P.a.p.e.r.

Surprisingly, the paper industry has been an underperformer. It's PE ratio has often been between 5 and 10, which is mighty lower than most other core industries. .. but things are looking better for this industry (story). An 8% growth in GDP means an 8% plausible increase in demand for paper, while the production is expected to grow at only 4%. This would lead to a rise in prices and hence profitability. Also, there will be consolidation in the industry with the smaller players merging with bigger ones (primarily due to the introduction of environmental norms). Players are also getting ready to explore the export market with 10-12% of the produce leaving Indian shores. (This would fuel prices even further)

Lets examine the prospects of a few players -

[1] West Coast Paper Mills Ltd. - The lastest quarterly data pegs the company at 537 crs of sales and 42 crs of profits. At a CMP of 393 (21-Apr), the PE is at 8.37. The company has also indicated an improvement in the net margin owing to cost control measures (and inspite the increase in fuel costs). It's a BUY candidate.

[2] Andhra Pradesh Paper Mills - I bought this a week back at 120 rupees. It's at 140 rupees today (21-Apr). The scrip has a fwdPE of 10.11. A recent report by EmKay Research gives the following cues -
a) Margin will double from 13.5% to 26.2% in the next two years
b) A 125% improvement in PAT over the next two years. In fact at today's price, the research agency estimates the stock to reach a PE of 4.4 by FY2008
c) Sales growth at a CAGR of 15.20%
d) The price target for Andhra Paper Mills is INR 224.00 (an increase of 76% from current levels)

[3] JK Paper - Here's another research report by Religare Securities Ltd. The CMP of JK Paper is 60 and it has a price target of 96 rupees. I'd however, prefer Andhra Paper Mills and West Coast over JK Paper as the company has shown a lack of consistency in profitability (profits went down by 8% last yr and sales were stagnant)

[4] Star Paper - Here's a pick of the week by icicidirect.com. Star Paper Mills has perhaps the lowest PE valuation in the paper industry ... a fwd PE of just 6.20. The company has shown brillaint improvement in sales with one glitch in the quarter ending Dec-05, where PAT was only 2.40 crs ... a huge reduction over last yr. So any investment in the scrip can be recommended only after checking the Mar-06 results of the company.

So here it is ... divide you paper industry booty equally between West Coast Paper and Andhra Paper Mills. They are a t good valuations, have grwoing sales+profits and good management structures.