West Coast Paper Mills Ltd (WCPML), incorporated in 1955 is the flagship company of S.K. Bangur group. The company is among India’s top five paper &paper board’s manufacturer in terms of total capacity of 320000 mtpa. WCPML operates in two business segments; Paper/Paperboard (including Duplex Board)
at Dandeli and Telecommunication Cables at Mysore. WCPML also has Wind Mills of 1.75MW capacity in Tamilnadu for power generation. WCPML has a more than 15% in the domestic share in value paper product.
WCPML is amongst India’s 5th largest paper producers having a total capacity of 3.30 lac tpa and present largely in the value added segment like copier segment, coated segment and packaging board segments.
WCPML enjoys a market share of over 15% in the copier segments and almost 75% of its topline comes from the value added segment. To mitigate its raw material procurements it has already put a
captive plantations facility which has taken care of its increased production. These product segments accounted for almost 75% of WCPML’s total product mix in FY 17. Given the underlying demand drivers for these segments, they are expected to grow at a higher rate than overall industry average.
recently the promoter has increased the stake in open market and sk bangur is a very decent promoter with a huge experience in paper industry. the best part of west coast paper mill is the product mix in copier and writing segment they are in high value mapithilo and cream wove and there cup stock variety is a high margin niche product commands good market from retail segment
presently they are operating at nearly full capacity of around 3.20 l tpa now with the raw material price stablising at 870 usd for wood chips internationally and paper prices in this high value segment has shown good growth they will be able to maintian around 1800 cr rev from paper segment with 18/20 percent ebita margin with debt reduction the debt to equity has come down to less than 0.8 and reduction of interest out go and the deprication expected to come down the bottom line will be healthy we could expect 175/200 cr bottom line
with operating cash flow improving to 425 cr in this fy we can expect a good cash flow forward.
with good monsoon and kali river having good inflow there will be no water problem. having planted enough trees under the plantation scheme they can meet the raw material requirement.
only concern being the import of paper from south asian countries increasing offlate and the erratic paper price
but around 1200 cr m.cap at the cmp 0f 185 trading at less than 10 pe and with less than 5 evebita with expected head winds in paper sector we can expect a good growth.
also they are planning to increase there capex in tissue paper and become debt free in two years the down side from here is limited upside potential visible good management having own skin in the buisness reduced debt increased cash flow seems like a good bet.
please kindly post your views
While West Coast Paper Mills does seem to be a well run company with low debt, the current state of the market leader I.e. Ballarpur Industries or BILT needs to be taken into consideration. In spite of having a capable CEO in Gautam Thapar, BILT has not been able to cope with the onslaught of cheap import from China and South Korea ever since import duty on paper was scrapped. BILT has severely stretched itself in the last few years by incurring unsustainable debt in modernising and increasing capacity.
My point of enquiry is, what differentiates West Coast Paper from it’s competitiors, whereby it will be able to race ahead of the pack. What is it doing differently that others like JK Paper have overlooked ?
Per capita usage of paper in India several times lower than developed countries and there is a latent demand for paper, more so due to the increased thrust of the government in improving literacy. The removal of import duty has served the purpose of reducing cost of paper but that has not helped indigenous paper companies saddled with over capacity.
Consider the share price of BILT languishing at ₹12 for a face value of ₹2 against West Coast at CMP of ₹183. What has BILT got so wrong that West Coast or JK copier viz., second to BILT in output, commands such a premium valuation ?
The answer is in your query itself the unsustainable expansion with increased debt an ambitious project in Malaysia gone awry mis management of cash flow and the bamboo problem was the main reason for BILT S.K.bangur is more hands on than thapur yes there is import from south Korea under FTC agreement with nil duty which effects the news print in a big way.
Even jk paper has a debt at the higher side which can be a problem that is the reason I did not mention jk paper secondly the raw material which is being ensured by the plantation efforts of West coast in 4000 acres of dandehli area has started bearing fruit it also has an environmental certificates FCS and product mix of West coat paper if u study closely you will understand that out of the total revenue of 1700 cr from paper segment the value added high margin products is in the region of more than 75%
Also the IPMA had made representation to the government regarding the import duty which is under consideration
Also if you just Google the problems faced by BILT you will understand how it is not comparable with any other paper company BILT saw it coming long ago.
Whereas west coast was consistently able to reduce the debt at present it stands at 350 cr there gross block is 2100 cr and net block is only 1000 cr with accumulated depreciation is more than 900 cr the ebita has improved over the last 3 years it has never deflauted once and have paid consistent dividend
As you rightly mentioned the paper consumption per capita in India is lowest and expected to grow today the gap in demand is being met by import in mainly news print sector
Other copier writing and cupstock variety especially the cream wove and heat resistant cup stock manufactured by west coast has picking up demand and as well as price action which will be reflected in the bottom line.
My take is even at the present capacity with prices of paper ruling at around 56000 per toneven with imports west coast should be able to do 1800 cr revenue and 53% raw material cost and own power reduced interest out go to the tune of less than 40 cr and depreciation will be reduced to less than 80 cr and ebita with other income around 400 cr looks possible and hence the bottom line can be around 175 cr
IMHO which makes this a value buy at the present cmp, Even at 5 evebita of fy 18 the market cap can be equal to the revenue so 1800 cr market cap seems reasonable
Thank you for your views hope this will throw some light pl feel free to add more
Regards
Indira after a long time woth a good bet the degraded forest land planted with the fast growing variety is in 40000 acres not 4000 now this will start bearing fruits for west coast paper mill in saving raw material cost.
Also mr.bangur in a recent interview has told that by Fy 19 they will become debt free and some organic expansion from internal accruals can happen for capacity expansion.
Even though top line growth will be minimal the bottom line will get a good boost from interest reduction and lower deprication cost bottom line for fy 18 good be in the region of 200 cr with an operating cash above 300 cr and the roe will be above 22% and Roce also above 20% roa has improved on Yoy basis promoter recently bought shares in open market good institional holding also is there.
On historical EV ebita of 5 itself the price should be in range of 250 which gives are turn of more than 25/30%
Hope for the best.
Discl bought at present CMP
as per the local text book printers in bangalore the short fall in printing paper and price hike happened because tnpl and seshayee was not able to supply because of water issues so the whole order got diverted to west coast in second qtr so we could expect 500 cr and ebita of above 90 cr in this qtr so the yearly net profit will cross 180 cr and we could expect the price of 240 short term techincal break out seen above 192
With my very naive judging skill, I understand that company seems to be good fundamentally with strong growth prospects. The stock went up by 25% in just a week almost. Can any member shed light on the reasons for such a high jump in this stock in such a short period of time. Looking at a PE of 10 and PEG of 0.05, the stock seems very tempting but I am wondering whether it is still cheap after the jump or should I wait for it to correct. Any thoughts?
Effect of China banning waste paper import, as it will reduce price of waste paper, a key raw material for most of paper manufacturers.
Plus shortage due to shut down of BiLT (Ballarpur) as now they produce paper only on demand against advance payment. So supply less, demand more.
Plus most paper stocks trading at P/E of 8 to max 10 times current earnings and qoq earnings are expected to improve by around 8-10% for next few quarters.
In this bullish market, I am expecting a Re-Rating of all paper stocks, although cyclical, the industry p/e deserves a Re-Rating to say around 14-15.
So I am expecting some good upside from these levels.
Yes agree, shortage of waste paper alongside production cuts in China will ensure realisation improves .
Valutions at 8-10x can also look like 6-7x for few companies assuming higher realizations
Also, there has been no major capacity addition in last 3-4 years in India.
Valautions can move up to 12-15x I think
Paper is at a cyclical high and how long paper prices remain elevated is unknown. Being able to project paper prices 3 months-6 months-1 year -2 year from now is far more important than backward looking pe ratio.
Disc: invested in a different paper company.
Interesting. Based on this report, it appears the Indian paper industry is not that competitive against imports. To quote “As per IPMA, paper from ASEAN countries that is produced from raw wood is available at about USD 40 per tonne, as against USD 110 per tonne in India. Rising imports at predatory prices from surplus countries like China, has been a major concern for local players in India.”
So the surge in paper imports doesn’t sound like good news at all. On the other hand, it appears the China ban on waste paper imports is still in force, which is good for some Indian manufacturers.
This has run up strongly. JK Paper’s results and improved margins have no doubt helped. Seems like this margin growth may stay for a while given China restrictions on waste paper and high pulp prices are still the case.
I noticed that West Coast has paid almost no tax the past two years. They get something called “MAT Credit Entitlement” against their current income tax. What exactly is that? I don’t know much about it. Will that change?
