Andhra Paper Mills, which had peaked to a high of Rs 590 on June 22, has shed some of its value thanks to profit booking at the counter. Even then, the current market price of Rs 525 is much higher than the rights offer price. The rally in the stock has been aided by an overall buoyancy in paper stocks thanks to the expectation of a rise in domestic demand and close of some operating mills. With elections round the corner, demand is expected to pick up.

The rights issue, in the ratio of one share for everyone share held in the company, has improved liquidity at the counter as the company has doubled its equity base from Rs 5.62 crore to Rs 11.24 crore. The company had offered each equity share of Rs 100 at a premium of Rs 150. The rights issue was oversubscribed by 106.71 per cent. The company received 4,414 applications for 6,00,271 shares against the offer of 5,62,500 shares. 546 shareholders opted for renunciation of 68,374 shares.

The oversubscription to the rights issue is not surprising as the issue was priced much lower than the prevailing market price. For most part of the issue period, the stock was ruling at around Rs 275-400. When the rights issue closed on May 22, the stock was quoting at Rs 427.

The Bangur-group controlled Andhra Paper Mills is one of the leading players in the paper sector, which has been bearing the brunt of a low demand and soft global prices for the past one-and-half years. Excess capacities also added to the woes. The recovery in the south-east Asian economies as well asclosure of mills in the US has helped bring down inventory levels.

In India, if the economy picks up, domestic demand should also rise. In India, paper producers have hiked prices in the last three months by Rs 500-1000 per tonne. According to industry watchers, there has been a marginal pick-up in demand thanks to the shut-down of a few operating mills, but for profits to improve demand has to grow by at least 8-10 per cent.