These companies have strong underlying economic growth prospects, they are off the radar of most analysts and their stock prices have not already run up 

JK Paper: One of the largest paper manufacturers in India is JK Paper. It has a production capacity of 240,000tpa (tonnes per annum) at its facility at Raygada (Orissa) and Sonagadh (Gujarat). It had a presence only in printing & writing paper until 2006-07 and is now into the paperboard segment as well. JK has commissioned its folding box board (FBB) plant in October 2007 which is capable of producing high-quality coated board products - a product in demand from consumer products companies. Currently, high-end product segments, such as coated paper, copier paper and board, account for more than 95% of JK's sales. It has a leadership position in the copier segment with brands such as JK Copier, JK Easy Copier, JK Excel Bond and JK Bond.

JK has a huge investment plan for the next two years. It intends to raise the capacity to 400,000 tonnes (a 65% jump) at an investment of Rs1,500 crore. It will also set up a 200,000-tonne pulp mill and enhance captive power production to 55MW from 35MW. This will be helpful for the company as its dependence on imported pulp has increased in recent times with the commissioning of the board plant, since pulp production has not increased to match higher requirement. Construction of its Orissa plant is expected to begin in October 2010 and to get completed by 2012. The capacity expansion will help it to meet the demand of paper which is growing at 20% annually for office paper and 12%-15% for high-end coated paper. JK Paper also has de-bottlenecking plans for its packaging paper unit with estimated cost of Rs15 crore-Rs18 crore which is scheduled to be completed by January 2011. This is likely to result in volume growth of 4% with incremental annual production of 12,000-15,000 tonnes. In the June 2010 quarter, sales and operating profit have grown 12% and 10%, over the year-ago period on 3% volume growth and 9% rise in realisation. During the quarter, the price of paper has risen by 5%-8% on the price rise of pulp and higher power cost.

While JK operates on high margins, these have been even better in the June 2010 quarter (23%) on higher paper prices and increased capacity utilisation. Net profit for the quarter was up by 44% to Rs29.11 crore from Rs20.61 crore over the year-ago period on reduced interest cost which came down 33%, to Rs8.63 crore from Rs12.92 crore. Operating margin is around 22% and RoE is 19%.


Andhra Pradesh Paper Mills: The company manufactures paper of various kinds like writing, printing, industrial, newsprint and copier. It has two units, one at Rajahmundry and another at Kadiam. The Rajahmundry plant is an integrated wood-based paper mill with a rated capacity to produce 174,000mtpa of finished paper and 182,500mtpa of bleached pulp. The unit manufactures uncoated writing & printing paper, mainly copiers, industrial papers and posters, using casuarina and subabul as the main source of pulpwood. The second manufacturing unit, at Kadiam, has a rated capacity to produce 67,000mtpa of finished paper such as cream-wove, azure-laid, coloured copiers, kraft-liner and newsprint using agri-residue, recycled fibre and purchased pulp as the raw materials. The company has changed its product mix by reducing focus on newsprint to writing & printing paper where margins are higher. Its client list includes Modi Xerox, Indo National, Macmillan and Navneet Publications.


The company has started a development programme in 2004 which is focused on the modernisation of the existing mills and expansion of capacity. The programme was divided into three phases, of which the first two phases involved installation of a new pulp line of 550tpd capacity, a 34MW turbine and rebuilding of paper machines for an additional capacity of 20,500tpa, at a cost of Rs625 crore. The first two phases have been successfully completed - the new machines have been installed and commissioned. Phase-3 involved installing of a coal-fired boiler and a paper machine. With this, its manufacturing capacity is now close to 250,000 tonnes of pulp and paper. It meets its power requirement of about 22MW from the 34-MW turbine; the excess power is sold to AP Transco. AP Paper has, in the past few years, substituted a good portion of bamboo requirement with hardwood. This has been done by promoting 'farm forestry' to ensure development of raw material sources and to attain self-sufficiency in raw material.

The June 2010 quarter performance was excellent; sales and operating profit grew 27% and 42%, respectively. The five-quarter average sales and operating profit grew 9% and 29%, respectively. Its operating margin is 23%. Its RoE is surprisingly low at 11%.
— Moneylife Digital Team