The Indian paper industry is in an transition phase. Few large players, with established capacities and a good grip on the raw material front could gain incremental market share thereby continuing to deliver robust revenue growth. Investments to get the cost structure in place is behind us and most companies are significantly efficient today, making their business model relatively less vulnerable to price fluctuations.
The structural changes in the recent past make the paper industry seek better valuations than those enjoyed today. With the sector being totally out of flavour with the investment fraternity, I guess all these developments may not have been evaluated properly.
Paper, after all, is a consumable with the industry displaying fairly strong operating metrics akin to many other consumer companies. I’m NOT arguing to build a case for paper companies to get valuations anywhere close to those enjoyed by consumer companies.
Read the attached note:
I look forward to your views.