ICRA upgrades LT ratings of West Coast Paper Mills; maintains 'stable' outlook

West Coast Paper Mills said that the credit rating agency ICRA has upgraded the company's long-term rating upgraded to "[ICRA] AA (Stable)" from "[ICRA] AA- (Stable)".

The agency has reaffirmed the company's short-term rating at "[ICRA] A1+.

ICRA said that the rating action considers the healthy improvement in the financial profile of West Coast Paper Mills (WCPL) in the last one year and expectation that the performance trend is expected to continue over the medium term.

The ratings remain supported by the strong market position of WCPL and its subsidiary, Andhra Paper (APL), in the domestic writing and printing paper (PWP) industry.

ICRA also notes its strong technical capabilities in manufacturing a variety of wood free paper, cupstocks, special grade papers, etc, and its integrated nature of operations with adequate in-house capacity to manufacture virgin pulp, along with their captive power plants.

The ratings, however, remain constrained by the inherent cyclicality in the domestic paper industry, with earnings and return indicators moderating during periods of downturns and improving thereafter (as witnessed in past).

The margins also remain vulnerable to the fluctuation in raw material and fuel prices. Also, with imports accounting for a certain portion of domestic demand, domestic prices are largely determined by global trends in paper prices.

While the long-term demand environment remains favourable as a result of lower per-capita domestic paper consumption (compared to global standards), rising digitisation remains a key headwind.

The 'stable' outlook factors in the strong market position of the company in the domestic paper industry along with steady demand for its product portfolio along with strong liquidity levels.

West Coast Paper Mills is the flagship entity of the SK Bangur Group. The company manufactures writing and printing papers, among other products, from its 3.2-lakh MTPA paper manufacturing plant at Dandeli, Karnataka. The company is backward integrated with a 2.64-lakh MTPA, in-house, pulp production capacity and 75- MW captive power generation capacity. WCPL sells its products across India through its dealership network.

In H1 FY2023, WCPL reported a consolidated net profit of Rs. 455.1 crore on an operating income of Rs. 2,327.0 crore over a net profit of Rs. 116.9 crore on an operating income of Rs. 1,441.0 crore in H1 FY2022.

The scrip rose 0.34% to currently trade at Rs 634.25 on the BSE.

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