The paper industry has been booming and the shares in this sector have done well over the last year or so. As such investors might want paper to be a part of their portfolio. Such investors may consider an investment in the stock of Star Paper Mills. However investors who are not so keen on the sector per se can skip the stock.
The company manufactures industrial paper, which is book covers, foils, wrappers etc. It also manufactures paper for writing, labels etc. The first category viz. the industrial papers have got higher margins and the company also produces them twice as much as the latter category.
The R & D unit is a chief strength of the company. The unit has been recognized by Department of Science and Industrial Research and Ministry of Science and Technology. The R & D department is important for the company to give it an edge over its competitors and increase the market share which currently stands at only 4%. The company is involved in expansion worth about Rs. 80 crore because it is currently operating at 100% capacity. This speaks volumes of the growth of the industry in the recent times and also growth of the company. This growth is likely to be sustained as the paper market is estimated to double in size in the next five years and grow to over 10 million tones. The company will increase its capacity from 71000 tpa to 80000 tpa and it will be over by mid 2006. Major plus for the company is that it has got strong reserves of 67 crores and can fund a large part of the expansion itself. At the same time they have been reducing debt and the company has re paid debt to the tune of 30 crores in the last three years. However the company will again have to take some debt to fund expansion so it looks like the cost of debt may come down the quantum of interest may not change as much.
The biggest clincher however is that the company is trading very cheap in the market at around 5 times its last year’s earnings and as such is cheap for a decent company in the Paper Industry. Investors who wish to hold paper in their portfolio can accumulate this stock when the market declines.
