Paper theme: JK paper

JK Paper

About the company:

• JK Paper is one of the largest wood-based paper companies in India. 
• The Company possessed an installed capacity of 7.61 Lac TPA of paper and board at the close of 2023-24. 
• The Company is present in the following segments directly or through its subsidiaries: office paper, writing & printing paper, packaging board, coated paper, specialty paper, corrugated packaging, monocartons and labels.
• JK Paper is present across more than 60 countries, including US, UK, Bangladesh, Singapore, Malaysia, Africa and the Middle East. 
• The brand is globally renowned for its quality and price-value proposition. It operates through a pan-India distribution network of 468 trade partners and over 4,000 dealers.
• The Company possesses three state-ofthe-art manufacturing units of Paper and Board in different geographies proximate to plantation wood and consumption markets, nine corrugated conversion units, two monocarton units and one unit for labels.

Acquisitions: Company extended to the manufacture of monocartons and labels through acquisition of Manipal Utilities and Packaging Solutions Pvt Ltd, since renamed as JK Utility Packaging Solutions Pvt. Ltd. (JKUPSPL). This acquisition represented a reverse synergy, whereby the boards manufactured by the Company will be consumed in the manufacture of monocartons.

• 2018 Acquired Sirpur Paper Mills in Telangana (1,36,000 metric tonnes per annum)
• It would be relevant to indicate that credible credit rating extended to the Sirpur Paper unit as well; the latter’s rating had improved two notches in 2022-23 and during the year under review was upgraded to AA (the same as the parent company). 
• For a company that was sick and had been acquired only in 2018, the upgradation in Sirpur’s credit rating represented a validation of the Company’s capacity to transform asset visibility in a capitalintensive sector.
• 2023 Acquisition of 85% equity of Horizon Packs Pvt Ltd. (HPPL) and Securipax Packaging Pvt. Ltd.(SPPL)
• 2024 Acquired Manipal Utility Packaging Solutions Pvt Ltd (MUPSPL), since renamed as JK Utility Packaging Solutions Pvt. Ltd. (JKUPSPL)

Growth levers:

• Company will leverage the Company’s established competence in graduating commodity products into branded alternatives, strengthening capital efficiency
• Company will leverage decades of institutionalised manufacturing competence, comprising the management of large volumes at one end and the delivery of standardised products at the other
• Company will deepen its focus on sub-projects with the objective to enhance their respective profitability.
• Company will seek to prospect sizable opportunities where its surplus can be profitably allocated, capitalising on the robust economic momentum of India.
• The Company entered the manufacture of packaging board (2,10,000 TPA) in 2021; gradually revenues from the writing & printing paper segment declined from 90% six years ago to 60% during the year under review.
• The rationale for the Company to enter the packaging board segment (commissioned during the second pandemic wave) was inspired by India’s consumer packaging revolution,  e-commerce sales and increased personal incomes leading to enhanced lifestyles. 
• There is growing traction for this segment on account of an accelerating shift from plastic packaging towards recyclable and compostable alternatives, especially from the pharmaceuticals, cosmetics, and food & beverage sectors.

Expansion:

• Bleach Chemical Thermo-Mechanical Pulp (BCTMP) 
• To become self-sufficient in hardwood BCTMP for producing Packaging Board and address the issue of price volatility and Limited availability, the Company is setting up a BCTMP Mill at Unit CPM, Songadh, Gujarat, having capacity of 125,000 ADMT per annum. 
• Project is expected to be commissioned in next financial year 2025-26.
• The Company did not just hold on to its position with this space; in the last two years, it commissioned a greenfield corrugated plant in Ludhiana and acquired Horizon Packs, the largest corrugated packaging board company in the country. 
• During the year under review, the Company integrated its acquisitions within its ongoing operations, enhancing operational benchmarks in line with the prevailing corporate average. 
• This shift helped broadbase the Company’s revenues, shifting its gravity centre to fast
• Amidst growing digitisation, the Company is realigning its product mix and diversified into packaging boards and corrugated packaging. 
• The packaging industry is experiencing rapid expansion propelled by increasing disposable income, growing lifestyle changes, and a rise in the consumption of processed food. 
• Through substantial investments in research and development, coupled with the integration of advanced technologies, the Company has developed a range of products including high bulk SBS Board, Aqueous Coated Board, and Antifungal Board during the year. 
• These offerings cater to diverse customer segments while aligning with the Company’s commitment to providing sustainable paper solutions
• In response to the growing concern over plastic-based food packaging, the Company is well positioned to leverage the transition from plastic packaging towards recyclable and compostable alternatives, by introducing new products featuring oil and water resistance, moisture and oxygen barrier, and heat sealable capabilities. 
• The Company also offers sustainable packaging solutions tailored for the food service, pharmaceutical and FMCG sectors, collaborating closely with customers to meet their specific needs
• In response to the growing concern over plastic-based food packaging, the Company is well positioned to leverage the transition from plastic packaging towards recyclable and compostable alternatives, by introducing new products featuring oil and water resistance, moisture and oxygen barrier, and heat sealable capabilities. 
• The Company also offers sustainable packaging solutions tailored for the food service, pharmaceutical and FMCG sectors, collaborating closely with customers to meet their specific needs.
• Company continued to maintain its leadership in corrugated boxes during the year and made an entry into Monocarton and Labels business through acquisition of Manipal Utility Packaging Solutions Private Limited. 
• This acquisition is in line with long term Strategic objective of the Company in packaging business and gives an opportunity to offer total solutions to the customers with respect to secondary and tertiary packaging.

Weakness:

• Faced a few challenges including higher raw material cost and lower sales realisation which have adversely impacted performance during the year. 
• Availability of wood has been a major challenge and this situation is expected to continue, at least for another year. 
• The selling prices continued to remain under pressure due to increase in imports by almost a third on top of a 25% increase in the previous year.

Indian paper and packaging industry overview 

• The packaging paper segment accounts for 55% of sales in India, followed by writing and printing (W&P) paper at 30%. 
• The Indian paper and paperboard packaging market was pegged at US$10.77 Billion (88,314 crore) in 2022 and is expected to reach US$15.69 Billion (1,25,520 crore) by 2027, growing at a CAGR of ~7%. 
• The rest is with newsprint and other paper.
• With a per capita total paper usage at 15 kg, much below the world average of 57 kg, India is the world’s fastest paper market in the world.

Business has transformed in last 10 years

• The Company’s net cash position strengthened from 866 crore to 1,043 crore by the close of 2023-24. 
• Interest cover was a credible 8.86 in 2023-24, indicating the Company’s financial strength. 
• Net worth strengthened from 4,034 crore to 5,069 crore while longterm gross debt declined from 2,137 crore to 1,695 crore.

Best in class balance sheet

• The Company’s net-debt/EBITDA improved to 0.59x from 0.86x in 2023
• Prudent working capital management enabled to repay loans of about 664 crore (consolidated), a third of which was prepayment/ accelerated payment.
• Net worth strengthened from 4,034 crore to 5,070 crore in last fiscal at a consolidated level.
• Property, Plant and Equipment (PPE) increased from 5,328 crore as on March 31, 2023 to 5,437 crore as on March 31, 2024.
• Total debt decreased 21.4% to 2204 crore as on March 31, 2024 mainly due to scheduled repayment of debt and H230 crore of prepayment/escalated payment.

FII have increased stake from 4% to 12%

ROE for last 10 years is stable at 20%

Reducing Debt and also Debt to Equity ratio is improving

Profit has grown CAGR 35% in last 10 years