February , 2021
Stock scan - West Coast
18:20 pm

Rajesh Agarwal

Company Background

West Coast Paper Mills Ltd (WCPL), 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. WCPL operates in two business segments; Paper/Paperboard (including Duplex Board) at Dandeli and Telecommunication Cables at Mysore. The company also has Wind Mills of 1.75MW capacity in Tamilnadu for power generation. WCPL has a share of 10% in the domestic uncoated paper market. WCPL has derived 95.39% of its revenue from Paper/ Paperboard and Cup stock Board business and 4.60% from Cable business in H1FY21.

 Investment Rationale

In line with WCPL strategic growth plan, the company acquired 55% stake in IPAPPM (International Paper Andhra Pradesh Paper Mills Ltd) from its promoters- International Paper Investments (Luxembourg) S.a.r.l. and IP International Holdings Inc and ~17.20% from public respectively. Andhra Paper Limited (erstwhile IPAPPML) has now become subsidiary of WCPML. The name of IPAPPM has been changed to Andhra Paper Ltd. w.e.f 9.01.2020, which has a total production capacity of 240,000 TPA.

The Indian Paper Industry has a turnover of approx. Rs.70000 crores and employs around 2 million people directly and indirectly. The per-capita consumption of paper in India stands at 13/Kg which is expected to touch about 17 kg by 2024-25.

For the period of FY18-20, WCPML topline and bottom-line grew at a CAGR of ~20.73% and ~28.83% respectively. The margins improved to 26.87% in FY20 on account of fall in raw material prices. ROE for the company stood at 24.72% in FY20 versus the industry ROE of 17.31% during the same period.

In order to create adequate supply of raw-material, WCPL has focused on captive plantations projects and social forestry where it has cultivated 45000 acres land within a radius of 250-300 km.

India is the fastest growing paper market in the world with CAGR of 6-7% in next 2-3 years due to ban on single use plastics, renewed thrust on universal education through Sarva Shiksha Abhiyan, demand for packaging paper & board, rise in organized retail, increasing growth in FMCG, pharmaceutical and processed food industries. 

WCPML has fully integrated paper and pulp facility and therefore the company has reduced the imports of costlier wooden chips which have significantly brought down the raw material cost and would enhance its margins going forward.

With optimum capacity utilization, good demand outlook and progressive shift to environmental friendly and value added products the company is expected to sustain its growth prospectus. The industry is undergoing structural changes due to the new digitized economy. But it has found new markets like paper bags, packaging, paper napkins/tissues where the demand and price is firm. WCPML is expecting 20-25% growth in its Cable Division and is planning to manufacture optical fiber on its own. At the CMP of Rs. 185.40, the stock trades at 3 times its FY22 earnings. Hence we recommend a BUY on the stock with a price target of Rs.240 with an investment horizon of 12-18 months.

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