The West Coast Paper Mills Ltd

Transcription

1 Q4FY11 Result Update Enhancing investment decisions CRISIL Limited. All Rights Reserved.

2 Explanation of CRISIL Fundamental and Valuation (CFV) matrix The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP). CRISIL Fundamental Grade Assessment CRISIL Valuation Grade Assessment 5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (1-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-1% from CMP) 2/5 Moderate fundamentals 2/5 Downside (- 1-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP) Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. Additional Disclosure This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT). Disclaimer: This Exchange-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose. CRISIL Limited. All Rights Reserved.

3 High material cost and breakdown of turbine affect margins Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 5/5 (CMP has strong upside) Papers & Forest Products The West Coast Paper Mills Ltd s (West Coast s) Q4FY11 revenues were higher than CRISIL Equities expectations because of firm paper prices. However, EBITDA was disappointing due to high power costs - resulting from a break down in power turbine - and higher raw material prices. We lower our FY12 earnings estimate due to: (a) the spill over effect of the turbine break down, (b) high raw material prices, and (c) slow progress of captive plantations; however, we maintain our FY13 estimates. Considering West Coast s established market position and our stable outlook on the paper industry, we maintain a fundamental grade of 3/5. Q4FY11 result analysis West Coast s Q4 revenues increased 11% y-o-y on the back of increased production (new capacities added in Q1FY11), higher price realisation (due to increased raw material prices) and better product mix. The company s new capacity operated at ~94% due to robust demand environment. The company sold 84,229 MT paper in Q4FY11, an increase of 91% compared to 44,99 MT sold in Q4FY1. Average realisation increased by 6% y-o-y to Rs 44.8 per kg compared to Rs 42. per kg in Q4FY1 owing to a better product mix and increase in overall paper prices. EBITDA margin increased 48 bps y-o-y but declined 643 bps q-o-q to 17.8% in Q4FY11. It was lower than our expectations due to high raw material costs and higher power costs (due to the turbine break down). Adjusted PAT was Rs 226 mn compared to a loss of Rs 11 mn in Q4FY1 mainly on account of higher deferred tax provisioning during Q4FY1. EPS was Rs 3.6 per share compared to Rs (.2) in Q4FY1. Industry operating rates, realisations and EBITDA/tonne to firm up With the rise in operating rates and firm global pulp and wastepaper prices, CRISIL Research expects paper and paperboard prices to increase 5% and 13% in FY12 (y-o-y) and further by 2% and 3% in FY13 (y-o-y), respectively. While we expect rising input costs could affect margins, EBITDA/tonne is likely to increase. Accordingly, we factor in EBITDA/tonne of ~Rs 1k for FY13 compared to ~Rs 9k earned in FY11. Valuations: Current market price has strong upside We continue to use the price-to-earnings method and value West Coast at Rs 113. At the current market price of Rs 86, the stock merits a valuation grade of 5/5. KEY FORECAST (Rs mn) FY9 FY1 FY11# FY12E FY13E Operating income 6,231 6,295 1,722 13,348 14,67 EBITDA 1,254 1,163 2,42 2,73 3,314 Adj PAT ,338 Adj EPS-Rs EPS growth (%) 2.8 (41.6) 64. (1.1) 5.3 Dividend yield PE (x) P/BV (x) RoCE (%) RoE (%) EV/EBITDA (x) CMP: Current Market Price. #FY11 numbers based on abridged financials Source: Company, CRISIL Equities estimate May 26, 211 Fair Value Rs 113 CMP Rs 86 CFV MATRIX KEY STOCK STATISTICS NIFTY 5349 NSE WSTCSTPAPR Face Value (Rs per share) 2. Shares outstanding (mn) 62.7 Market cap (Rs mn)/(us$ mn) 5,412/119 Enterprise value (Rs mn)/(us$ mn) 17,429/ week range (Rs) (H/L) 112/63 Beta.93 Free float (%) 48.1% Avg daily volumes (3-days) 49,522 Avg daily value (3-days) (Rs mn) 4.5 SHAREHOLDING PATTERN 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Excellent Fundamentals Fundamental Grade PERFORMANCE VIS-À-VIS MARKET Returns 1-m 3-m 6-m 12-m West Coast -9% 11% -3% 42% NIFTY -9% 1% -8% 1% ANALYTICAL CONTACT Chetan Majithia (Head) chetanmajithia@crisil.com Suhel Kapur Suresh Guruprasad Client servicing desk Poor Fundamentals % Strong Downside Valuation Grade 42.% 41.4% 41.1% 4.9% 6.2% 6.7% 7.% 7.1%.1%.1%.1% 51.8% 51.8% 51.8% 51.9% skapur@crisil.com Strong Upside Jun-1 Sep-1 Dec-1 Mar-11 Promoter FII DII Others sguruprasad@crisil.com clientservicing@crisil.com CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 1

4 Q4FY11 Result Summary West Coast (Rs mn) Q4FY11 Q3FY11 Q4FY1 q-o-q (%) y-o-y (%) FY11 FY1 y-o-y (%) Operating income 3,441 2,958 1, ,686 6, Raw materials cost 1,471 1, ,77 2, Raw materials cost (% of net sales) 42.7% 35.7% 36.1% 78bps 667 bps 34.7% 36.4% -169bps Employees cost (1.9) Other expenses 1,212 1, ,996 2, EBITDA (14.5) ,366 1, EBITDA margin 17.8% 24.3% 17.4% -643 bps 48 bps 22.1% 18.5% 369bps Depreciation EBIT (23.2) , Interest and finance charges (9.7) Operating PBT (29.2) Other Income Extraordinary Income/(expense) n.m. n.m. - - n.m. PBT (25.7) Tax n.m. (91.9) (88.8) PAT (11) (2.8) n.m Adj PAT (11) (2.8) n.m Adj PAT margin 6.6% 9.6% -.7% -38 bps 722 bps 8.4% 8.7% -27bps No of equity shares (Mn) Adj EPS (Rs) (.2) (2.8) n.m Source: Company, CRISIL Equities For the full year, West Coast s sales volume increased 53% to ~267,994 MT, thanks to the capacity additions. FY11 sales revenue and PAT were Rs 1,686 mn and Rs 91 mn, - up ~41% and ~39% - respectively, over FY1. New capacity boosts production Paper realisations continue to be firm (' MT) % 69% % 8% 7% 6% 5% 4% 3% (Rs/Kg) % Q1FY1 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Production from Old Facility Production from New Facility Increase in total production (y-o-y) (RHS) Q4FY11 2% 1% % Q1FY Q2FY1 Q3FY Q4FY Q1FY11 Q2FY11 Q3FY11 Q4FY11 Source: Company, CRISIL Equities Source: Company, CRISIL Equities CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 2

5 Higher material and power costs affect margins Lower EBITDA results in lower PAT margins (Rs mn) (Rs mn) 4, 3,5 3, 2,5 2, 1,5 1, % 24.3% 2.8% 21.1% 19.8% 17.4% 15.6% 1,475 1,75 1,394 1,714 1,891 2,396 2,958 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec % Mar-11 3,441 3% 25% 2% 15% 1% 5% % % 13.6% 8.7% % Jun-9 Sep-9 Dec-9 Mar-1 1.% 9.6% 7.9% 6.6% Jun-1 Sep-1 Dec-1 Mar-11 16% 14% 12% 1% 8% 6% 4% 2% % -2% Revenue EBITDA margin(rhs) PAT PAT margin(rhs) Source: Company, CRISIL Equities Source: Company, CRISIL Equities Share price movement Fair value movement since initiation Apr-7 Jun-7 Aug-7 Oct-7 Dec-7 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 May-11 (Rs) Jul-1 13-Aug-1 27-Aug-1 1-Sep-1 24-Sep-1 8-Oct-1 22-Oct-1 5-Nov-1 19-Nov-1 3-Dec-1 17-Dec-1 31-Dec-1 14-Jan Jan Feb Feb Mar Mar-11 8-Apr Apr-11 6-May-11 2-May-11 (') 3, 2,5 2, 1,5 1, 5 -indexed to 1 West Coast NIFTY Total Traded Quantity CRISIL Fair Value Share Price CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 3

6 EARNINGS ESTIMATES REVISED With the rise in operating rates and firm global pulp and wastepaper prices, CRISIL Research expects domestic paper prices to exceed our earlier estimates. Considering our firm outlook on paper prices, we expect West Coast s average realisation to be ~Rs 43 per kg and ~Rs 44 per kg in FY12 and FY13, respectively, higher than our earlier estimates of ~Rs 37 per kg and ~Rs 39 per kg. However, because of the spill over effect due to the power turbine break down, high raw materials cost and the captive plantation program going slower than expected, we have lowered our earnings estimate for FY12; however, we are maintaining that for FY13. FY12E FY13E Particulars Unit Old New %change Old New %change Operating income (Rs mn) 11,731 13,348 14% 12,95 14,67 14% EBITDA (Rs mn) 2,897 2,73-7% 3,315 3,314 % EBITDA margin % bps bps Adj PAT (Rs mn) 1, % 1,352 1,338-1% Adj PAT margin % bps bps EPS Rs % % Source: CRISIL Equities estimate CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 4

7 VALUATION We value West Coast based on the price-to-earnings ratio (PER) method. We continue to assign a PER of 5x to our FY13 EPS of ~Rs 22 to arrive at a fair value of Rs 18 per share. Also, West Coast holds a 36.3% stake in Rama Newsprint. Based on Rama Newsprint s current market price of Rs 15 and a holding company discount of 25%, it translates to Rs 5 per West Coast s outstanding share. Therefore, our fair value estimate for West Coast is Rs 113 per share. One-year forward P/E band (Rs) One-year forward EV/EBITDA band (Rs mn) 3, 25, 2, 15, 1, 5, May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 West Coast 3x 5x 7x EV 5x 7x 9x P/E premium/discount to NIFTY -5% -55% P/E movement (x) 8-6% -65% -7% std dev -75% 4-1 std dev -8% 3-85% 2 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 Premium/Discount to NIFTY Median 1yr Fwd PE Median PE CRISIL IER reports released on The West Coast Paper Mills Ltd Date Nature of report Fundamental grade Fair value Valuation grade CMP (on the date of report) 3-July-1 Initiating coverage* 3/5 Rs 97 3/5 Rs 9 22-Nov-1 Q2FY11 result update 3/5 Rs 17 4/5 Rs 9 24-Feb-11 Q3FY11 result update 3/5 Rs 113 5/5 Rs May-11 Q4FY11 result update 3/5 Rs 113 5/5 Rs 86 * For detailed initiating coverage report please visit: CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters. CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 5

8 FINANCIALS Income statement Balance Sheet (Rs mn) FY9 FY1 FY11# FY12E FY13E (Rs mn) FY9 FY1 FY11# FY12E FY13E Operating income 6,231 6,295 1,722 13,348 14,67 Liabilities EBITDA 1,254 1,163 2,42 2,73 3,314 Equity share capital EBITDA margin 2.1% 18.5% 22.4% 2.3% 22.6% Reserves 4,97 5,238 5,929 6,526 7,571 Depreciation Minorities EBIT 1, ,441 1,84 2,4 Net worth 5,28 5,363 6,55 6,652 7,697 Interest Convertible debt Operating PBT ,299 1,963 Other debt 12,387 12,997 12,775 11,75 9,475 Other income Total debt 12,387 12,997 12,775 11,75 9,475 Exceptional inc/(exp) (2) Deferred tax liability (net) ,179 PBT 1, ,327 1,994 Total liabilities 17,814 19,25 19,515 18,69 18,35 Tax provision Assets Minority interest Net fixed assets 2,68 8,56 15,284 14,684 14,7 PAT (reported) ,338 Capital WIP 11,2 7, Less: Exceptionals (2) Total fixed assets 13,269 15,525 15,284 14,684 14,7 Adjusted PAT ,338 Investments Current assets Ratios Inventory 1,437 1,791 2,1 2,56 2,813 FY9 FY1 FY11# FY12E FY13E Sundry debtors Growth Loans and advances 1,433 1,833 2,275 2,475 2,675 Operating income (%) Cash & bank balance 2,844 1, EBITDA (%) 8.8 (7.2) Marketable securities Adj PAT (%) 8.2 (39.3) 64. (1.1) 5.3 Total current assets 6,148 5,132 5,774 6,287 6,831 Adj EPS (%) 2.8 (41.6) 64. (1.1) 5.3 Total current liabilities 2,62 2,99 2,1 2,829 3,18 Net current assets 4,85 3,33 3,764 3,458 3,813 Profitability Intangibles/misc. expenditure EBITDA margin (%) Total assets 17,814 19,25 19,515 18,69 18,35 Adj PAT Margin (%) RoE (%) Cash flow RoCE (%) (Rs mn) FY9 FY1 FY11# FY12E FY13E RoIC (%) Pre-tax profit 1, ,327 1,994 Total tax paid (115) (3) (9) (239) (359) Valuations Depreciation Price-earnings (x) Working capital changes (47) (626) (1,139) 74 (336) Price-book (x) Net cash from operations ,62 2,212 EV/EBITDA (x) Cash from investments EV/Sales (x) Capital expenditure (8,167) (2,494) (72) (3) (3) Dividend payout ratio (%) Investments and others 9 (7) Dividend yield (%) Net cash from investments (8,77) (2,51) (72) (3) (3) Cash from financing B/S ratios Equity raised/(repaid) Inventory days Debt raised/(repaid) 8, (223) (1,7) (1,6) Creditors days Dividend (incl. tax) (147) (211) (29) (294) (294) Debtor days Others (incl extraordinaries) 115 (117) Working capital days Net cash from financing 8, (432) (1,994) (1,894) Gross asset turnover (x) Change in cash position 981 (1,678) (48) (232) 19 Net asset turnover (x) Closing cash 2,844 1, Sales/operating assets (x) Current ratio (x) Quarterly financials Debt-equity (x) (Rs mn) Q4FY1 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Net debt/equity (x) Net sales 1,714 1,891 2,396 2,958 3,441 Interest coverage Change (q-o-q) 23% 1% 27% 23% 16% EBITDA Per share Change (q-o-q) 36% 34% 59% 13% -14% FY9 FY1 FY11# FY12E FY13E EBITDA margin 17.4% 21.1% 26.5% 24.3% 17.8% Adj EPS (Rs) PAT (11) CEPS Adj PAT (11) Book value Change (q-o-q) -11% n.m. 6% 19% -21% Dividend (Rs) Adj PAT margin -.7% 7.9% 1.% 9.6% 6.6% Actual o/s shares (mn) Adj EPS (.2) #FY11 numbers based on the abridged financials Source: Company, CRISIL Equities estimate CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 6

9 CRISIL Independent Equity Research Team Mukesh Agarwal Senior Director +91 (22) Tarun Bhatia Director, Capital Markets +91 (22) Chetan Majithia Head, Equities +91 (22) Sudhir Nair Head, Equities +91 (22) Prasad Koparkar Head, Research +91 (22) Ajay D'Souza Head, Research +91 (22) Aparna Joshi Head, Research +91 (22) Manoj Mohta Head, Research +91 (22) Sridhar C Head, Research +91 (22) sridharc@crisil.com CRISIL s Equity Offerings The Equity Group at CRISIL Research provides a wide range of services including: Independent Equity Research IPO Grading White Labelled Research Valuation on companies for use of Institutional Investors, Asset Managers, Corporate Other Services by the Research group include CRISINFAC Industry research on over 6 industries and Economic Analysis Customised Research on Market sizing, Demand modelling and Entry strategies Customised research content for Information Memorandum and Offer documents CRISIL Limited. All Rights Reserved.

10 About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations. About CRISIL Research CRISIL Research is the country s largest independent and integrated research house with strong domain expertise on Indian economy, industries and capital markets. We leverage our unique research platform and capabilities to deliver superior perspectives and insights to over 12 domestic and global clients, through a range of research reports, analytical tools, subscription products and customised solutions. To know more about CRISIL IER, please contact our team members: Vinaya Dongre Head, Business Development vdongre@crisil.com I Phone : Ashish Sethi Head, Business Development asethi@crisil.com I Phone : Sagar Sawarkar Senior Manager, Business Development ssawarkar@crisil.com I Phone : Regional Contacts: Ahmedabad / Mumbai / Pune Vishal Shah - Manager, Business Development vishah@crisil.com I Phone : Bengaluru / Chennai Anand Krishnamoorthy - Manager, Business Development ankrishnamoorthy@crisil.com I Phone : Hyderabad Kaliprasad Ponnuru - Manager, Business Development kponnuru@crisil.com I Phone : Kolkata / Delhi Priyanka Agarwal - Manager, Business Development priyagarwal@crisil.com I Phone : Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai Phone : CRISIL Limited. All Rights Reserved. Web: Download reports from: