West Coast Paper Mills Ltd

West Coast Paper Mills manufacturers writing, printing, wrapping and packing papers. West Coast paper division currently has an installed capacity of 1,63,750 MTPA. FY2006-07 the production at their capacities were running over 100%. West Coast also has a telecom cable manufacturing plant which produces armoured and aerial typed of Optical fiber cables and JFTC cables used in telecommunication network. Currently paper constitutes 96% of the revenue and the remaining by the cable division.

West Coast Paper Mills currently enjoys 7% market share in the domestic paper market. The telecom division of West Coast enjoys 4% market share. Some of the major clients for the cabling division includes BSNL, Reliance, VSNL, CATV among others.

The company currently exports 7 to 8% of its paper products to around 25 countries mainly to middle eastern and african countries. The export order book for the cabling division stands at Rs. 5 crores for FY08.

Positives

1) West Coast is investing around Rs. 1,100 crores in Expansion whereby it is increasing its pulp and paper capacity from 1,63,750 MTPA to 3,20,000 MTPA. The benefits of this project is expected to be realized in FY2009-10.

2) Over a period of 5 years, the company contrives to have 18,000 acres under management for its raw material supply. These initiatives are expected to meet about 25% of its raw material requirement.

3) West coast is leader in production of MICR/Non-MICR cheque paper and Ledger Paper.

4) Step down of excise on paper and its products in the 2008-09 budget.

Negatives

1) High debt leverage for the ongoing expansion program to impact the bottomline due to high interest cost.

2) Paper consumption is directly tied to the GDP growth. Any deterioration in GDP growth can dent the performance of the company.

3) Any further increase in raw material prices which the company is not able to pass on to the end customer. This can happen due to the inflation control program launched by the government.

At the current market price of Rs. 65/- the stock trades at around 4 times it's FY08E EPS of 16. Investor with medium risk profile can consider investment into this stock with a horizon of 18 months and a target of Rs. 118/-. With the government primary thrust to education and the booming textiles and manufacturing exports the demand for paper products is expected to remain strong. With rising raw material prices we expect the topline of the company to be flat until the expected capacity expansion is in place. At the same time with the operation efficiency initiatives taken by west coast we expect the Operating margins to remain robust and deliver a bottomline growth of 20% y-o-y.