Paper Sector -Undervaluation of domestic paper companies:: Emkay

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Paper Sector

Undervaluation of domestic paper companies

n     World’ largest paper company, International Paper Company (IPC), has entered into Indian printing & writing paper (PWP) industry through acquiring the controlling stake in India’s 4th largest paper player, Andhra Pradesh Paper Mills (APPM)

n     At deal price of Rs 542 (2.7x of yesterday’s closing price) IPC has valued APPM at FY 2011E EV/EBITDA of 15.9x, MCap/Sales of  3.0x and P/E of 44.2x

n     The valuations paid by IPC to APPM are approximately 2.5x-3.0x of the current valuations of domestic paper companies indicating that domestic paper companies are trading at significant discount to their potential true value

n     We see re-rating of domestic paper companies  in the near future and reiterate our buy recommendation on BILT, JK Paper & TNPL