I recently met veterans in the paper sector. They’re big dealers in South India. It was interesting to learn from their insights on specific companies, new specialized grades of paper, emerging opportunities as well as the sector and industry dynamics in general. On the current industry scenario, their view was that paper companies are seeing supernormal profits and now is the time to be cautious as an investor. Below are my notes from the meeting.
Views on Paper Sector
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For Paper Industry naturally Pulp is the basic raw material & several Indian Mills import both Pulp & Waste Paper in a huge quantity.
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Further water is again a very important for Paper Mills but I feel due to proper utilization of Water over the past few years and in future also efforts are being taken to reduce wastage of water so this should not be much of a problem in general. It may vary from Mill to Mill
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Besides Paper Industry is highly Capital Intensive and all Paper Mills require a huge amount of Capital so Mills should be able to arrange the Funds.
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The top listed paper companies have been making very good profits mainly due to exports (around 70-80% of revenue) and RM prices have been very high.
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However, RM prices have started correcting and so have paper prices for certain grades (15-20% in some cases and not corrected much yet for other grades).
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Don’t see scope for further increase in paper prices, for now.
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Kraft Paper Industry - extremely competitive, extremely working capital intensive, have to sell on credit and delayed payment/converting sales to cash is always a challenge.
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Writing & Printing Paper - Also getting competitive with many players in this segment.
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Not familiar with Satia industries - but for companies catering to Govt. Education boards, the seasonality of business (Q4 heavy) has to be kept in mind.
On Pudumjee Paper & Bhadra Paper
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Customers willing to pay a premium over market rates for Pudumjee’s products - very good brand name and known for quality.
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One-of-a-kind company - products are unique and totally different from other companies - only focussed on specialty grades.
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For example, no other company manufactures Bible/Scritta paper. Similarly, they manufacture various specialized pharma-grade, food grade and hygiene paper products.
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Conservative management.
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They have a long-standing relationship with Bhadra Paper (which is going to IPO soon). Company was formerly part of South India Paper Mills. Very good company + products.
On Specialized Paper Grades
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“Due to the ban on single use Plastics it has definitely increased existing and created newer markets for the Paper Industry and definitely the usage will increase in future especially due to the increased usage of use & throw cutlery etc in functions etc & use of Paper bags instead of Plastic bags etc.”
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“Usage of Tissue Paper is definitely increasing especially of Napkin & Facial grades followed by other grades like Toweling used in Kitchens etc. Bathroom grade may not see so much increase as generally Indians do not prefer using Tissues in Bathroom but again Diaper grade usage is increasing.”
“At present nearly all the Tissue Paper mfg Mills of India are exporting Tissue Reels which has infact lead to less supply to the Indian markets. Further as you said post Covid people are becoming more hygiene conscious.”
“Tissue Paper segment will definitely see a good growth in the future years.”
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“Kraft Paper usage is also increasing especially there are more margins in special quality of Kraft mainly fue to E commerce but in general this is a highly credit oriented line but the volumes are huge but no Paper Mill can survive in this market unless they a very Financially strong Distribution network as generally Paper Mills DO NOT give credit.”
“Like Writing & Printing Paper, Kraft Industries also have their own cycles of boom & recession.”