Stocks to Double when Plastic Gets Ban!

Single-use plastics will be prohibited starting on July 1st, according to the Central Pollution Control Board (CPCB). Across industries, there has been a range of reactions to this choice. Everywhere you look, single-use plastics are utilised, including in cigarette packs, packaging, and earphones. 
These are not recyclable and seriously harm our environment. Since few alternatives are as accessible as these polymers, many sectors have resisted this decision. The paper industry, however, is one sector that will welcome this choice.

One of India's oldest sectors, it's projected to grow to a market size of $13.4 billion by 2024. The availability of raw resources, particularly non-wood raw materials, low per capita consumption (15 kg in India compared to the global average of 57 kg), and strong growth in the packaging sector are the main drivers of this industry. 
The majority of the industry is made up of tiny mills that are dispersed over a significant geographic region. As larger mills buy older, smaller ones, the sector is consolidating. We examine two businesses with considerable growth potential that might profit from the increase in demand.

Overview of the Best Papers Stocks to Invest

Let’s get into the details of the analysis of these Top Paper Companies:

1. West Coast Paper Mills

West Coast Paper Mills Ltd, established in 1955, is one of India's oldest and largest producers of paper for printing, writing, and packaging. Located in Dandeli, Karnataka, the company is known for its global quality paper products that cater to various industries, including printing, writing, publishing, stationery, notebooks, and packaging.

Key Operational Highlights:

Business Segments & Revenue Mix FY22:

1. Paper and Paperboard Division (96% of revenues): Produces high-quality papers under the WESCO brand, office stationery, premium printing products, and value-added items.
2. Cables Division (4% of revenues): Manufactures optical fiber cables for the Indian telecom sector, expanding into micro cables, Ribbon & FTTH cables.
3. Acquisition of Andhra Papers Ltd (APL): Acquired a majority stake in APL, which enhances manufacturing capacity and product offerings.
4. Focus: Continuously investing in the Paper Division to improve paper quality, develop specialty products, and expand its footprint in the export market. The Cable Division aims to secure long-term agreements with telecom companies for growth.

Financial Performance:

1. Strong profit growth with a 34.0% CAGR over the last 5 years.
2. Healthy return on equity (ROE) track record, with a 3-year ROE of 25.1%.
3. Improved working capital requirements, reducing from 35.8 days to 23.3 days.

Key Risks or Concerns:

1. Vulnerability to demand fluctuations and input price volatility in the paper industry.
2. Cash flows susceptible to cyclicality in the global paper demand–supply scenario.
3. As domestic paper prices are determined by international trends, the company operates as a price taker.
4. Environmental risks related to pollution and waste management, although well-managed so far.
5. Exposure to labor-related disruptions and wage rate fluctuations in the labor-intensive paper industry.

Outlook:

West Coast Paper Mills Ltd, with its strong market presence, integrated manufacturing setup, and diversified product portfolio, is well-positioned to capitalize on the growing demand for paper products in India. The recent acquisition of APL further strengthens its position in the industry.
Overall, the company's focus on innovation, product quality, and expansion into new markets positions it for sustained growth. While it faces industry-specific challenges, its ability to adapt and manage risks underscores its potential for continued success.

West Coast Paper Mills Share Price

2. Tamilnadu Newsprints & Papers

Tamil Nadu Newsprint & Papers Ltd (TNPL) is a diversified company engaged in the manufacturing and marketing of paper, paperboard, cement, and power generation. Established with the primary goal of utilizing bagasse (sugar cane residue) for paper production, TNPL has grown to become the third-largest player in the Indian Paper Industry. It boasts a wide product portfolio, including high-quality papers for printing and writing, as well as coated and uncoated paperboards primarily used in the packaging industry.

Key Operational Highlights:

1. Pioneered the conversion of mill waste, lime sludge, and fly ash into high-grade cement, making TNPL the first and only company in the Indian paper industry to do so.
2. Operates two manufacturing facilities in Tamil Nadu with significant production capacities in paper, paperboard, pulp, cement, captive power, and wind farms.
3. Steadily improved capacity utilization, with increased demand in the domestic and export markets.
4. Successfully commenced trial production of a modern Hardwood ECF pulp mill and Chemical Recovery Island in Unit II in January 2022.
5. Reduced overall borrowings significantly during FY22 by approximately Rs. 490 crore.
6. Appointed Dr. M Sai Kumar, IAS., as Chairman and Managing Director in September 2022.

Financial Performance:

1. TNPL reported an impressive increase in Total Operating Income (TOI) by 45% during FY22, driven by a recovery in demand, both domestically and in exports.
2. Improved capacity utilization rates in both paper and board segments, contributing to increased cash accruals.
3. Enhanced financial flexibility with an ability to secure long-term loans at competitive interest rates.
4. TNPL maintains adequate liquidity with moderate working capital utilization.

Key Risks:

1. Leveraged capital structure, despite recent improvements, which could be impacted by potential future debt associated with the phase II expansion plan.
2. Exposure to fluctuations in raw material and fuel prices, particularly in the procurement of bagasse and coal.
3. Dependency on imported pulp, subject to price volatility, could affect profitability.

Outlook:

Tamil Nadu Newsprint & Papers Ltd has demonstrated strong operational capabilities and has positioned itself as a leading player in the Indian paper industry over four decades. Its integrated operations, including pulp and power generation, have contributed to its resilience and ability to meet demand fluctuations. The company's recent focus on capacity expansion and diversification into cement production indicates its commitment to growth. Despite being leveraged, TNPL's financial flexibility and prudent financial management provide it with the capability to refinance and manage debt efficiently. Continued focus on optimizing raw material procurement and cost management will be crucial for maintaining profitability in the face of price volatility. TNPL's outlook remains positive, benefiting from the recovery in demand, strong market presence, and ability to adapt to changing market conditions.

Tamil Nadu Newsprint And Papers Share Price

3. JK Paper Limited

JK Paper Ltd, established in 1962, is a prominent player in the paper industry, specializing in office papers, coated papers, and packaging boards. It has earned a strong reputation and is considered one of the most respected paper companies in the market. JK Paper boasts an extensive distribution network, a diversified product portfolio, and a global presence in over 60 countries.

Recent Key Operational Highlights:

1. Robust distribution network with over 450 trade partners, 4000 dealers, 14 pan-India depots, and 2 Quick Service centres to ensure efficient customer service.
2. Diversified product portfolio, including office paper, writing and printing paper, packaging board, and specialty paper, sold under various brands such as JK Copier and JK Sparke.
3. Acquisition of Sirpur Paper Mills in FY19, with additional investments to stabilize operations, enhancing manufacturing capabilities and geographic presence.
4. Integrated manufacturing facilities in three locations, with capacity utilization exceeding 100% in FY23.
5. Acquisition of 85% equity shares of Horizon Packs Pvt. Ltd. and Securipax Packaging Pvt. Ltd., India's largest corrugated packaging manufacturers.

Financial Performance:

1. Achieved a capacity utilization of 103.9% in FY23 and 100.1% in FY22.
2. Recorded the highest-ever consolidated turnover of Rs. 6,772 Cr, EBITDA of Rs. 2,184 Cr, and PAT of Rs. 1,196 Cr in FY23.
3. Successful acquisition of Horizon Packs Pvt. Ltd. and Securipax Packaging Pvt. Ltd.
4. Continuous focus on plantation activities, with a significant increase in saplings planted and acres covered.
5. Introduction of new products, such as JK Eco Green Purefill and JK Purefill P2P, diversifying the product portfolio.

Key Risks:

1. The paper industry is cyclical and susceptible to volatility in raw material prices, potentially impacting profit margins.
2. Dependence on market-linked paper prices, which can be affected by fluctuations in demand and import pressures.
3. While the acquisition of corrugated packaging manufacturers is strategically important, it introduces competition in a new segment.

Outlook:

JK Paper Ltd, with its strong brand reputation, diversified product portfolio, and robust distribution network, is well-positioned to capitalize on the growing demand for paper and packaging products. The recent acquisition of corrugated packaging manufacturers expands its presence in a high-growth segment. Despite the inherent cyclical nature of the paper industry, the company's low-cost structure, high-quality products, and global presence provide resilience against market fluctuations.
While the paper industry may face challenges related to raw material costs and market dynamics, JK Paper's strategic initiatives, financial stability, and increasing end-market diversification provide a positive outlook for sustained growth and profitability.

Jk Paper Share Price

Conclusion

Both businesses have sizable market shares and stand to gain the most from the ban on plastic. To take advantage of this chance, investors must understand the company's finances, though. The government's strict enforcement of the restriction is a result of its international responsibilities to curb the environmental threat, which the investors must also comprehend. 
However, prior prohibitions of this nature have not been properly implemented. Since the stocks could not reach their full potential if the embargo is not properly enforced, investors must conduct enough due diligence before investing. Before making an investment, they may also speak with a SEBI Registered Investment Adviser to better understand the market and seek advice on how to proceed.