After nearly three years of stagnation, paper prices have started firming up. After a good FY18, companies have again raised prices by 2-3 percent in the current financial year due to increase in raw material costs. The prices are expected to continue to move upwards as the raw material cost is likely to continue rising trend.
Why is this important
The price hike undertaken by paper firms will enable these companies to pass on the increase in pulp cost and maintain their margins which had been under pressure for sometime.
According to an industry expert, the Ebitda margins in the past few months have on average declined from 18 percent to 14-15 percent, as the manufacturing cost increased significantly with the increase in the prices of pulp.
Stock to be impacted
The recent price hike taken is positive for paper firms as the hike in price will enable the mills to improve their margins. JK Paper (CMP: Rs. 133, MCap: Rs. 2330 crs, FY2020 PE: 6.6x), Century Textiles & Industries Ltd (CMP: Rs. 952, MCap: 10642 crs, FY2017 PE: 28.6) and West Coast Paper Mills Ltd (CMP: Rs. 290, MCap: Rs. 1915 crs, FY2017 PE: 14.9).