JK Paper’s stock surged sharply on favourable outlook for the paper industry. Speaking to Bloomberg TV India , JK Paper Chief Financial Officer V Kumaraswamy says capacity expansion will help the company reap the benefits of economies of scale in coming years. The EBITDA margin as a percentage of the incremental quantity will be much more now as the company has absorbed all the costs. So the rate of growth on the incremental quantity will be quite sharp, he said.
What is your outlook for JK Paper going forward?
We are favourably positioned in the uncoated segment — the copier paper called Maplitho. The segment is growing 6-7 per cent in terms of volumes. And recently, the supply has been getting absorbed. Even the prices have seen some uptick from January after almost nearly 30 months of lull and a downtrend in prices before that.
In the coated segment, we are a small player. We have just 8-9 per cent of the market share. Packaging boards have seen quite a bit of activity with new capacities coming in. The market is also growing fast in that segment. The upper segment has grown by about 16 per cent and the lower segment has grown by 9-10 per cent. So, we are favourably positioned and are looking forward to the next year with optimism.
Your EBITDA margins are at a five-year high of 16.6 per cent in FY16. After two years of losses, you have booked profits close to ₹73 crore. Do you expect the run rate in margins and profitability to continue in the coming years? Or were the FY16 margins a one-off performance?
We have put up a new facility in Odisha, which is fairly a big expansion; this is the largest single investment in the industry. And, obviously, it took a little time to stabilise. We chose to write-off all the interest, depreciation and other expenses. Those were, possibly, the reasons for the losses. But now the plant is operating very well in all parameters and there is still some economies left in that to be squeezed out. So we don’t consider the profits in FY16 as one-off.
As we go along, the economies of scale will start to kick in. The whole industry has risen to the occasion and spread the plantation activities very well and has invested a lot of energy, time and strength. A lot of good growth has happened in the last four years and they have all hiked their supplies.
So the supplies have been stabilised at a higher level as required by the industry. So there is some amount of moderation there.
What kind of growth do you expect in the bottom-line? What margins can we expect during FY17 and FY18?
In terms of quantitative growth, the unquoted segment is growing by 7 per cent and the coated at 8-9 per cent. I can’t quickly put out any forward-looking numbers.
But just to give an indication, whatever quantity we can squeeze out extra from now on, the EBITDA margin as a percentage of the incremental quantity will be much more because we have absorbed all the cost — fixed cost, salaries, interest and depreciation. So the rate of growth on the incremental quantity will be quite sharp.
With the threat of cheap imports and rise in the price of imported wood, what’s the outlook on prices?
The trend in prices of the coated segment, which is benchmarked, will move according to the trends in the currencies.
Whatever currency adjustments take place, it will be applicable to India.