Normalized revenue growth could have been around 15% in 4QFY21- JK Paper

Update on the Indian Equity Market:

On Wednesday, NIFTY closed at 15,767 (-0.6%). Top gainers in NIFTY50 were Tata Consumer (+2.1%), Nestle (+1.5%), and ONGC (+1.1%). The top losers were Adani ports (-7.9%), Tata Steel (-2.9%), and Hindalco (-2.8%). The top sectoral gainers were FMCG (+0.5%) and IT (+0.2%) and sectoral losers were METAL (-2.8%), REALTY (-1.2%), and MEDIA (-1.1%).

Excerpts of an interview with Mr. AS Mehta, President & Director, JK Paper (JKPAPER) with CNBC TV18 dated 14^th June 2021

• Sales were impacted for 10 days in 4QFY21. Normalized revenue growth in 4QFY21 could have been around 15 percent.
• In 4QFY21, the Sirpur plant volume was close to 70 percent of its capacity, which was not there in the 4QFY20.
• Going forward the full impact of this new high-efficiency boiler for the company is likely to be in the range of Rs 300-350 mn on an annualized basis.
• The pulp prices at some point of time crossed US$ 800 per tonne, but that is not a sustainable pulp price level. The pulp prices are currently in the same band of US$ 780-800 per tonne and it may continue for some more time.
• There is no way that the pulp prices can remain in the current band. It can only sustain for a short period. Sustainable prices could be close to US$ 600 plus-minus US$ 20-30.
• There is no direct connection between global pulp prices and local paper prices. Local paper prices are impacted due to the demand and supply scenario.
• Post the first covid wave, paper prices dropped by ~18-20% but it revived after demand recovery.
• Gujarat project is close to Rs 20 bn expansion project. In this project, they are putting up a new board machine & pulp mill. The projected date for completion was April or May but it was delayed due to covid. They are likely to start the trial and the final commission may happen in July. Both the additions will be on stream by the end of 2QFY21.
• If the situation remains normal, there could be an increase in revenue. There might be some impact but overall performance should be good.

Asset Multiplier comments:

• The Paper industry was one of the worst-hit due to lockdowns in CY20 and 1HCY21. Now that the lockdowns have been eased, offices have started operating at capacity.
• Though in-person classes are shut, with online schools and colleges restarting, there will be demand for paper products from students. Hence, there could be a revival in the paper industry.

Consensus Estimate: (Source: market screener and investing.com websites)

•  The closing price of JKPAPER was ₹ 175/- as of 16-June-2021. It traded at 5x/ 4x the consensus earnings estimate of ₹ 32.0/ 45.8 for FY22E/23E respectively.
• The consensus price target is ₹ 225/- which trades at 5x the earnings estimate for FY23E of ₹ 45.8/-

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