Stock Month December

THE BEST STOCK
TO ADD TO
YOUR PORTFOLIO
THIS MONTH
IS HERE!
December 2022
We analyze 4000 stocks; we
JK PAPER LTD. choose around 50 and out of that
we give you the best stock to
invest every month. We will also
tell you when you need to sell and
book profits. So, you will get 1
stock every month, totaling to 12
stocks every year and active selling
advice on them.
SO HOW DO WE
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➢ Shortlisting basis our top Mojo

Scores
➢ Doing detailed Investment Case
➢ Looking at the future of this
company and sector
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returns with minimal risk
09th December 2022

- By research team
(research@marketsmojo.com)
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STOCK OF THE MONTH
JK Paper Ltd
CMP Rs. 403.65 WHO SHOULD BUY

Price as of 09th December 2022
Risk Appetite High Risk
Decision Strong Buy Expectations High Return
<30% (Paper & Paper
SUMMARY Portfolio Sector Exposure
Products sector)
• JK Paper is part of a strong business family that If sector exposure > 30%, use Portfolio Optimizer tool
also includes JK Lakshmi Cement and JK Tyre,
both of which have impeccable corporate STOCK INFO
governance standards. BSE 532162
• The group enjoys higher fancy among investors.
NSE JKPAPER
• JK Paper has performed exceptionally well in
recent quarters because of high demand for its Market Cap (Crs) 6837.93
paper, which has contributed to an increase in Sector Paper & Paper Products
both revenue and profitability. 52 w L/H (Rs.) 192.00 / 450
• The company reported sales of around Rs. 3000
Average Vol (6M) 7,56,466
crores in the first half of 2022. JK Paper stated
that it would have a turnover of Rs. 5500 crore Equity Capital (Rs.) ₹ 169.40 Crs
in FY2023, which we believe it will exceed.
Book Value per share (Rs.) 175.03
• JK Paper has a very healthy operating margin of
more than 25%. Despite being in the commodity
business, we believe the company should be
able to maintain this operating margin.
STOCK PERFORMANCE
• The company recently acquired two corrugated Price as of 09th December 2022
packaging companies having a total turnover Period 1M YTD 1Y 3Y
Rs. 832 crores. This will assist JK Paper
company in expanding its product line. JK Paper Ltd (%) 0 97 87 230
• Because the company has enough cash and Sector Index (%) -6 68 62 114
cash equivalents in its books, this acquisition
will be funded through internal accruals. Sensex (%) 2 7 6 54
• JK Paper is a dominant player in office and
packaging paper, accounting for nearly 82% of
revenue, and we expect demand to remain KEY RATIOS
strong.
PE ratio (TTM) 7.49
• The ban on plastic products has created new
opportunities for paper companies. PB ratio 1.98
• The company's backward integration to source Dividend Yield 1.36%
hardwood is robust. It obtains approximately ROE (TTM) 26.65%
77% of its hardwood within 200 kilometres. D/E 0.49
• JK Paper's valuation is attractive, leaving ample EPS (TTM) 19.14
room for capital appreciation. 19.14
EPS (diluted) (TTM)
09th December 2022

- By research team
1
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Stock of the Month: JK Paper Ltd
INVESTMENT ARGUMENT
This month's stock of the month is JK Paper, which has demonstrated excellent financial
performance in the first half of FY2023. We believe that the company's future growth prospects are
extremely promising, providing equity investors with an excellent opportunity to profit.
Strong Promoters
JK Paper comes from the JK Group, which has been in the country for over a century. Aside from
JK Paper, the group has listed companies such as JK Lakshmi Cement and JK Paper. The
company’s corporate governance standard is excellent. It is one of the country's largest paper
companies, with an impeccable track record. The group is popular with investors, as JK Lakshmi
Cement's share price has increased by 23% in the last month, while JK Tyre's share price increased
by 16%.
Strong Financials
The company reported a top line of Rs. 1644 crore for the quarter ended September, a 74%
increase YoY. The net profit was Rs. 324 crore, representing a 174% increase YoY. The first quarter
of FY2023 was equally good. As a result, the company achieved nearly 75% of its FY2022 turnover
in the first half of FY2023 and surpassed last year's net profit in the first six months of the current
financial year. The first-half net profit was Rs. 586 crores, compared to the full-year profit of Rs.
542 crore in FY2022. With pulp prices remaining strong, we anticipate the company reporting a net
profit in the four digits in FY2023.
Inorganic Acquisition
JK Paper acquired an 85% stake in Horizon Packaging and Securipax Packaging last month for a
total consideration of Rs. 578 crores. These two corrugated packaging companies have a
combined revenue of Rs. 832 crores. The company mentioned moving into corrugated packaging
in its first quarter FY2023 concall, and this acquisition will help expand the company's product
basket range.
The company had Rs. 1100 crores in cash and cash equivalents as of September 2022, and we
expect the acquisition to be funded with available cash. Since September 2022, the company owed
Rs. 2921 crores.
The company's debt to equity ratio has improved over time, as has the interest coverage ratio.
Strong Cash Accruals

JK Paper displayed remarkable cash accruals because of its strong cost management and
integrated business model. Despite being in the commodity business, the company has never
reported negative cash from operating activities in the last ten years. The cash flow from operating
activities was Rs. 835 crores for the half year ended September 2022. We anticipate that the
company will spend nearly Rs. 1100-1200 crores per year on inorganic growth and debt reduction.
This gives us immense peace of mind. The management has stated that they would use the cash
flow to aggressively repay debts.
09th December 2022

- By research team
2
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INVESTMENT ARGUMENT
Attractive Valuations
JK Paper enjoys a very healthy ROE of 26.67%. The industry's strong cash flow and outlook remain
positive. Despite reporting strong revenue and profit growth, JK Paper is trading at a P/E of only
7.4x. The company paid a dividend of Rs. 5.5 per share last year, up from Rs 4 in FY21. With smart
growth in the bottom line, the company is likely to increase dividends in FY2023.
Assuming the company maintains the same dividend per share, the yield is 1.36%. While
commodity companies typically do not command higher P/E ratios, we believe the company
should command a higher PE ratio due to its strong industry leadership position, non-highly
leveraged balance sheet (which is typically the case with commodity-based companies), and very
positive industry outlook. The recent ban on the use of plastic-based products created a huge
opportunity for paper companies, driving up demand. Even if the company maintains the same PE,
earnings growth will drive up the price.
Some Concerns
JK Paper is in the commodity business, so commodity price fluctuations affect the company's
finances. If the price of paper falls for some reason, the company's revenue may suffer. Coated
prices are down 7-10%, but the company earns very little money from coated paper.
On the one hand, paper is considered a superior product to plastic, but green warriors indicate that
paper is made from wood. Therefore, wood must be cut to produce paper. As more fund
managers focus on ESG parameters when deciding whether to invest in a company, this may have
a negative effect on the paper industry.
In the month of October, the Indian mutual fund industry reduced its stake in the company by
nearly 10 lac shares. Much of the sale came from HSBC Mutual fund. Additional selling from
mutual funds could weaken prices.
Despite these reservations, we believe the company has a strong potential to generate wealth.
Furthermore, the industry is unlikely to see any major capex, implying that demand and supply
should remain in favour of demand.
JK Paper currently has a score of 82 with a green dot. With an Outstanding Current Financial
Trend, the company boasts high quality. It is trading at an attractive Valuation, and Technical
Indicators are mildly bullish.
We recommend buying JK Paper at Rs 404.
09th December 2022

- By research team
3
WWW.MARKETSMOJO.COM
JK Paper vs Benchmark (Returns) JK Paper Price Movement

JK Paper Sensex Returns (%) 500
315%
450
280% 400
245% 350
210%
300
175%
140% 250
105% 200
70% 150
35%
100
0%
-35% 50
-70% 0
Dec-19
Mar-20
Dec-20
Mar-21
Dec-21
Mar-22
Sep-22
Jun-20
Jun-21
Jun-22
Sep-20
Sep-21
Jun-20
Jun-21
Jun-22
Dec-19
Dec-20
Dec-21
Mar-20
Sep-20
Mar-21
Sep-21
Mar-22
Sep-22
Sales (Rs Crs) Gross Profit Margin
1,800 QoQ : 15% YoY : 74.1% 1,644.1
QoQ : 270 BPS YoY : 400 BPS
1,600 40.0%
1,430.2 34.7%
1,339.8 32.6% 32.0%
1,400 30.7%
30.0% 28.0%
1,200 1,023.6
944.4
1,000
20.0%
800
600 10.0%
400
200 0.0%
0 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22
Sep-21 Dec-21 Mar-22 Jun-22 Sep-22
Operating profit (Rs Crs) Operating Profit Margin

600 QoQ : 27.5% YoY : 145.6% 539.5 35.0% QoQ : 320 BPS YoY : 950 BPS 32.8%
29.6%
500 30.0%
423.1 24.6% 25.1%
25.0% 23.3%
400
336.0
20.0%
300 251.3
219.7 15.0%
200
10.0%
100 5.0%
0 0.0%
Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22
09th December 2022

- By research team
4
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Net profit (Rs Crs) PAT Margin
350.0 QoQ : 23.7% YoY : 173.8% 324.2 25.0% QoQ : 140 BPS YoY : 740 BPS
300.0 19.9%
262.0 20.0% 18.5%
250.0
14.8%
15.0%
200.0 170.0 12.5% 12.7%
150.2
150.0 10.0%
118.4
100.0
5.0%
50.0
0.0 0.0%
Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22
Returns Comparison
Company 1 Month 3 Months YTD 1 Year 2 Year 3 Year
JK Paper 0.02% -3.94% 96.85% 86.57% 290.57% 229.78%
West Coast Paper -5.08% 0.43% 146.24% 117.88% 218.51% 179.06%
Seshasayee Paper -11.85% -2.01% 89.33% 76.58% 81.97% 70.57%
Andhra Paper -3.87% -7.59% 104.13% 93.65% 110.7% 56.44%
T N Newsprint -9.85% -1.14% 105.48% 96.4% 113.61% 42.87%
Dividend history Debt to equity ratio-trend
Ex Date Purpose Pay-out Period Debt to Equity Ratio
23-Aug-22 Final Dividend 5.5

Sept-22 0.84
05-Mar-20 Interim Dividend 4.0 Sept-21 1.16

Sept-20 0.93
08-Aug-18 Dividend 2.5
09th December 2022

- By research team
5
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Shareholding Snapshot – September 2022

Insurance Companies, 0.12%
Non-Institutions,
39.85%
Promoters,
49.63%
Other DII's,
1.38% Mutual Funds,
FIIs, 6.05%
2.97%
Revenue Breakup– September 2022
Writing Paper,
Coated Paper, 7%
8%
Packaging Goods,
35%
Office Paper, Approx Values

50% Source - Industry
COMPANY BACKGROUND
• JK Paper is a market leader in office papers, coated papers and packaging boards.
• The company has a robust distribution network that includes 300 trade partners and
4000 dealers as well as 15 pan-India depots.
• The company is concentrating its efforts on the domestic market. In FY22, exports
accounted for 8-10% of total revenue. In the current financial year, the management is
focusing on the domestic market.
• Revenue from exports can rise to 5-8%.
09th December 2022

- By research team
6
• The company sells its products through wide range of brands i.e., JK Copier, JK
WWW.MARKETSMOJO.COM
Easy Copier, JK Sparke, JK Cedar, JK Max and JK Excel Bond.
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Equity Research Analysis.
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THE BEST STOCK

➢ Shortlisting basis our top Mojo

09th December 2022

CMP Rs. 403.65 WHO SHOULD BUY

09th December 2022

Strong Cash Accruals

09th December 2022

We recommend buying JK Paper at Rs 404.

09th December 2022

JK Paper vs Benchmark (Returns) JK Paper Price Movement

Operating profit (Rs Crs) Operating Profit Margin

09th December 2022

JK Paper 0.02% -3.94% 96.85% 86.57% 290.57% 229.78%

West Coast Paper -5.08% 0.43% 146.24% 117.88% 218.51% 179.06%

Seshasayee Paper -11.85% -2.01% 89.33% 76.58% 81.97% 70.57%

Andhra Paper -3.87% -7.59% 104.13% 93.65% 110.7% 56.44%

T N Newsprint -9.85% -1.14% 105.48% 96.4% 113.61% 42.87%

Dividend history Debt to equity ratio-trend

Ex Date Purpose Pay-out Period Debt to Equity Ratio

23-Aug-22 Final Dividend 5.5

05-Mar-20 Interim Dividend 4.0 Sept-21 1.16

13-Aug-19 Final Dividend 3.5

09th December 2022

Shareholding Snapshot – September 2022

Revenue Breakup– September 2022

Office Paper, Approx Values

09th December 2022

October 2021 February 2022

VARUN BEVERAGES LTD NATIONAL

November 2021 March 2022

December 2021 April 2022

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June 2022 October 2022

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09th December 2022

09th December 2022

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