2 Stocks that will Benefit from Plastic Ban

  • Stock Market Analysis
  • Editors Pick

The Central Pollution Control Board (CPCB) has notified that single-use plastics will be banned from July 1. The response to this decision has been mixed across sectors. Single-use plastics are used everywhere, from earbuds to packaging material to cigarette packs. These cannot be recycled and cause immense damage to our environment. Many industries have resisted this decision as few alternatives are as widely available as these plastics. However, one industry that will be happy with this decision is the paper industry.

It is one of the oldest industries in India and is expected to reach a market value of $13.4 billion by 2024. Major drivers of this industry are low per capita consumption (15Kg in India as opposed to the world average of 57Kg), leading to a lower base effect, high growth in the packaging business, and availability of raw materials, including non-wood raw materials. The industry comprises majorly of small mills fragmented over a large geographical area. The industry is consolidating as larger mills acquire smaller and older ones. We look at two companies with significant growth potential that may benefit from the growth in demand.

1. JK Paper Limited (NS: JKPA ): JK paper Limited is one of the biggest manufacturers of office papers, coated papers, and packaging boards. It acquired Sirpur paper mills in 2018 and has successfully managed to revive the company. The company has a pan India customer base and leads in market share in many segments. It exports its products to many global destinations, including the USA and Europe. It aims to use its extensive dealers and distribution network to capture market share and grow in the long run.Paper Stocks 1

The stock is available at an attractive valuation with a P/E of 9.68 against the industry P/E of 12.8. EPS has also been consistently growing. The company has a utilization capacity of 80% and 90% in the new Odisha plant and Sirpur plant, respectively, and the excess capacity will help fill any demand increase. The debt-to-equity ratio has increased due to investment in packaging board expansion; However, the company plans to reduce this over the next two years. Risks to the company are high electricity prices, currency fluctuation, and the persisting high-interest environment.

2. West Coast Paper Mills Ltd (NS: WSTC ): It is one of the oldest paper producers in the country. Its products include printing and writing paper along with stationery products. It also produces packaging paper required by many industries. The company will hugely benefit from the ban on single-use plastics as 95% of the company's revenue comes from the paper and paper board division. It has a vast distribution network with 75 dealers servicing the industry. It acquired Andhra papers limited which has a production capacity of 2.4 lakh Tons Per Annum (TPA), further adding to its manufacturing capacity.
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The company is trading at a discount with a stock P/E of 6.62 compared to the industry P/E of 12.8. It has also reduced debt to a significant extent. Moreover, the company has shown considerable sales growth in the past five years despite the pandemic affecting its business in the last two years.

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Both the companies have a significant market share and will benefit the most from the plastic ban. However, investors must be aware of the company's financials to benefit from this opportunity. The investors must also understand that the government has been stringent in implementing the ban due to its international commitments to control the menace of pollution. However, previous such bans have not been appropriately enforced. Therefore, the investors must do proper due diligence before investing, as the stocks may not realize their full potential if the ban is not strictly implemented. They can also consult Sebi Registered Investment Adviser before investing in understanding the market environment and getting guidance in their investment journey.

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