Key Highlights

• JKP’s revenue grew by 9.9% y-o-y to INR 869 crore in Q3FY19 mainly driven by improved realization. Even after assuming 4% correction in paper realization in FY20 from Q3FY19 level, JKP consolidated revenue is projected to grow at 13% y-o-y in FY20 mainly due to additional volume coming from Sirpur Paper Mill (SPM).
• JKP’s EBITDA margin improved by 902 bps y-o-y and 239 bps q-o-q to a record high level of 28.5% in Q3FY19 primarily due to improved realization and lower other expenses. Going ahead, we believe the margin has peaked out in Q3FY19 due to recent decline in Chinese pulp prices and strengthening of rupee.
• JKP’s net debt has sharply come down from INR 1041 crore in Mar’18 to around INR 700 crore in Dec’18 due to healthy cash accrual. Cash profit grew by 88% y-o-y and 22% q-o-q to INR 188 crore in Q3FY19. Despite aggressive capacity enhancement plan (from 436 ktpa in FY18 to around 750-800 ktpa in FY21) in a highly capex intensive industry, JKP’s net debt to EBITDA is projected to improve from 1.70x in FY18 to record best level of 1.53x in FY21 due to strong cash flow from operations.
• We maintain our ‘Tactical Buy’ rating on JKP with a revised TP of INR 246 per share (from earlier INR 277 per share). While we have slightly upgraded our EPS estimates based on Q3FY19 results, we have revised down our target EV/EBITDA multiple from earlier 5.65x to 5.0x considering weak market sentiments.