Fairwealth Research Desk initiated Buy JK Paper Limited at Rs 55 on 13th April 2010 with target price of Rs 72.

We rate JK Paper Ltd as HOLD with a target price of Rs 72. JK Paper Quarterly Results Highlights; The top-line of the company increased by 11.46% YoY to Rs 290.52cr as against Rs 260.64cr.

The EBITDA expanded by 9.98% to Rs 67.09.cr against Rs 61cr. The net profit improved by 44.39% YoY to Rs 29.11cr due to lower interest cost and high operating profit.

J K Paper Ltd (JKPL) was incorporated in 1992 in Rayagada Orissa to manufacture Paper and Paper products. It is a pioneer in manufacturing and marketing of paper. Its flagship brands include JK Copier, JK Easy Copier, JK Evervite, JK Excel Bond, JK Bond, JK SHB Maplitho, CPM Parchment and JK MICR.

It has two integrated pulp and paper plants - JK Paper Mill in Rayagada (Orissa) with an annual output of over 100,000 tons and Central Pulp Mills in Sonagadh (Gujarat) of 50,000 tons per annum capacity. Both the manufacturing units of the company are ISO 9001-2000 complaint.

It is the first Indian integrated paper Company which was awarded the TPM excellence award. The company is a pioneer in transforming paper from a commodity market into a branded market by introducing a series of value added products, which currently accounts for over 90% of company’s total sales. It has also entered into the high-end Packaging Board market. At present, JK Paper has a strong footing in all the fast growing segments of the paper industry.

During the quarter ended on 30th Jun, 2010, the net sales of the company reported an increment of 11.46% on y-o-y basis to Rs 290.52cr as against Rs 260.64cr during the corresponding quarter last year. The impressive top-line performance of the company was largely contributed by higher realization, as the paper prices were increased during the quarter.

The operating profit for quarter increased by 9.98% to Rs 67.09cr against Rs 61cr, largely on account of increased income of the company. Net profit for the quarter rose by an impressive 44.39% y-o-y basis to Rs 29.11cr as against Rs 20.16cr during the corresponding quarter last year, the improved bottom-line performance of the company was largely contributed by reduced interest cost to the tune of 33.20% to Rs8.63cr as against 12.92cr and stable depreciation charged by the company.

However, on Q-o-Q basis, net sales witnessed a contraction of 1.25% to Rs 290.52cr as against Rs 260.64cr in FY 2010. Operating profits surged by 11.22% to Rs 67.09cr as against Rs 60.32cr. Margins are improved due to higher paper prices which have gone up over the last six-seven months roughly by about Rs 5,000 a tonne. The bottom-line increased by 7.42% to Rs 29.11cr in Jun quarter as against Rs 27.1cr in the Mar. quarter, largely due to decrease in interest cost by 34.57%.

Paper prices have been on the upswing in this quarter. Further, it is driven by strong demand on one hand and also by the increase in global pulp prices. Global pulp prices over the last 12-18 months have shot up from USD 350 to about USD 850 plus per tonne on hard wood pulp. In the case of soft wood, they have gone to about USD 925-950.

Company is looking to setup new pulp mill of about 200,000 tonne and about 150,000 tonne of paper capacity. The additional facilities will keep the company as leaders in the branded paper segment and in the office paper segment. In future, company is foreseeing good growth in packaging board and coated paper business.