VALUATION OF JK PAPER

LIMITED

Members
KUSHANK BADLANI 15S625
MAYUKH BHATTACHARYA 15S626
RAHUL JAIN 15S634
RINKY SANGTIANI 15S636
SRINATH SRINIVASAN 15S647

Paper and Paperboard industry

Industry Overview
Indian paper and paper board industry is expected to rise in the coming years reflecting the
increase in domestic demand due to greater consumption. Indian paper industry produces
about 2.5 percent of the global paper production and the current demand is 13 million
tonnes. Currently the per capita consumption of paper in India is 9 kg. The investments in
this sector are expected to increase in the coming years for capacity expansion and
acquisitions to meet the rising demand.
Policy factors and the increased focus of government on literacy are the major factors
behind the rise in domestic demand for paper. Increased consumerism and growth in ecommerce, pharma and retail sectors also contribute to the paperboard demand.
Risks to the industry include availability and supply of wood pulp and other raw materials.
The industry is also sensitive to pulp prices fluctuations. Digital India initiative and other
measures being taken for digitization pose a big threat to printing segment in the future. For
the coming three years, we expect this threat to be insignificant.
Based on products range, the industry can be divided into four sectors

Writing and Printing Paper

Newsprint Paper
Speciality Paper
Paper-board

Key Players
The paper and paperboard production in India is in fragments and consists of multiple small
scale manufacturers, but majorly there are 15 big players in the Indian market. The top
players are Ballarpur Industries Limited (BLIT), ITC Limited PSPD, Tamil Nadu Newsprint
& Papers Limited (TNPL), West Coast Paper Mills Limited, JK Paper Limited and Andhra
Pradesh Paper Mills Limited.
Company overview
JK Paper was established in the year 1960 by the Hari Shankar Singhania group. The
company operates in several business segments such as paper & pulp, power transmission
systems, automotive tyres and tubes, food & dairy products, etc. It is among the market
leaders in the branded copier paper, packaging boards and coated paper segments. It

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exports to several countries including Sri Lanka, Australia, the Middle East and others. JK
Papers JK Copier is the leading copier brand in Sri Lanka.
The company currently has production units at Songadh, Gujarat and Rayagada, Odisha. It
had an installed capacity of 4,55,000 tons as at March, 2015. The Rayagada plant is a stateof-the-art manufacturing facility that have significantly reduced energy and water usage.
Risks associated with the company

Fluctuations in the rupee against foreign currencies may have an adverse impact on

the profitability of operations.

Profitability may also be impacted unfavourably due to changes in availability and

costs of raw materials and energy.

Availability of raw materials can be severely affected by outbreak of diseases.

Growth Drivers
Improvements in literacy and education, living standards and increased demand from
corporate sectors such as pharma, ecommerce and retail have led to an upward trend in
paper and paperboard demand. Higher GDP growth has also aided the growth of this sector.
According to the different product segments, the growth drivers are explained as below
Writing and Printing Paper Segment
Writing and printing paper production depends on per capita consumption of paper which is
expected to grow at a CAGR of 17.4% over a period of next three years. Writing paper
consumption majorly depends on consumption in education sector and official activities.
Newsprint Paper Segment
Newsprint paper production follows the growth in publishing sector for mainly newspaper
and magazines. The market is expected to 9.5%.
Speciality Paper Segment
Speciality paper includes tissue paper and paper used in cigarettes. We have estimated the
growth of tissue paper consumption as 7.2% in the next three years to account for the
demand of speciality paper.
Paper-board Segment
Paper board demand is majorly dependent upon the consumption in FMCG sector and
Pharmaceuticals sector for packaging purposes. We have taken growth in market size of
FMCG sector and increase in sales of Pharma sector as the growth driver for paper-board

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demand. Pharmaceutical sector sales are growing at 11.85% over the next three years and
FMCG market size will increase at 13.56%.

Forecasted Sales
Based on the growth drivers for different segments, we have forecasted the sales segment
wise to get the total sales of the company over the next 3 years
(In Cr.
INR)
Net
Sales

2012
1328.
26

2013
1453.
19

2014
1721.
37

2015
2138.
55

2017
(Est)
2899.
75

2016
2427.
74

2018
(Est)
3431.
98

2019
(Est)
4071.
19

4071.19
3431.98
2899.75

Sales In Rs.Crores

2427.74
2138.55
1721.37
1453.19
1328.26

Year

Forecasted Income Statement

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The PAT for the Terminal Year i.e. 2019 has been forecasted as 145.10.

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Forecasted Balance Sheet

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Forecasting EPS
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The forecasted EPS based on the forecasted Profits has been depicted in the
following chart

EPS
10.00

9.17

8.00
6.00

5.11

4.34
4.00
2.00
0.00

3.47
2.25

1.63
-1.07

-2.00
-4.00

-4.67

-6.00

Investment Rationale:
1. JK brand is an established name in the Paper Industry

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The brand JK Paper brand is an established name in the Indian market and is well
recognized. This is well reflected in the market share in 27% market share that it enjoys in
the branded copier paper segment in India.
2. Diverse range of products with an ability to identify customer requirements
JK Paper is diversified and has its presence is multi-application range of papers. It is present
in Writing and Printing, Coated Paper, Paper Board and Speciality Paper. Paper is produced
under different brand names.
3. Location Advantage of Manufacturing Units
The manufacturing units are strategically located to meet requirements for sourcing raw
materials as well as to ensure that they can deliver their products efficiently to their
customers. Their rail and road networks have been well utilized from all their three units. It
can be called their Competitive Advantage.
4. Strong Relationships with key customers
The company has strong and long-standing relationships with its key customers such as
publishers, wholesalers, commercial printers and retailers.
5. Farm Forestry Program
The farm forestry program in which the company is highly been investing should become a
source of Competitive Advantage for the company as local sourcing will help the company
decrease the risk of foreign currency risks as well as the sourcing problem.

Recommendations
We expect the company to grow at the high growth rate for the next two years due to its
capacity utilization and also the increase in efficiency and the supply chain improvements
that the company have done. Beyond these two years, we expect external factors such as
Digital India Initiative and consolidation of Competitors to stabilize the growth rate to 6.57%.
Accordingly, the Expected Stock Price of the company came out to be: 122.15.
The

current

Stock

Price

of

the

company

is

57.90.

Our stock price is 2.11 times the current traded price of the company stocks. We believe that
it is highly UNDERVALUED.
Hence we recommend a

BUY.
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