Paper

JK Paper Limited – Paper Industry On the rise again?

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January 10, 2024

JK Paper’s copier paper continues to dominate the market, boasting a remarkable 30% share.

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About the company
Journey Since Inception
Industry Landscape
Board Members
Shareholding Pattern
Product Segments
Revenue Break up
Peer Comparison
Cost Structure
Financial Parameters
Management Key Highlights
Strengths & Weaknesses

(A) About

Founded in 1962, JK Paper is a leading player in office paper, coated paper, and packaging board segments. It is one of the most respected paper companies in India, recognized for its diverse product portfolio ranging from printing and writing paper to packaging paper and speciality paper.

With decades of experience, JK Paper has emerged as the largest wood-based paper company in India and a leader in the branded office paper segment.

(B) Journey of JK Paper

(C) Industry Landscape

The Paper and Packaging Industry is to grow at a CAGR of 6.63% from $10.77 billion in 2022 to $15.69 billion by 2027.
Packaging Grade Paper accounts for 55% of all major types of paper manufactured.
The Printing and Writing Paper Market is estimated to grow at a 1.8% CAGR between 2022 and 2026.
The industry is strongly reliant on imports for high-end packing equipment and also for technology.

(D) Board Members of JK Paper

(E) Shareholding Pattern of JK Paper

(F) Product Segments

1. Copier: Copier paper is a type of paper specifically designed for use in photocopiers and printers.

2. Writing and Printing Paper: Writing and printing paper is a general-purpose paper that can be used for a variety of tasks, including writing, printing, drawing, and also note-taking.

3. Packaging Paper: Packaging paper is a type of paper that is used to protect and transport goods.

Market Share of JK Paper Ltd – Product Wise	(%)
Office Paper	28.7
Coated Paper	7.6
Value Added Paper	7.1
Packaging Board Paper	16.5

(G) Revenue Segments

(H) Peer Comparison

(I) Cost Structure of JK Paper

(J) Financials

The company’s net sales have increased from Rs 1737.93 Cr. in FY14 to Rs 6436.81 Cr. in FY23 over the past 10 years at a CAGR of 13.99% p.a., While the company’s PAT has grown from Rs -74.71 Cr. in FY14 to Rs 1208.22 Cr. in FY23. Further, The company’s ROE has improved from -9.34% in FY14 to 29.95% in FY23. Additionally, The company’s debt-to-equity has increased from 2.8x in FY14 to 0.7x in FY23.

DuPont Analysis

Terms of Trade

(K) Management Discussion & Concall Highlights

Concall Highlights

Consolidated turnover target of INR 7,000-7,500 crores, including INR 1,000-1,100 crores from corrugated packaging for FY24. Also, Consolidated margins expected to be lower than FY23 due to price volatility and commodity costs.
Increase in wood procurement price due to rising demand for MDF/plywood and minimum support prices for food grains. Also, Impact manageable with current output prices, but could become an issue if prices fall further.
Net debt reduced to INR 1,900 crores, with net debt/equity ratio below 0.5 and also the net debt/EBITDA at 0.89.
Packaging plant and Sirpur unit Capacity utilization at 90%, aiming for 100% by Q2 FY24.
The Ludhiana City Corrugated plant in trial production and also would be commercially viable by the end of 2023.
Future Roadmap includes focus on maximizing capacity utilization in existing segments and building war chest for further acquisitions. However, The company is open to inorganic opportunities if they are attractive.

Outlook

The company wants to become a sustainable paper based solutions provider.
The company registered revenues from operations of Rs 6436.81 Crore in FY23 compared to Rs 3968.54 Crore in FY22. Consequently, The Company delivered a growth rate of 62%.
There are surplus capacities in China as well as in Indonesia which may lead to dumping in the Indian market at cheaper rates.
The Indian Packaging Industry is largely fragmented, with a large number of small and medium sized enterprises present as well as few large scale dominant players.
Pacakaging is a fast growing industry catalysed by rising disposable income, growing consumer awareness and also rise in processed food offtake.
The company is heavily reliant on imports for high end machinery and also for technology.
The company 85% stake in both Semifax packaging and Horizon Pack, will make the company the largest corrugated packaging company in the country.
The overall capacity utilization of JK Paper for FY23 stood at 103.9%.

(L) Strengths & Weaknesses

Strengths of JK Paper

Leading position in the writing and printing paper market: JKPL holds a leading position in the domestic writing and printing paper as well as paper board markets, with an installed capacity of 761,000 tons per annum (including SPM and the new packaging board facility). Additionally, Its strong market position is supported by its copier segment leadership, established brands supplying premium products, diverse product portfolio and clients, and robust distribution network. Also, Strong market penetration aided the company’s revenue growth of 62% year on year.
Growing Traction of the paper and packaging Industry: The 85% equity acquisition in HPPL and SPPL, as well as the proposed acquisition of Manipal Utility Packaging Solutions Pvt Ltd, will broaden the product line and also boost the company’s market leadership in the corrugated packaging business.

Weaknesses of JK Paper

Exposure to cyclicality inherent in the industry: The paper business is intrinsically cyclical due to a number of variables, including high lead times for raw material generation and lengthy gestation periods for capacity increase. Limited availability of raw materials had limited JKPL’s profitability during the fiscal 2014 slump. Through its farm forestry initiative, While the company has increased the supply of hardwood close to its plants; yet, because minimum support prices for agricultural commodities have increased, it is still susceptible to any significant increase in hardwood prices.

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References: Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry Publications.

Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered a recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.