Paper stocks results preview for Q3FY12: Emkay

We expect margin pressures to continue in the current quarter as well on account of escalation in raw material and power costs. Despite aggregate revenue growth of 2%, we estimate aggregate EBITDA to decline by 6% on a yoy basis.

Revenue growth of 2% is largely driven increase in average realizations by 5% on a yoy basis. Aggregate sales volumes are expected to decline by 2% to 337,000mt.

Though companies have been taking price hikes to compensate for rising cost, we expect margin pressure is likely to continue in near term. Consequently we expect aggregate EBITDA margins to squeeze by 270 bps to 10.5% resulting into 4% drop in EBITDA / mt to Rs 9900/mt

We expect Rayon Grade Pulp (RGP) realizations to decline during the quarter, yet they remain flat on a yoy basis at Rs 52,000/mt. We expect pulp margins to decline by 300bps qoq to 26.5% however they remain higher on a yoy basis by 90bps

We believe that margin pressures are likely to continue for the sector in the near future. Shortage of coal has increased cost of domestic coal. Also industry is facing margin pressure due to currency depreciation which has increased cost of imported pulp.

Globally pulp prices have started softening however Indian players not benefiting significantly due to currency depreciation. We expect, in near term domestic paper realisation to remain weak due to higher supply and maintain our cautious view on the sector. We maintain Accumulate rating on BILT, JK Paper & TNPL.

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