JKPAPER - JK Paper Ltd. Share Price

The management of JK Paper Limited provided a cautious outlook for the near term, citing challenges from declining prices in key segments (Packaging Board, Maplitho, Coated Paper) and elevated wood costs (up 30-35% YoY). FY24 EBITDA margins (26-27%) remain above industry averages but reflect pressure from pricing and input costs. The competitive landscape is expected to intensify due to dumping from ASEAN countries, particularly Indonesia, driven by surplus capacities and lower raw material costs. Management highlighted efforts to seek antidumping duties against Indonesia, China, and Chile but noted delays in government action.

Key initiatives include the BCTMP pulp mill (commissioning in FY25), which will integrate 70% of mechanical pulp needs, reducing reliance on imports and saving $100-150/ton. Strategic acquisitions in corrugated packaging aim to expand market share, targeting 15% ROI. Growth in packaging (double-digit) and paper (single-digit) segments is expected, with a focus on operational efficiency and cost control. Debt reduction remains a priority, but the company plans to maintain a balanced capital structure for future expansions. Margins may stabilize if global pulp prices ($700-750/ton) support domestic pricing, but import pressures and FTA disadvantages remain risks.

Question 1: "Sir, could we have the EBITDA of Sirpur and the packaging company separately for the quarter and the year?"
Answer: Sirpur's FY24 EBITDA was ~30%, but excluding unreceived state incentives, it was 22-23%. The packaging segment's FY24 EBITDA was ~10%, lower than the typical 12-14% due to market challenges.

Question 2: "Does the April price correction counter the increase in RM cost, especially wood cost?"
Answer: April's price hikes were limited to packaging board and did not fully offset the 30-35% YoY wood cost inflation. Further price adjustments depend on demand-supply dynamics.

Question 3: "What is the outlook on pulp prices amid global consolidation (e.g., Suzano's bid for International Paper)?"
Answer: Recent pulp price surges ($700"“$750/ton) may stabilize long-term around $550 (±$25) as new global capacities ease supply. However, irrational dumping by surplus-heavy regions could disrupt this.

Question 4: "What parameters guide acquisitions (e.g., HPPL, SPPL) in the corrugated segment?"
Answer: Acquisitions prioritize geographic demand pockets, customer quality, and asset utility over valuation multiples. Target ROI is 14"“15% (4"“5% above WACC).

Question 5: "Is the Ludhiana plant operational? What are its FY24 sales/profitability?"
Answer: The Ludhiana plant commissioned in August 2023 faces delayed customer onboarding due to approval processes. Utilization is expected to improve through FY25.

Question 6: "What is the landed cost vs. domestic NSR gap for imports? Will rising pulp prices reduce import intensity?"
Answer: Higher pulp prices should deter imports, but irrational dumping (e.g., Indonesia selling below cost) persists. Imported paper often prices below domestic NSR, squeezing margins.

Question 7: "What are JK Paper's expansion plans post-debt reduction?"
Answer: Focus on debottlenecking packaging board capacity (10"“15% output hike) and corrugated segment growth. Small debt will be maintained for flexibility.

Question 8: "When can antidumping duty approvals be expected?"
Answer: The government's review of ASEAN FTAs and antidumping petitions (against Indonesia/China/Chile) is delayed due to procedural complexities. Timelines remain uncertain.

Question 9: "Is the Q4 margin a new baseline? Is further downside likely?"
Answer: Margins depend on global pulp prices and import pressures. Wood costs may stabilize, but NSR will dictate profitability. No explicit guidance provided.

Question 10: "What is the corrugated segment's capacity utilization and growth outlook?"
Answer: Industry utilization averages 55"“60% (FY24). Growth targets remain double-digit, leveraging JK's scale and compliance advantages over unorganized players.

Question 11: "Why invest Rs. 60 crore in mutual funds via Sirpur Paper?"
Answer: Surplus funds were parked temporarily for better returns (~7"“8%) vs. idle liquidity. No strategic rationale beyond treasury management.

Question 12: "What % of pulp is imported? How will the new BCTMP mill impact costs?"
Answer: 100% mechanical pulp is imported. The new mill (operational by FY25) will cover 70% of needs, saving $100"“150/ton vs. market prices.

Question 13: "Are imports competitive due to India's growth, not dumping?"
Answer: Dumping is proven by ASEAN exporters selling below domestic prices. India's farm-forestry costs (vs. Indonesia's concessional wood) create structural disadvantages.

Question 14: "Is industry consolidation likely amid import pressures?"
Answer: Closures stem from inefficiencies, not dumping. Consolidation depends on valuations, not short-term market stress.

Question 15: "Why focus on corrugated over packaging board expansion?"
Answer: Packaging board remains core; debottlenecking will boost output. Further expansion depends on resolving import threats and demand recovery.

Question 16: "How much VFB sales are open-market vs. approved clients?"
Answer: ~15"“20% of packaging board sales are open-market (e.g., SMEs, non-FMCG). Bulk sales require client approvals, limiting import substitution.

Question 17: "What pricing power exists in the fragmented corrugated segment?"
Answer: Premium pricing (~Rs. 7"“20/kg) applies to compliant, high-quality producers. Margins hinge on kraft paper input costs.

Question 18: "Will surplus cash drive higher dividends/buybacks?"
Answer: Free cash flow (~Rs. 500 crore post-CAPEX/debt) prioritizes growth/acquisitions. Zero debt is not targeted; shareholder returns are secondary to reinvestment.