to pre-Covid levels. Baliga is most bullish on JK Paper, which could gain another 25%.

IDBI Capital and Kotak Securities, too, are bullish on JK Paper. Both brokerages upgraded shares of JK Paper to ‘buy’ in June after the company reported a better-than-expected March quarter performance.

“...we expect domestic paper prices to gain traction, once demand improves. We believe JK Paper is poised for re-rating given its increased sale of production and superior margin profile,” said Kotak Securities. IDBI Capital also said that the stock is poised for a re-rating.