The stock markets appear to be still undecided on the medium term trend and intra day volatility is still high. The index however seems to be moving within a broad range and until the beginning of the next month, no decisive trend may become discernable.

In this context, it may be necessary for investors to look at some of the investment opportunities that had not been explored for some time. If one keeps a long term perspective, there may be a few hidden opportunities that could turn out to be good bargains.

As the technology change sweeps across the different industry segments, most of the manufacturing industries are reeling under falling demand, and increased competition from imports. It has therefore been a tough time for most industrial sectors. Amongst them is the Paper Industry as well. However, atleast in India there is a hint of a turn around in the industry. 

The per-capita consumption of Paper  in India is around 4 Kgs, which is dismal compared to the world average of 46Kgs. More noticeably, in developed countries the per-capita consumption of paper & board is much higher. While it is 308Kgs in USA, it is 160
Kgs in Western Europe. While nearly 58 % of the current consumption is in these two blocks of countries, the growth rates however are better in the developing countries. 
In developed countries,  paper markets have reached a near saturation stage with expected market growth rates of 1 to 2% per annum. On the other hand, developing countries  including India are seeing a much healthier growth rate of  6 to 7 % per annum. 

 Growing imports and shortage of raw materials have plagued the industry for a long time. The consumption is also skewed towards low cost products. As a result, only a few large manufacturers with appropriate product mix and efficient distribution have been able to hold onto profitable operations. It is these who are likely to provide good investment returns when the upward cycle begins.

The leader in such pack of opportunities is Ballarpur Industries ltd (BILT) which is the largest producer in the country. It has a good domestic source of raw materials  protecting the margins to some extent from exchange rate fluctuations and international price trends. It is currently is the process of  merging the pulp division of AP Rayon with itself,                                which will further improve raw material supply. 

The acquisition of the entire equity of Sinar Mas Pulp & Paper (India) may also lead to a significant consolidation of Ballarpur Industries' (BILT) position in the paper industry With strategic tieups with foreign players BILT is further leveraging on its distribution network, to sell imported paper in the domestic market. With this, the company is expanding its market share in the fast growing imported art-paper market. With these  arrangements, BILT  is expected to  be a market leader in  every segment of value added writing and printing paper. It has also introduced a new product for the Computer and photocopy segment  in the premium segment. The company is also expanding its capacity by another 80,000 ton 
 

After a difficult year in 1998 when the Company recorded a loss of Rs 4.3 crores, it soon turned around and posted a profit of Rs 15.96  crores for the 9 month period ending June 1999.  Carrying on the good work, it posted a profit of Rs 59.6 crores by June 2000. This was on an equity capital of  Rs 71.6  crores. In the last quarter ending March 2001,the Company reported a year on year growth of 69 % with a PAT of Rs 25.81 crores for the quarter as against Rs 15.24 crores in the previous year. With a cumulative PAT of around Rs 73 crores for the last three quarters, the Company is likely to record a good profit growth for the year ending June 30 2001.

The increased  concern on eco damages caused by the use of “Plastics” for packaging purpose and the demand for replacement with Paper based products which are bio degradable or re-usable, could change the demand pattern for Paper industries in India in the coming few years. The per capita consumption of Paper could therefore take  a quantum leap forward. 

The shares of Ballarpur are presently quoted around Rs 46, which is at the 52 week low. In view of the long term prospects for the share the P/E ratio of around 4 at the current prices appear to be a good entry point for acquiring the share.

Na.Vijayashankar
June 21, 2001