Star Paper Mills Ltd: Valuation Shifts Signal Renewed Price Attractiveness Amid Sector Challenges

Valuation Metrics Reflect Improved Price Attractiveness

Star Paper Mills currently trades at a price of ₹144.00, marginally up from its previous close of ₹143.20. The stock’s 52-week range is relatively tight, with a low of ₹140.00 and a high of ₹193.05, indicating limited volatility in recent months. The company’s price-to-earnings (P/E) ratio stands at a notably low 5.83, which is significantly below the industry peers’ average and signals a potentially undervalued status. This P/E ratio improvement has contributed to the upgrade in the valuation grade from very attractive to attractive as of 1 February 2026.

Complementing the P/E ratio, the price-to-book value (P/BV) ratio is exceptionally low at 0.32, suggesting the stock is trading well below its book value. This metric is a strong indicator of price attractiveness, especially in capital-intensive industries like paper and forest products, where tangible assets form a substantial part of the balance sheet.

However, some valuation multiples such as EV to EBIT (-0.94) and EV to EBITDA (-0.73) are negative, reflecting the company’s current earnings and cash flow challenges. These negative enterprise value multiples are a cautionary signal, indicating that while the stock is cheap on earnings and book value, operational profitability remains under pressure.

Comparative Analysis with Industry Peers

When benchmarked against its sector peers, Star Paper Mills’ valuation stands out for its affordability. For instance, String Metaverse, a peer in the same industry, is classified as very expensive with a P/E ratio of 57.45 and an EV/EBITDA of 48.63, highlighting a stark contrast in market sentiment and valuation. Other peers such as Pudumjee Paper and Emami Paper trade at higher P/E ratios of 8.82 and 27.45 respectively, with EV/EBITDA multiples above 6.3 and 9.6, underscoring Star Paper Mills’ relative cheapness.

Conversely, some companies like T N Newsprint and Satia Industries are rated very attractive but have higher P/E ratios (30.55 and 9.79 respectively) and positive EV/EBITDA multiples, suggesting better operational performance despite higher valuations. This comparison highlights that Star Paper Mills’ valuation attractiveness is primarily driven by its depressed earnings multiples rather than operational strength.

Financial Performance and Returns Contextualised

Star Paper Mills’ return profile over various time horizons paints a mixed picture. The stock has underperformed the Sensex consistently over short to medium terms. Over the past week, the stock declined by 4.54% compared to the Sensex’s 1.00% fall. Over one month and year-to-date periods, the stock’s losses of 12.20% and 12.46% respectively outpace the Sensex’s declines of 4.67% and 5.28%. The one-year return is particularly concerning, with a 22.16% drop against a 5.16% gain in the benchmark index.

Longer-term returns, however, show some resilience. Over five years, Star Paper Mills has delivered a 34.33% gain, though this still lags the Sensex’s 74.40% appreciation. Notably, the ten-year return of 310.84% significantly outperforms the Sensex’s 224.57%, indicating that the stock has historically rewarded patient investors despite recent volatility.

Operationally, the company’s return on equity (ROE) is modest at 5.50%, while return on capital employed (ROCE) is negatively impacted due to negative capital employed, signalling operational inefficiencies or balance sheet challenges. The dividend yield of 2.43% offers some income cushion for investors, though it is not particularly high within the sector.

Mojo Score and Rating Update

MarketsMOJO’s proprietary scoring system assigns Star Paper Mills a Mojo Score of 28.0, reflecting a strong sell recommendation. This is a downgrade from the previous sell rating, effective from 1 February 2026. The downgrade is driven by deteriorating quality grades and operational concerns despite the improved valuation attractiveness. The market capitalisation grade remains low at 4, consistent with its micro-cap status within the Paper, Forest & Jute Products sector.

Investors should weigh the valuation appeal against the company’s operational risks and sector headwinds. The paper industry continues to face challenges from raw material price volatility, environmental regulations, and demand fluctuations, which may constrain near-term earnings recovery.

Investment Implications and Outlook

Star Paper Mills’ shift in valuation grade from very attractive to attractive suggests that the market is beginning to price in some improvement or at least a stabilisation in fundamentals. The low P/E and P/BV ratios relative to peers provide a compelling entry point for value-oriented investors willing to tolerate near-term operational risks.

However, the negative enterprise value multiples and modest returns on equity and capital employed highlight ongoing challenges. Investors should monitor quarterly earnings closely for signs of margin recovery and cash flow improvement. Additionally, the company’s ability to manage working capital and capital expenditure will be critical in restoring investor confidence.

Given the strong sell Mojo Grade and the downgrade from sell, caution is warranted. The stock’s historical outperformance over a decade contrasts with recent underperformance, indicating a potential turnaround story but one that requires patience and risk tolerance.

In summary, Star Paper Mills Ltd. offers an attractive valuation relative to its sector peers, but operational headwinds and a cautious market outlook temper enthusiasm. Investors should balance the valuation appeal with the company’s financial and operational risks before committing capital.

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