Reams of growth …
Domestic paper manufacturers have been successful in passing on cost increases to customers by hiking paper prices twice in 2007. Paper companies posted increases in their net profits in the range of 3% to 77%. Our coverage of stocks posted an impressive growth of 28.7% in net profits. The June quarter also posed the challenge of increase in wood pulp cost and furnace oil cost, but with a demand-supply gap of paper, most manufacturers were able to pass on the cost-push to the customers. We reiterate our preference for big-size players as they are better placed in terms of capacity additions and backward integration. The stocks have traditionally traded at a historic P/E multiple of 8x and are currently available at forward multiples of 5x. Valuations are currently at a three-year low with key operating matrices on the up-tick and strong demand outlook.* Ballarpur Industries* and* TN Newsprint* are our preferred bet in the sector.
