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West Coast Paper Mills is a stock that the market ignored for years but now its valuation and business structure are in the news again. The company’s stock is currently trading below its book value, which makes it interesting for value investors. The company has a strong hold in the old paper business and is also making its place in the rapidly growing optical fiber cable sector. Because of this, it is a rare combination in which both the stability of the old sector and the growth of the new sector are found.
1. Trading Below Book Value: West Coast Paper is currently trading well below its book value as its book value is reported to be around ₹535 per share while the current price is less than this and its P/B ratio sits around 0.68 to 0.83, which shows that investors are not yet factoring in the full value of the company’s net asset value in the share price.
2. What it means: When a stock trades below its book value, it may indicate that it is undervalued, meaning the market has not fully recognized the company’s systemic strength and asset value.
3. Strengths of the company: The company has a paper production capacity of about 320000 metric tonnes per annum and operates almost at full capacity. Being fully integrated protects the company from global price fluctuations, which keeps margins strong. West Coast Paper has 255000 MT pulp capacity and 74.8 MW captive power. This means the company does not have to purchase expensive pulp and electricity from the market and hence has better control over its costs.
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4. Second Engine Optical Fiber Cable: After paper, the company is now growing rapidly in the optical fiber cable business also. This division now contributes about 10 percent of the total revenue and has shown a growth of more than 30 percent year on year.
5. Telecom and data center demand: The optical fiber cable division supplies to India’s telecom companies, network integration players and the utility sector. Apart from this, the increasing needs of data centers gives new growth opportunities to the company.
6. Very low debt burden: The debt to equity ratio of the company is around 0.13 which is considered a very comfortable level. Due to such low debt, the balance sheet does not come under pressure even in downcycle and interest expenses remain low.
7. Strong EBITDA and cashflow: West Coast Paper reported EBITDA of about Rs 493 crore last year. Strong cashflow leaves the company well positioned for new capex and upgrades that could further boost future earnings.
8. Acquisition of Andhra Paper: The company has acquired Andhra Paper which has a capacity of 250000 MT of paper and 200000 MT of virgin pulp. This has strengthened sourcing at the group level and further stabilized the company’s position in the industry.
9. Strong presence in the export market: West Coast Paper exports to more than 20 countries, which reduces the impact of domestic price fluctuations. When prices improve in the international market, the company gets the first benefit.
10. Benefit of anti-dumping investigation: DGTR starting anti-dumping investigation on cheap paperboard coming from Indonesia is positive for domestic companies. This may put a stop to cheap imported supplies and provide support to the prices of domestic mills. (Disclaimer: The stocks mentioned here are only for informational purposes. If you want to invest money in any of these, then consult the date first. StuffUnknownwill not be responsible for any profit or loss of yours.)
