Paper stocks rallied up to 17% in today's session, here's why

Paper stocks were flying high on Monday, with multiple counters posting double-digit gains, on the back of robust demand amid the plastic ban and strong performance in the June quarter by paper companies.

On Monday, shares of JK Paper, the largest paper company in India, soared 10 per cent to Rs 380.55. RK Damani-backed Andhra Paper rallied 15 per cent to Rs 399.90 during the session.

Avinash Gorakshakar, Head Research, Profitmart Securities said globally paper prices are rising due to supply constraints, coupled with strong Q1 performance by the companies like JK Paper and West Coast Paper.

"In the domestic market also demand has shot up following the lifting of Covid-19 led restrictions and reopening of schools and other institutions," he added.

Optimism in the sector was also fuelled by reports of a possible 6-7 per cent hike in prices undertaken by companies from August.

Paper stocks are in action since the ban of single-use plastics from July 1, said Prashanth Tapse, Senior VP- Research, Mehta Equities. With this alternative paper sector gets an undue advantage, leading to high demand, he said.

"We remain a bit cautious as historically such bans have not been appropriately enforced. Along with the ban, all paper stocks have hiked prices to pass on soaring raw material costs which also help them to maintain margins," he added.

Other paper companies like West Coast Paper and NR Agarwal Industries zoomed 17 per cent each to 497.65 and Rs 292.80, respectively. However, all stocks gave up their gains marginally.

Companies like Pudumjee Paper Products, Malu Paper Mills, Seshasayee Paper & Boards, Emami Paper Mills, Tamil Nadu Newsprint and papers, and Nath Industries rallied between 7-15 per cent on Monday.

Globally, the supply of paper is being constrained due to the closure of several plants in Europe because of the ongoing energy crisis.

According to Centrum Broking's report, despite the price hikes taken by the paper companies from 3QFY22 to 1QFY23, the impact on the company’s net sales realization (NSR) will be seen only during FY23.

"For the backward integrated paper mills such as JK Paper, West Coast Paper and Andhra Paper, the inflation in FY22 was largely on account of power & fuel cost, stores, chemicals and spares cost and employee cost," it added.

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