West Coast Paper Mills hits new high; stock zooms 117% in one year

Shares of West Coast Paper Mills have hit a new high of Rs 415, rallied 117% in past one year and 301% in two years, as compared to 4% and 27%, respectively, rise in the S&P BSE Sensex.

Shares of West Coast Paper Mills have hit a new high of Rs 415 per share, up 4% from its previous close, surging 36% from their recent low of Rs 306 per share touched on October 8, on the BSE on the expectations of a strong set of quarterly results.

In past one year, the stock has outperformed the market, zooming 117% from Rs 191, as compared to a 4.2% rise in the S&P BSE Sensex. In the past two years, it appreciated 301% against 27% gain in the benchmark index.

West Coast Paper Mills yet to declare the date for July-September quarter results (Q2FY19). It had posted a healthy 56% year-on-year (Y-o-Y) growth in its standalone net profit at Rs 840 million in the April-June quarter (Q1FY19). For the entire previous financial year 2017-18 (FY18), West Coast Paper Mills had posted 73% YoY a jump in profit at Rs 2,232 million against Rs 1,285 million in FY17.

The company’s EBITDA (earnings before interest, taxation, depreciation and ammortisation) margin improved to 21.6% in FY18 (FY17: 19.1%, FY16: 14.7%) and further to 25.9% in Q1FY19, which is currently the highest in the industry, driven by improving realisations, reducing raw material costs and improving operating efficiencies.

The rating agency India Ratings and Research (Ind-Ra) believes the outlook for the domestic paper industry continues to be favourable with a healthy demand growth and a limited incremental supply likely to keep realisations strong and industry’s pricing power intact.

Paper demand, driven by growing consumerism and e-commerce, ban on plastic usage in several states, rising literacy and continued government spending on education is likely to outpace the planned supply additions during the next couple of years. Improved wood availability and limited incremental demand is likely to prevent any major increase in price that cannot be passed on.

Moreover, China’s move to ban import of several varieties of waste paper in 2017 led to a surge in the global pulp prices and reduced cost advantage of companies exporting paper to India, preventing them from setting a cap on paper prices. Increasing wood pulp demand coupled with limited capacity additions and reducing paper supply due to stricter emission norms in China will continue to support global pulp and paper prices and keep imports under check. Additionally, increasing environmental concerns with regard to the use of plastics across the world augur well for paper demand, it added.