INDUSTRY Paper & Paper Products No. of Shares (Crore) 6.6 Face value (Rs) 2 Mkt. Cap (Rs. Crore) 1370.85 Price (24/11/2017) 207.55 Book Value (Rs) 109.17 P/BV 1.90 BSE Code 500444 NSE Code WSTCSTPAPR Bloomberg WCPM IN Reuters WSTC.BO Avg. Monthly Volume 15829.05 52 W H/L (Rs) 222.80 / 124.20 Further to our Research report dated December 8th 2016, wherein we had recommended a BUY at the then price of Rs. 134.65, the share price had reached its all time high to Rs. 222.80 increased by ~66% after the second quarter results for the FY18. The company has been steadily moving towards new highs with strong financial outlook. Huge demand is expected for paper in next few years and WCPM s initiatives towards use of modern technology and producing different grades of papers will see a rerating for the stock in the near future. At the current market price of Rs. 207.55 per share, further BUY is recommended with a medium to long term view. Recommendation BUY Particulars (Rs. Crs) Q2FY18 Q2FY17 Var % H1FY18 H1FY17 Var % FY16 FY17 Net Sales 421.53 471.52-10.6 831.77 851.88-2.36 1700.04 1769.34 PBIDT (Excl OI) 83.35 79.72 4.55 166.03 152.42 8.93 249.53 338.06 Profit After Tax 47.79 25.44 87.85 101.5 40.37 151.42-0.47 128.5 PBIDTM (%) 19.77 16.91 16.95 19.96 17.89 11.56 14.68 19.11 PATM (%) 11.34 5.40 110.13 12.20 4.74 157.50-0.03 7.26 EPS (Rs.) 7.23 3.85 87.79 15.37 6.11 151.55-0.07 19.46 Numbers are Standalone Company Background (WCPM) is one of the oldest and among the top five paper manufacturers in India. WCPM, incorporated in 1955 is the flagship company of S.K. Bangur group. WCPM mainly operates in two business segments, Paper products and Telecommunication Cables. The Company is engaged in manufacturing paper, paperboard and coated duplex board and operates six versatile machines with an installed capacity of 3,20,000 ton per annum at Dandeli. It also manufactures optical fiber cables with an installed capacity of 83,500 Km at Mysore. It has set up 6 Wind Mills totaling to 1.75MW capacity in Tamilnadu for power generation. WCPM has derived 96% of its revenue from Paper/ Paperboard and Duplex Board business and 4% from Cable business in FY16-17. Investment Rationale India is the fastest growing paper market in the world with CAGR of 6 to 6.5% in next 5 years mainly due to India s projected GDP growth, the renewed thrust on universal education through Sarva Shiksha Abhiyan & Right to Education, rise in organized retail and urbanization. Thus, paper demand is expected to rise from 16 million TPA to about 20 million TPA by 2024-25 in our country with the per capita consumption of around 13 Kg to 17 kg. For the period of FY12-16, its topline and bottomline grew at a CAGR of ~5% and ~63% respectively. In Q2FY18 WCPM s standalone net sales declined by ~11% to Rs. 421.53 crore, EBIDT increased by ~5% to Rs. 83.35 crore and PAT increased significantly by ~88% to Rs. 47.79 crore from Rs. 25.44 crore as compared to the same quarter previous year. This is mainly due to increase in production and sales of Paper and Paperboard coupled with decrease in input cost of mainly Wood/Chips. From the last several years, the company has been able to reduce its Debt, which is clearly reflected in its Debt/Equity ratio. As on March 31, 2017, its Debt/Equity ratio stood at 0.79x. Total debt of the company reduced from Rs. 1,080.63 crore in FY13 to Rs. 499.86 crore in FY17. In order to ensure long term availability of raw material, WCPM has focused on captive plantations projects and social forestry where it has cultivated 49,425 acres of land within a radius of 200-250 Km from Dandeli, as to enhance the availability of pulpwood. Availability of raw material has always been a matter of concern for the paper industry. WCPM imported 4.42 lakhs MT wood chips during FY17 majorly from South Africa and it enjoys an edge over other mills due to proximity to Goa s port, which is just 150 km away from the plant located at Dandeli and is also well connected through railway line. WCPM studies various alternate raw materials in order to cope with the ever increasing demand for paper. The Elemental Chlorine Free (ECF) Bleached surface sized paper is manufactured through online process monitoring with environmentally benign and quality control systems to meet the international standards with the help of technology infusion. In Q2FY18, WCPM has undertaken restoration of boiler and rebuilding of one of its machine which is near to completion. This will help the Company in smooth, efficient and productive output and stand in better situation in the competitive industry. Recommendation - WCPM is continuously focusing on improving operating efficiencies, minimizing cost and optimum capacity utilisation along with good demand outlook. WCPM is currently manufacturing close to full capacity and operating margins have improved to 19.96% in H1FY18. There is no default in its repayment of loans and interest. It further plans to become debt free in next two years and expects 5% hike in paper products. Moreover its expansion plan in OFC segment will improve numbers in future. At the CMP of Rs. 207, the stock trades at 6 times FY19 EPS. Hence, we recommend a BUY on the stock with a Price Target of Rs. 276 with an upside potential of ~33% from the current level with an investment horizon of 9-12 months. 1
Revenue, EBIDTA and PAT Yearly Trend Debt/Equity, Interest Coverage, Current Ratio & Debt/MCap Shareholding Pattern 2
Financials Standalone Quarterly (Value in Rs. Crs) Q2FY18 Q2FY17 Var % H1FY18 H1FY17 Var% Net Sales 421.53 471.52-10.60 831.77 851.88-2.36 Total Expenditure 338.18 391.8-13.69 665.74 702.50-5.23 PBIDT (Excl OI) 83.35 79.72 4.55 166.03 152.42 8.93 Other Income 0.75 0.1 650.00 3.84 0.61 529.51 Operating Profit 84.11 79.81 5.39 169.88 153.03 11.01 Interest 11.61 13.04-10.97 19.59 32.06-38.90 PBDT 72.5 66.77 8.58 150.28 120.97 24.23 Depreciation 28.01 27.4 2.23 54.21 54.49-0.51 Tax -3.3 13.93-123.69-5.43 26.11-120.80 Profit After Tax 47.79 25.44 87.85 101.50 40.37 151.42 EPS (Rs.) 7.23 3.85 87.79 15.37 6.11 151.55 Standalone Income Statement (Value in Rs. Crs) FY13 FY14 FY15 FY16 FY17 Net Sales 1454.62 1562.32 1648.37 1700.04 1769.34 Total Expenditure 1186.02 1354.65 1402.65 1450.51 1431.28 PBIDT (Excl OI) 268.60 207.67 245.72 249.53 338.06 Other Income 4.81 6.70 2.66 7.67 2.37 Operating Profit 273.41 214.37 248.38 257.20 340.43 Interest 72.57 73.23 69.85 75.81 51.57 PBDT 200.84 141.14 178.53 181.39 288.86 Depreciation 136.35 127.19 122.20 114.36 110.98 Tax 6.43 7.32 3.62 14.26 49.38 Profit After Tax 18.11 6.63 1.12-0.47 128.50 EPS (Rs.) 2.74 1.00 0.17-0.07 19.46 3
Standalone Balance Sheet (Value in Rs. Crs) Description FY13 FY14 FY15 FY16 FY17 EQUITY AND LIABILITIES Share Capital 13.21 13.21 13.21 13.21 13.21 Share Warrants & Outstandings 0.00 0.00 0.00 2.78 2.78 Total Reserves 584.55 583.45 584.56 500.59 623.17 Shareholder's Funds 597.76 596.66 597.77 516.57 639.15 Minority Interest - - - - - Long-Term Borrowings Secured Loans 412.20 399.24 219.11 265.80 152.09 Unsecured Loans 180.24 186.48 176.96 153.33 141.64 Deferred Tax Assets / Liabilities 61.52 68.71 72.33 85.68 135.05 Other Long Term Liabilities 31.08 29.64 29.12 85.99 92.88 Long Term Trade Payables 0.00 0.00 0.00 0.00 0.00 Long Term Provisions 3.53 3.94 4.24 4.10 5.85 Total Non-Current Liabilities 688.57 688.00 501.75 594.89 527.51 Current Liabilities Trade Payables 105.90 258.19 249.45 199.34 147.99 Other Current Liabilities 255.77 268.45 273.53 146.22 168.20 Short Term Borrowings 299.29 273.51 301.28 221.12 83.65 Short Term Provisions 10.28 9.65 1.48 52.54 42.90 Total Current Liabilities 671.24 809.80 825.74 619.22 442.74 Total Liabilities 1957.57 2094.46 1925.26 1730.68 1609.40 ASSETS Non-Current Assets Gross Block 2013.32 2051.40 2077.04 2181.83 2181.91 Less: Accumulated Depreciation 695.65 808.66 930.35 1057.75 1157.66 Net Block 1317.67 1242.74 1146.69 1124.09 1024.25 Capital Work in Progress 2.64 4.92 2.30 3.35 6.01 Non Current Investments 46.71 46.71 46.71 0.83 0.83 Long Term Loans & Advances 52.08 111.12 65.21 63.39 85.43 Other Non Current Assets 0.00 0.00 0.00 0.00 0.00 Total Non-Current Assets 1419.11 1405.50 1260.91 1191.65 1116.52 Current Assets Loans & Advances Currents Investments 0.00 0.00 0.00 1.51 1.51 Inventories 300.70 487.94 483.25 375.05 282.67 Sundry Debtors 82.36 100.92 124.99 118.04 128.31 Cash and Bank 5.78 9.13 13.13 12.62 23.28 Other Current Assets 0.00 0.00 1.60 3.44 6.00 Short Term Loans and Advances 149.62 90.97 41.39 28.37 51.11 Total Current Assets 538.46 688.96 664.35 539.02 492.88 Net Current Assets (Including Current Investments) -132.78-120.84-161.39-80.20 50.14 Total Current Assets Excluding Current Investments 538.46 688.96 664.35 537.51 491.37 Total Assets 1957.57 2094.46 1925.26 1730.68 1609.40 4
Aum Capital RESEARCH DESK Rajesh Agarwal Head of Research 033 30588405 rajesh.agarwal@aumcap.com Shreyansh N. Mehta Manager Research 033 30588420 shreyansh.mehta@aumcap.com Nabamita Pyne Manager Research nabamita@aumcap.com Disclosure & Disclaimer This document is solely for the personal information of the recipient and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved) and should consult their own advisors to determine the merits and risks of such an investment. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. AUM Capital Market Private Limited (hereinafter referred to as AUM Cap ) or any of its affiliates/group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. AUM Cap has not independently verified all the information contained within this document. Accordingly, we cannot testify nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While, AUM Cap endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory compliance or other reasons that prevent us from doing so. This document is being supplied to you solely for your information and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Neither, AUM Cap nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. AUM Cap is registered under SEBI (Research Analysts) Regulations, 2014. Further, AUM Cap hereby declares that AUM Cap/its associates/research analysts do not have any financial interest/beneficial interest of more than one percent/material conflict of interest in the subject company. AUM Cap/its associates/research analysts have not received any compensation from the subject company(s) during the past twelve months. AUM Cap/its research analysts has not served as an officer, director or employee of company covered by analysts and has not been engaged in market making activity of the company covered by analysts. AUM Capital Market Private Limited Registered Office: 5, Lower Rawdon Street, Akashdeep building 1st Floor, Kolkata 700020; Phone: +91(33) 24861040/43; Fax: +91(33) 24760191 Website: www.aumcap.com; Email: aumresearch@aumcap.com 5