Paper stocks were flying high in trade on Wednesday (September 6), with multiple counters posting double-digit gains amid a volatile session. Anirudh Garg, Partner and Head of Research at Invasset PMS, believes that paper stocks in India have the potential for a significant 50 percent upside over the next year.

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However, it's essential to acknowledge that short-term market corrections may occur due to external factors such as the China realty factor or geopolitical events, Garg said.

On Wednesday, shares of both West Coast Paper and Andhra Paper zoomed 14.7 percent and 15 percent, respectively, to scale one-year highs during the session.

Other paper companies, including Seshasayee Paper and Boards, Orient Paper and Industries, and Pudumjee Paper Products, rallied between 13-17 percent to hit their record high levels.

JK Paper and NR Agarwal Industries rallied over 7 percent to scale a day's high of Rs 402.50 and Rs 373.30, respectively.

Companies like Emami Paper Mills, Shree Rama Newsprint, Star Paper Mills, Tamil Nadu Newsprint and papers, and Nath Industries also rallied 5-9 percent on Wednesday.

India's paper consumption may reach 30 million tons

According to the Indian Paper Manufacturers Association (IPMA), paper consumption in India will likely reach 30 million tons by March 2027. There is growing demand from sectors such as FMCG and retail for innovative packaging solutions as they reduce dependency on plastics. Paper stocks can also benefit from the rising e-commerce shopping as well as ready-to-eat and packaged foods, according to a report by Nuvama.

The paper industry's fortunes are linked to a number of economic indicators, such as literacy rates, spending on education, and sales of fast-moving consumer goods. Most of such indicators, as per Nuvama, show positive momentum, boosting paper stocks.

The surge in imports of writing and printing grades are likely to continue for the second quarter of the current financial year. The trend in imports of writing and printing grades beyond Q2 depends on its demand by the educational sector (especially the various State Governments), for the upcoming academic year.

Meanwhile, the management of Tamil Nadu Newsprint and Papers (TNPL) pointed out that with greater focus on 'Make in India,' exports of paper and converted paper products would be robust in future.

"Having successfully overcome the challenges posed by the COVID-19 pandemic, last year was an unprecedented time for both the Indian and the global economy. The paper Industry, being closely linked with the economy, has had an unprecedented year too. The entire paper industry benefited from the release of pent-up demand, post COVID-19," TNPL said.

"As we can see, special sessions on Parliament are coming just after the G20 summit, which certainly has been the main agenda of 'one nation and one election,' said Vaibhav Kaushik, Research Analyst at GCL Broking, adding that all this will lead up to a huge demand for paper in the coming elections.

The analyst's top picks include JK Paper, West Coast and Balkrishna Paper Mills.

According to Anirudh Garg, the Indian paper industry's resilience and adaptability make it an attractive prospect for investors seeking opportunities in the current economic landscape.

What's driving the buzz? Garg explains

First, the lifting of the European Union's ban on waste paper exports to India on April 1 was a game-changer, significantly improving access to raw materials for Indian paper manufacturers. As a result, many manufacturers are now operating at full capacity, with all their machines running at full throttle. This new-found ease in sourcing waste paper has breathed new life into the industry.

Secondly, paper companies have taken unprecedented price hikes in the last couple of years, with writing & printing (W&P) paper prices hitting an all-time high, touching Rs 90 per kg at retail. Impressively, these companies have successfully passed on the increased costs to consumers. This ability to maintain profitability despite rising input costs has attracted attention from investors and traders alike.

Further, the Indian government's proactive initiatives, such as the Make in India campaign and the establishment of packaging parks, are providing a conducive environment for the packaging industry to thrive. These measures aim to boost domestic production, create employment opportunities, and stimulate innovation and technological advancement in the sector.

Another crucial factor contributing to the industry's buzz is the impending implementation of the National Education Policy (NEP). As the curriculum undergoes changes, there will be a surge in demand for new educational material, including textbooks, workbooks, and study aids. Additionally, the old material will have to be recycled, further boosting demand for paper.

Lastly, the recent ban on single-use plastics has driven e-commerce businesses to adopt eco-friendly alternatives, such as paper-based packaging. This shift has not only reduced environmental impact but has also led to renewed demand for paper products like straws, cups, and bags.

First Published:Sept 6, 2023 5:59 PM IST