Mar 30, 2011, 11.39 PM IST

Paper profits: Is a re-rating of the sector on the anvil?

Shares of paper companies, ignored for long, were suddenly in demand on Wednesday as investors are betting that the sector may be re-rated following International Paper�s acquisition of Andhra Pradesh Paper Mills.

Source: Moneycontrol.com

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Paper profits: Is a re-rating of the sector on the anvil?

Shares of paper companies , ignored for long, were suddenly in demand on Wednesday as investors are betting that the sector may be re-rated following International Paper�s acquisition of Andhra Pradesh Paper Mills .

Trading in stocks like West Coast Paper , Star Paper , ABC Paper and AP Paper Mills were frozen at the upper end of the maximum permissible intra-day limit of 20% after there were only buyers.

�The paper industry as a whole had been neglected for a long time, but now investors suddenly feel the valuations are attractive� Alex Mathew, head-equity research, Geojit Financial Services told moneycontrol.com.

According to him, the two key constraints for the industry so far have been paper pulp scarcity and environment concerns causing many people to cut down on paper use.

Paper is not a widely tracked sector and most market participants are unsure if a long term re-rating of the sector is in the offing. However, they feel the stock could give decent returns over the next 3-6 months.

�With upcoming assembly elections in four Indian states, the demand for paper will rise in the coming days,� says Mathew, expecting a 15% in the share prices over the next six months.

The acquisition of Andhra Pradesh Paper Mills by International Paper has raised hopes among market players that there could be many more such deals in future.

�We could see more such deals in the coming days,� said a senior analyst at Prabhudas Lilladher. Then there are some fundamental factors too.

�Print media will remain dominant in India for a long time. Upcoming state and centre level elections too will add to demand creation,� the analyst said.

Indian paper industry is poised to grow to 11.5 million tonnes from 9.18 million tonnes to 2011-12 from 2009-10 at the rate of 8% per annum, according to The Associated Chambers of Commerce and Industry of India (ASSOCHAM). It indicated that per capita paper consumption increased to 9.18 kg on 2009-10 as compared to 8.3 kg during 2008-09. India has emerged as the fastest growing market when it comes to consumption, posting 10.6% growth in per capita consumption of paper in 2009-10.