Operator: Good afternoon, ladies and gentlemen. Welcome to Kuantum Papers Q2 FY 2027 Earnings Conference Call. I now hand the conference over to Mr. Naveen Agarwal, Head Institutional Equities from SKP Securities Limited. Thank you, and over to you, sir.
Naveen Agarwal: Good afternoon, ladies and gentlemen. It is my pleasure to welcome you on behalf of Kuantum Papers and SKP Securities to this financial results conference call. We have with us Mr. Pavan Khaitan, Vice Chairman and Managing Director, Mr. Jagdeep Hira, Whole-Time Director and CEO Operations, Mr. Vikram Kumar Khaitan, Chief Financial Officer, and Ms. Prachi Sharma, Chief Strategy Officer. We will have the opening remarks from the management followed by a Q&A session. Thank you, and over to you, Pavan Ji.
Pavan Khaitan: Thank you, Naveen. Good afternoon, everyone. It is a pleasure to welcome you all to our earnings conference call for the second quarter and first half of the financial year 2027. I would like to thank all participants for joining us today. This quarter is traditionally the lean season for the paper industry, which was further impacted by a surge in cost of inputs. While domestic wood prices have softened due to improved availability, higher costs of agricultural materials and fuel costs, along with the impact of the West Asia war on chemical costs, continue to exert pressure on margins, reinforcing the importance of operational efficiency and cost optimization by the industry.
Pavan Khaitan: Moving to Kuantum's operational highlights, we achieved a key milestone in our ongoing modernization program with the successful commissioning of PM3 on 28 August 2026, completing the rebuild in a record 59 days against the planned shutdown period of 65 days. The upgraded machine incorporates advanced technologies, including a film press, high table, TableVision, web break monitoring, a state-of-the-art calendering system, and an automatic starch cooking module. These enhancements are aimed at improving production efficiency, strengthening process control, and delivering superior paper quality, further reinforcing our manufacturing capabilities and product competitiveness. We are proud to share that with this commissioning, all four paper machines have now been successfully upgraded and modernized in line with our mill upgradation plan. The plant also made meaningful progress in the fine-tuning and optimization of the Double Displacement Digester System for wood pulping.
Pavan Khaitan: The system has improved wood pulp yield by 1%, while we have seen a reduction in steam consumption from 1.8 metric tons to 0.8 metric tons per ton of pulp. These improvements have enhanced raw material utilization and reduced energy consumption, strengthening our cost efficiency and overall manufacturing performance. At the plant level, we achieved our highest ever monthly copier paper production of 4,482 metric tons in August of 2026, reflecting our ability to cater to market demand for high-quality A4 paper. During the quarter, we also undertook a major overhaul of our 20-megawatt turbine generator and 130-ton-per-hour boiler, with the objective of enhancing equipment efficiency, reducing energy consumption, and ensuring reliable, sustainable plant operations.
Pavan Khaitan: Additionally, under our total cost management initiative, we implemented a single-vendor chemical solution across both agro pulp mill and hardwood pulp mill, delivering cost savings and further strengthening our focus on operational efficiency and cost optimization. On the product development front, our research and development team completed the development protocol for PFAS-free 40 GSM oil and grease-resistant paper for food wrapping purposes, and this paper has been commercially launched in the market in Q3. This strengthens our specialty paper product portfolio and supports our focus on developing value-added products for the evolving customer requirements. Sustainability continues to be an integral part of our long-term strategy. During the quarter, we achieved our highest ever clonal saplings production of 17.93 lakh saplings. We also added about 2,300 acres under our Social Farm Forestry Program during this quarter, taking our total plantation coverage to over 22,000 acres.
Pavan Khaitan: These initiatives reinforce our commitment to developing sustainable sources of raw materials and responsible resource management. Going forward, our focus remains on maximizing the benefits of our upgraded manufacturing infrastructure, driving cost efficiencies, and expanding our value-added specialty paper portfolio to support sustainable, profitable growth. With that, I would now like our CFO, Vikram Khetan, to take you through the financial performance for the period under review. Over to you.
Vikram Kumar Khaitan: Thank you, sir, and good afternoon, everyone. Let me now take you through the financial performance for Q2 of financial year 2027. For Q2 of financial year 2027, operational income stood at INR 279 crores, declining 8% quarter-on-quarter. This was primarily due to plant shutdown of one of our paper machine lines for upgradation and modernization, which impacted both production and sales volume. EBITDA stood at INR 35 crores, with EBITDA margins moderating by 84 basis points to 12.4%. This was primarily due to lower net selling realization during the seasonally lean demand period, coupled with higher raw material and fuel costs amid the ongoing West Asia conflict. Profit after tax for the quarter stood at INR 2 crore, with PAT margins at 0.8%.
Vikram Kumar Khaitan: Now, coming to the performance for H1 of financial year 2027, operational income grew by 16% year-on-year to INR 583 crores. EBITDA stood at INR 75 crores, broadly in line with the previous year. However, higher depreciation and finance costs impacted profitability, with profit after tax for the period stood at INR 9 crores, with PAT margins at 1.5%. Going forward, our focus remains on improving operational efficiencies, optimizing costs, and strengthening profitability through operational improvements. With this, we can now begin the question and answer session. Thank you.
Operator: Thank you very much. We will now begin the question and answer session. Each participant is requested to limit himself or herself to a maximum of two questions. Time permitting, we shall revert for any further questions that you may have that remain unanswered. Anyone who wishes to ask a question, they press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Saania Jain from CARE PMS. Please go ahead.
Saania Jain: Hi, thank you for the opportunity. Just one question on the side of cost. Could you quantify the amount by which the cost has increased, specifically because of the West Asia war?
Pavan Khaitan: Well, they have impacted cost of chemicals, particularly sulfuric acid, for which the resources come from West Asia. I think the impact is close to about 2% on sales if you take the entire chemical composition for the operation.
Saania Jain: That is on quarterly basis or monthly basis?
Pavan Khaitan: Quarterly.
Saania Jain: Okay. Because of that, the fuel cost would have also increased, so that would have increased our costs of manufacturing, of bringing in the raw materials. Does this 2% incorporate that as well?
Jagdeep Hira: Yeah. The fuel cost primarily has been on the increasing trend, and the impact is going to be around 3% to 3.5%.
Saania Jain: Okay. What would have been the relief that we would have got from the wood cost decreasing?
Jagdeep Hira: Overall, if we see on the contribution level and on the financial terms, overall, both agro and wood, we have been able to reduce overall cost and consumption by around 15% to 17%.
Saania Jain: 15% to 17%?
Jagdeep Hira: Yeah, of the raw material consumed, vis-a-vis Q1.
Saania Jain: Okay. Could you quantify that number?
Jagdeep Hira: The absolute number?
Saania Jain: Yeah, absolute number.
Jagdeep Hira: I'm sorry,
Pavan Khaitan: I'm sorry, absolute numbers we won't be able to exhibit right now. This is more of a trend line that we are suggesting for the moment.
Saania Jain: Okay, got it. How is the demand scenario looking like? Because as you mentioned, Q2 was a lean quarter. Given Q3 would be a better quarter, do we think we will be able to pass on any further price increases?
Pavan Khaitan: Yes. Q3 certainly is looking upbeat. There are tailwinds suggesting that there would be a price improvement. However, looking to the Q2 performance, even despite passing through a lean period, we were still able to sell whatever we produced. We were still operating to 100% capacity utilization because of the way we have been able to make our market presence felt, and we are able to collect orders in advance for our production lines.
Saania Jain: Did we take any price hike in Q2?
Pavan Khaitan: Q2, no. Only towards the end, which did not really have any impact on the Q2 financials. Q3 will certainly be better in terms of price realizations for us.
Saania Jain: Okay. Do we have any number or percentage by how much you plan to increase or pass on the price hike?
Pavan Khaitan: We are expecting prices to increase in the range of 7% to 11%.
Saania Jain: Okay, that is it from my side. Thank you.
Pavan Khaitan: Thank you.
Operator: Thank you. Next question is from the line of Purva Jhaveri from Ionic Wealth. Please go ahead.
Purva Jhaveri: Hello. Good morning, sir.
Pavan Khaitan: Good morning.
Purva Jhaveri: Just wanted to get a sense on the industry side, how the industry is looking, how the imports are shaping up for the paper as well as for the imported pulp as well. What is the price of the pulp right now, which we are also importing? Can you also give a broad sense on how you see for the next one to at least, let's say, for next two years down the line, how you see the wood prices trending going forward, sir? That would be from my end, sir.
Jagdeep Hira: Yeah. So, over two years, we are looking at an incremental increase on globally, I am talking of globally, the pricing going up, which are at present in the range of 3% to 5%. We could see the trend is moving up as the global scenario is coming down. Similarly, as Pawan Ji said, we are looking at increased realizations as well in the domestic market. If we talk of imports, as IPMA, we are looking at some support from the government bodies also, putting the anti-dumping duties across all grades, which will be benefited by the industry.
Pavan Khaitan: Also, I think imports are pretty much stable at the moment. We have not seen an increase in imports happening, which they normally have occurred in the last two years. They have subsided to quite an extent because, again, because of the Gulf War situation and cost of freights remaining at a high level. That clearly has impacted and dented the volume of imports coming in, which I feel is stable and not impacting the industry unfavorably.
Purva Jhaveri: And sir, regarding the wood chip prices, I think it is around INR 12,000 a ton. Sir, how do you see that going forward, sir, for the next two years? Where do you see it settling?
Pavan Khaitan: We clearly see an increase in availability of wood material, which should help in positively assessing and impacting the pricing of that product for us. Wood as a raw material should be more available in future, and the pricing at least being stable or lowering, but certainly not increasing. I think supporting that would be our own sort of clonal sapling increment that we have been able to achieve, and we are going to sort of target achieving about one crore saplings annually in the next two, three years.
Purva Jhaveri: Looks great, sir. All the best, sir, for your future. Thanks, sir.
Pavan Khaitan: Yeah, thank you.
Operator: Thank you. Next question is from the line of Utkarsh Nopany from Anand Rathi. Please go ahead.
Utkarsh Nopany: Good afternoon, sir. Sir, my question is that, like, we are seeing that the paper imports in India has gone down to multi-month low level because of the increase in the ocean freight rate. You have mentioned that we have taken certain price hike of 3% to 5%, and we expect more price hike to happen in near future. So, whether those price hikes are temporary in nature, do you think so that we can see a rollback of such price hike once the ocean freight rate normalizes? Or do you think so these price hikes are going to sustain at least for the next two, three quarter period?
Pavan Khaitan: No, I feel that these price hikes are going to be sustained at least for the next 2 quarters, primarily because the second half of the financial year normally is considered better for the industry, where all the fresh demand from all kinds of sectors for paper consumption sectors come in. The price hike is going to be more sustained over the next 2 quarters. As you said that the imports have come down, but so have exports. Exports have also seen a downturn from India to various parts of the world. Again, the impact is because of ocean freights going high. Whatever was getting exported earlier is finding its way into the domestic market from the Indian players. There is a kind of a stability on the demand and supply situation as far as paper industry is concerned.
Utkarsh Nopany: Okay. And sir, do you believe that the recent price increase which we have taken is sufficient to cover up the cost inflation pressure which we are seeing in pulp or in coal cost, like in H2 FY27 versus what we have seen in H1 FY27?
Pavan Khaitan: Well, this is a constant, I would say, competitive nature of the industry. We can't really foresee what is enough. How much further cost impacts can come in? Because both move very, very differently. It's certainly not a cost push industry where pricing can be increased if your costs increase. Those are happening at their own level, and pricing increase is happening at another, at the market operational forces level. The bright side is that prices have increased, and as I'm saying that they are likely to remain on an upward trend for the next 2 quarters at least.
Utkarsh Nopany: If you can guide, what would be the share of the starch cost as a proportion of our revenue, and what would be our margin guidance for H2 FY27?
Pavan Khaitan: Well, starch cost would be no more than about 2%, 2.5% of the entire paper cost.
Utkarsh Nopany: Okay.
Pavan Khaitan: There are many other factors. Starch is only one component which is the cost which is rising. There is a lot of other chemicals like sulfuric acid, I mentioned in my opening statement. Raw material costs like wheat straw, they are increasing. Fuel cost is increasing because coal supply is in a shortage kind of status. Most of the coal in India is getting supplied to power plants, leaving the industry to be getting their supplies only from the open market, which has increased fuel cost for us. There is a lot of differential factors at play. Costs have risen on differential terms. We are making everything, making sense out of everything by getting the best output, doing our cost optimization, and preparing our products accordingly, and getting the best realization possible from the market for our products.
Utkarsh Nopany: Can you say what would be your margin guidance for H2 FY27, sir, if you can guide?
Pavan Khaitan: I think it should be in the range of about 14-odd percent.
Utkarsh Nopany: Okay. Thanks a lot.
Pavan Khaitan: 14%, 15%.
Utkarsh Nopany: Okay. Thanks a lot, sir.
Pavan Khaitan: Thank you.
Operator: Thank you. Next question is from the line of Madhav Jhawar from SKP Securities. Please go ahead.
Madhav Jhawar: Hi, sir. Congratulations on the numbers. My first question is on the CapEx side. Post-CapEx, what will be the operational capacity in Q3 and Q4, and what will be the production run rate going forward in this year and FY28?
Pavan Khaitan: We should be able to produce marketable quantities, finished quantities of close to 600 tons per day. I mean, going forward, the optimization, though we have the capacity to produce 675 tons as well, that's what the project implementation was for, but that's on an anchor GSM of 64. The market trending suggests it's moving lower and lower, and a lot of our orders are coming in at 52, 54, and 58 GSM. Even though we are being able to charge a higher price for these lower GSMs, the product mix that we have defined for ourselves restricts our production, which is optimized at level of about 600 tons per day.
Madhav Jhawar: Got it, sir. There was this CWIP. I'm guessing the INR 750 crore CapEx which we had earlier announced that now done with. Now, I'm seeing another CWIP of around INR 139 crores. What is that about?
Pavan Khaitan: These are only efficiency initiatives which were defined along the way. I mean, in such a large project implementation, we found that there were certain other auxiliary items that needed to be installed to get the rightful efficiencies, and that is what accounted for this amount that you are saying.
Madhav Jhawar: Got it.
Pavan Khaitan: Currently, there are two environment requirement projects that are in the state of getting implemented, which is the lime kiln and the CNCG operation for handling all the gases that emanate from our operation. Those are what is under implementation.
Madhav Jhawar: Okay. Got it. What will be the full year CapEx in FY27, and what kind of depreciation are we going to look at by the end of this FY27 and 28?
Pavan Khaitan: CapEx has completely been covered. There are no further amounts that we are going to foresee for CapEx in the future, in the near future. I mean, we've completely exercised our options, and I'm saying proud to say that we have successfully completed the implementation. As far as depreciation is concerned, Vikram, do you have
Vikram Kumar Khaitan: Yeah, around it will be somewhere around INR 80 crore per year.
Madhav Jhawar: INR 80 crore. Got it. Can you please throw some light on the wheat straw prices? Earlier, there were some reports that the Punjab wheat production has been the highest. What is your take?
Jagdeep Hira: Yeah. Wheat straw pricing remained dicey as of now, primarily because of unpredicted rains in the area, and that too happened during the harvesting time of paddy. There is a bit of a hiatus till the festival is over, and we see it coming normalized post-festival days.
Madhav Jhawar: Okay. Yeah. So, you retain the same?
Pavan Khaitan: Currently there is a bit of an aberration, but post-Diwali, we see the wheat straw pricing coming down. Right now, the entire labor force is involved in getting the rice crop harvested. So, there is loading and unloading, sort of availability of labor force for loading and unloading of vehicles is not there. So, temporarily, there is a kind of a scarcity situation, which is driving up pricing. This higher pricing cannot really be accounted for as a normal situation, which is why, because it is temporary. Post-Diwali, we will see wheat straw pricing normalizing.
Madhav Jhawar: And sir, last, I have just one question. As you had earlier mentioned that coal availability is a bit of a challenge. Are we getting our coal sufficiently in the open market, or is there a crisis over there as well? And what percentage of our power requirement, power mix is coming from coal?
Jagdeep Hira: Normally, we are at 85-15% coal and agro. Availability is not a concern. But yes, the allocated coal coming from the sanctioned, there is a concern because that has been diverted to power sector primarily. Availability in the open market is there. Only price competitiveness is a bit higher.
Madhav Jhawar: Okay. That's it from my end. Thank you.
Pavan Khaitan: Thank you.
Operator: Thank you. Next question is from the line of Nitin S. Dharmadhikari from Aurum Edge. Please go ahead.
Nitin S. Dharmadhikari: Yeah. Thank you for the opportunity, Madhavan.
Pavan Khaitan: Thank you. Yes.
Nitin S. Dharmadhikari: Yeah. First of all, congratulations for completing the expansion in record time. I just wanted to understand, you mentioned that last time that our revenue guidance remains INR 1,300 crores for the financial year 2027. Now,
Pavan Khaitan: Right
Nitin S. Dharmadhikari: with this some production stoppages due to expansion, where are we now, and are we on target for this? Also wanted to understand the specialty mix now versus 25% to 30% target that we had given earlier.
Pavan Khaitan: Yes, we are heading towards achieving our annual targeted sales value of INR 1,300 crores plus. We are going to be achieving that. As far as specialty paper portfolio is concerned, we are currently at a level of about 17% to 18%. Going forward, we will be sort of touching our target of 25% to 30% in the next year's time, 12 to 15 months' time. Because a lot of R&D is required to establish the rightful production and product quality specs on our machines. So, we don't want to do it in a hurried manner. We will be taking our time to come out with the rightful product, rightful cost, and create the rightful market for it.
Nitin S. Dharmadhikari: Okay. What are the September-October volumes and PM3 utilization? Has the environmental clearance, EC, come through?
Pavan Khaitan: EC we have applied. It is in the advanced stages. We are likely to get the relevant approvals soon enough, sooner than later. As far as PM3 in operation in October, it is pretty stable. I mean, we have come to establish it at an optimized level very, very soon, which is compliments to the entire team. We are on our way to executing and implementing that completely.
Nitin S. Dharmadhikari: Wonderful. Okay. What is the annualized saving from this PCM contract? We said that for the chemical, we have one big contract now rather than a smaller one. How long is the vendor lock-in? Will it not expose us to a single vendor supplier risk and can cost pricing leverage later?
Jagdeep Hira: Not so in that case, because both the lines have different vendors. We already have all the vendors' portfolio and the chemical supplies coming in. Earlier, we have tested them, but the best one wins. The assumed cost saving would be around 1.5% to 2% on the overall chemical consumptions.
Nitin S. Dharmadhikari: Okay. Can you also quantify the Q2 impact of the PM3 shutdown, that is from 29 January to 25 August, on production volume, revenue, and EBITDA? How much of the margin gap to the 16% to 18% guided shutdown related, and how much is its cost?
Jagdeep Hira: So, the production loss was around 6,300 tons approximately. That is primarily coming from PM3. At the EBITDA level per ton, approximately INR 40 crore would be the cost on the top line.
Nitin S. Dharmadhikari: Got it. Okay. What is the remaining INR 139 crore of capital work in progress, CWIP, and why did payables jump?
Pavan Khaitan: So, 139 is primarily the balance part of the project that had been outlined earlier. They are primarily towards environmental projects like lime kiln and CNCG. They are getting implemented in Q3, and that is what the outlay is for. They are happening as per schedule, and they will be spent out of these CWIP amounts.
Nitin S. Dharmadhikari: Got it. Also wanted to understand, you mentioned that now the demand scenario looks quite robust.
Pavan Khaitan: Right.
Nitin S. Dharmadhikari: How confident are we for the current quarter and the next year? Current quarter will be too early because we already gone through 2 months of the quarter, so it won't be justified. But wanted to understand for the subsequent year, the next year, that is financial year 2028. Do you see this is going to spill over next year as well, considering the global challenges that we have?
Pavan Khaitan: My personal opinion is that we should see a far better performance in the next year, financial year 2027, 2028. I think the uncertainties cannot be there for so long. They are going to get balanced out. Even if the war situation remains or any uncertain disturbance comes in, by now, the economies and the markets have by and large absorbed the impacts of such uncertainties. Going forward, the way we are positioned, we are quite confident that with our enhanced capacities and efficiencies of higher productions, we should be able to contain those impacts even further and come out with a more robust performance going forward.
Nitin S. Dharmadhikari: Okay, sir. Thank you, and wish you the best.
Pavan Khaitan: Thank you.
Operator: Thank you. Next question is from the line of Samarth Singh from TPS Capital. Please go ahead.
Samarth Singh: Hey, good afternoon, and thank you for the opportunity.
Pavan Khaitan: Thank you.
Samarth Singh: You mentioned ADD and the anti-subsidy applications covering the 4140 GSM writing and printing paper. Where do they stand procedurally, and what is the realistic timeline for preliminary filing?
Pavan Khaitan: Good part is that the relevant government departments have taken our representation on board. They have listed it out for determination and sent it to various other departments for their comments, basis which they will be able to define the way going forward on how and when to implement the anti-subsidy duty or the anti-dumping duty structure. Normally, once this happens, it takes between 3 to 6 months for successful completion.
Samarth Singh: Got you. Okay. The second part you mentioned on reduced imports due to higher freight rates. Is my understanding correct that the higher freight rates due to the war have been a net positive for the industry and for our business?
Pavan Khaitan: Well, overall, yes, that would be the right assessment. But also the fact is that at the same time, exports from India to foreign markets have also decreased. In a way, the supply and demand situation has by and large stabilized. Once they start regenerating, the industry will have to redefine the market strategy and rediscover the markets abroad in order to keep this demand and supply situation on balance.
Samarth Singh: Got you. The last one was, what are the price hikes that you have taken both in Q1 and Q2?
Pavan Khaitan: Q1, no, there was no price hike whatsoever. Q2 also, largely the entire period remained without a price hike. We were able to initiate one only towards the last week of September. That would be in the range of about 4% odd. Now, going forward in Q3 and Q4, we are going to sort of initiate and are hopeful of initiating a price hike of between 7% to 11% overall.
Samarth Singh: Just to clarify, in Q1, I believe the industry had tried to take a price hike, but that was rolled back. Is that correct? Have you been able to maintain the price hike that you have taken in Q2, end of Q2?
Pavan Khaitan: Yes, we have been able. The price hike is getting maintained, what the industry has initiated in Q2. I think going forward, the second half of the operational year largely is far better than H1. We are observing and budgeting for price hikes to go higher in H2.
Samarth Singh: Got you. And one last one. Until ADD comes into place, are we looking at some sort of other help in terms of either QCO or MIP that is similar to what we have got in the paperboard segment?
Pavan Khaitan: The representation that has happened to the government includes MIP as well. There is a three-pronged strategy that has happened on behalf of the industry, which is MIP, anti-subsidy, and anti-dumping. The good part is that MIP is already in place for the kraft paper varieties, paperboard varieties. That is already in place. Our segment, which is the writing and printing paper segment, has been taken up next. Hopefully, we will see a similar favorable dispensation from the government for our section as well.
Samarth Singh: Thank you very much.
Pavan Khaitan: Thank you.
Operator: Thank you. Next question is from the line of Arjun Vinay Tambe from Your Crest. Please go ahead.
Arjun Vinay Tambe: Good morning, sir. My only question is, what is the situation on the rising cost and depreciation cost? When is the deleveraging benefits going to kick in?
Pavan Khaitan: Today, we are at our peak debt level of about INR 700 crores. It is only going to improve from here. I think the next two years, the impact of interest and depreciation is relatively higher. We should be able to see it through with a better business prospect coming in for at least FY27-28, which is closer for budgeting purposes. We are looking at doing a good operational revenue and profitability to be able to take care of both these options. I think post that, the reversal in leveraging will start, deleveraging will start, and we will come on to a good operational level.
Arjun Vinay Tambe: Okay, that is great. What was the total volume sold, and what are the realizations we got in Q1 and Q2? Because in Q1 FY27, you have said that realizations would be around INR 72,000 to INR 75,000 per ton in the next three to six months. Are we going towards that or below that? What is the trend? Is it still falling? Has it bottomed out, or is it rising?
Pavan Khaitan: So, where production is concerned, in Q1, we were at about 46,000 tons level. This quarter, because there was a shutdown of a PM3, we lost about 6,000 tons volume, and we have, on the remaining machines, we operated at 100% capacity and were able to get an output of 40,600 tons. Where realizations are concerned, we are on track. We have been able to implement a price hike in last week of September, as I mentioned earlier, which we are sustaining, and we are looking at further price hikes in Q3 and Q4, taking the overall price hike to between 7% to 11% by the end of the year.
Arjun Vinay Tambe: Okay, that is great. Not from deleveraging point of view, but with respect to favorable environment in paper industry, how much margin expansion are we expecting? Is the worst really behind us, or is it still uncertain?
Pavan Khaitan: I would like to reckon that the worst is behind us. It is only going to grow better. We have bottomed out as far as industry margins are concerned. We have reached levels of about 10% to 12%. An upward trend is what is getting suggested through association meetings and where we talk to other industry experts, and we should be able to reach back to levels of 18%, 20% EBITDA levels by the next financial year.
Arjun Vinay Tambe: By the next financial year, sir?
Pavan Khaitan: Yes.
Arjun Vinay Tambe: So, from a bird eye point of view, what is your vision for next one year, and like, what is your vision 2030?
Pavan Khaitan: Well, right now, clearly the effort is towards stabilizing and getting the cost benefits and efficiency improvements that we have outlined as part of this project implementation. The good part is that we have achieved the productions that were enlisted for all the four machines, and as now that the project implementation is over, the team is focused on getting the rightful cost initiatives and implementing various techniques to reduce and optimize costs and increase efficiencies. Also, along the way, we would be diversifying our product portfolio and entering the specialty paper segment, and that effort is going to help also bring in a positive impact on our top lines and bottom lines.
Arjun Vinay Tambe: Okay. Thank you so much. What was the volume growth and value growth in this quarter?
Pavan Khaitan: This quarter, we have come down. As I said, that 6,000 tons was reduced because of PM3 shutdown. But next quarter, we are going to regain that, and Q3 should be better, far better than Q2.
Arjun Vinay Tambe: All right. Regarding the MIP, as much as I know, in August 2025, the MIP got canceled out, right? After that, what is the situation on that?
Pavan Khaitan: So, as I said, MIP for the paperboard kraft segment has already been accepted and notified, and that segment is sort of getting the benefits of MIP that has been suggested by the government. Our MIP for the writing and printing paper segment is already under investigation by the government, and hopefully we should see some kind of favorable outcome by the next three to six months.
Arjun Vinay Tambe: Okay. The debt repayment for this year would be around INR 175 to 200 crores. Am I right?
Pavan Khaitan: No, for this year, yes, the total was INR 180 crores, which is on track, and there is a similar amount for next year as well.
Arjun Vinay Tambe: This thing FY27, right?
Pavan Khaitan: That is right.
Arjun Vinay Tambe: Okay. Thank you so much. All the best. Thanks.
Operator: Thank you. Next question is from the line of Ranveer Kataria from BRK. Please go ahead.
Ranveer Kataria: Yeah. Congratulations for the good set of numbers in this tough time. I have few questions. Firstly, I want to ask, are you doing something on the tissue line? If yes, what percentage of the total revenue it is?
Pavan Khaitan: No, we have not ventured into the tissue line. Right now, our current four machines, which are primarily for generating writing and printing paper products, those are the ones we have optimized and improved and upgraded, and they are going to give us better varieties of writing and printing paper. As I said, on our PM3, which we just commissioned, we have additionally put in a film press, which will help us get surface-sized papers as against non-surface-sized papers that we were doing earlier. So, a better segment of printing paper is what we are going to start catering to and get better economies of scale there.
Ranveer Kataria: Okay. You have raised INR 100 crores NCDs. I was just checking from the stock exchange you have uploaded. What is this all about? What is the end use of that?
Vikram Kumar Khaitan: We have utilized the same for prepayment of existing term loan.
Ranveer Kataria: Okay.
Vikram Kumar Khaitan: It has been fully utilized.
Ranveer Kataria: Okay. I was just checking your cost of goods sold has reduced by almost 1.5%, while prices of wheat straw have increased over the last 3 months. How have you managed to reduce this cost of goods sold? Can you please highlight on this?
Pavan Khaitan: These are because of the efficiencies in our operation that we have been able to achieve. The cost of economy is, as our CEO Jagdeep also mentioned, with the implementation of our DDS, we are getting better yields on our wood pulp. We have been able to reduce steam cost there. All has been done with a purpose which was behind the implementation of this project. The entire project was not only for upgradation of machines, but also to reduce cost of operation in various segments. That is what we have been able to achieve.
Ranveer Kataria: Okay. Are you doing any institutional business, government business, or is it all private?
Pavan Khaitan: Well, mostly it is private because we are a market-oriented operation. Most of our product goes to serves the needs of the customers. But not to say that we do not do government tenders at all. We do take them up on a case-to-case basis if we find it on favorable terms.
Ranveer Kataria: Okay. Thank you. That is it from my side.
Pavan Khaitan: Thank you.
Operator: Thank you. Ladies and gentlemen, a reminder to all the participants, please limit your questions to two only. We will take the next question from the line of Aryan from AV Investments. Please go ahead.
[Analyst] (AV Investments): Thanks for the opportunity. So very heartening to hear that you are positive on the industry bottoming out and coming up in the next year. Just two questions from my end. One is that, usually when the industry goes through a tough time like it has in the last one, two years, we see consolidation happening in terms of mills getting acquired by larger players like yourself. What trend has that been in the last one, two years in the industry. Have you seen consolidation. That would be my first question.
Prachi Sharma: So, hi, we have seen consolidation in the industry to some extent. Recently, ITC did take up Century, and we've also seen JK taking up some smaller ventures in the packaging segment and related fields. Consolidation is something that will happen, but mainly it will be, other than Century, I think it will be the smaller players which will be taken up by the larger ones.
[Analyst] (AV Investments): Of course, but, so industry has kind of bottomed out there. That is fine. Second would be that, we were seeing that China paper manufacturing companies' profit has actually doubled. We would just like to get what information and opinion you have as to the Chinese and Indonesian paper manufacturers. What is the outlook there. Because once the freight normalizes, then will it be in a situation where they will again start dumping their production, which was kind of stopped due to the war. So what is the scenario kind of there on ground, if you can just inform us.
Jagdeep Hira: China probably, I think, is not, quote unquote, is going through a bad economic phase as of now. Paper industry as such are getting closed there because of poor economy. Indonesia always have been a leading exporter because domestic demand is very less, and we don't see any decline on Indonesian paper coming in. Yes, from China, if you see the graph, it has gone down due to. And we don't see China coming up very soon as well.
[Analyst] (AV Investments): What proportion of our
Pavan Khaitan: Sorry, I do not really agree with that statement that China paper mills have doubled their profitability. I think that is not a statement that needs to be relied on. I do not know where that came from.
[Analyst] (AV Investments): No, he was just looking at the big manufacturer there. If you see their profit for the last year, it has doubled. That is the number which I saw him say.
Jagdeep Hira: Just to name, Chenming has closed down their operation. Nine Dragons have closed down their three paper plants. These two names are the biggest name in China.
Pavan Khaitan: Correct.
[Analyst] (AV Investments): Okay, sir. Got it. Thank you.
Operator: Thank you. Next question is from the line of Rishi Mody from Mody Advisory. Please go ahead.
Rishi Mody: Hi, sir. A few questions from my end. First one being, you mentioned something about a GSM issue. We built our machines for 64 GSM, but the demand is now not there for 64, it is for 55, 56 GSM.
Pavan Khaitan: Right.
Rishi Mody: Hence, we will not be able to produce the quantities that we had envisioned.
Rishi Mody: Now, I am just trying to understand, is this a structural thing, and is our CapEx not going to yield the returns that we expected? Or it is more like right now, this is an easier off-take, and hence we get up the utilization, and then we move towards the higher value-add products? Just trying to understand what did you mean exactly by that.
Jagdeep Hira: Technically, it is a mix of everything. Now we have a capability to produce 675 tons, and we are trying to change the product mix as well. Specialty and industrial grade are majority on the lower GSM. Having said that, we do have a capability to go up to 675. Where at an anchor GSM, that is the maximum throughput we can achieve. Having said that, vis-a-vis specialty, where you increase the top line, but the production levels are lower because of the lower grammages. So it nullifies both ways. We should be looking at targeting at a top line rather than the productive level.
Pavan Khaitan: To answer your question differently, for instance, the days we are making copier paper where the GSMs are 70, 75, and 80, we actually end up achieving 675 tons. But that is not something which is prevalent day in, day out for 365 days. So, capability we have created. Now, depending on market trending and market requirement, we do need to adapt and amend, and that is what we are doing exactly. If the market demand comes in for a lower GSM at a relevant better price, we do that.
Rishi Mody: Okay, got it. Understood. Okay, fine. Second, I just wanted to understand from you is that price hikes, we have seen a lot of. Everyone almost in the industry started taking price hikes already in Q3. In the last 45, 40 days, people have started taking significant price hikes.
Jagdeep Hira: Yeah.
Rishi Mody: Just, like the 7% to 11% that we have been talking about to take in Q3, has that been taken, or are we waiting for Diwali? I am just trying to understand, are we going to capture the entire 3 months at the new price and the new production levels, or are we going to see it at a later stage?
Pavan Khaitan: So, about 4% odd hike has already happened now, which is getting sustained and accepted by the market. Yes, you are right in your assessment that the next hike possibly will happen post-Diwali, when the entire market opens up, all the workers and operations start for paper converting, and that is when the demand will kick in, and position will come in for a relevant price hike to happen then. So, a 7% to 11% price hike that I suggested was right through Q3 and Q4 as well. That is a very, very good price hike to my mind, considering the current prevalent market conditions.
Rishi Mody: Got it.
Pavan Khaitan: That is a very, very good price hike to my mind, considering the current prevalent market conditions.
Rishi Mody: Got it. Are the costs also increasing? Say if I take Q2 as the base per ton cost for us,
Pavan Khaitan: Yeah
Rishi Mody: is that also increasing at a per ton level, or with I am trying to understand on the cost front two things. First is there price inflation that is continuing into Q3? Second, the Q2 base that we have on the cost per ton, or say the absolute cost, does it include the new capacity cost, or is there a ramp? There will be a production-linked cost increase also that will happen in Q3 for the new capacity.
Pavan Khaitan: I think the production-linked costs are actually going to get favorable for us. With increase in production, the cost per ton, cost of producing should get lower with better steam and power efficiencies. However, there are temporary enhancements and increments in the pricing of our raw material and fuel. That is temporary in nature. We do have visibility of tailwinds happening, and those pricing getting normalized and balanced in the coming one to one and a half months.
Rishi Mody: Okay
Pavan Khaitan: It is an aberration right now. It should get normalized by November end or December.
Rishi Mody: But Q3, we should not see an absolute per ton cost increase.
Operator: I am so sorry, Indra. Rishi, we have other participants waiting for their turn in the queue, please.
Rishi Mody: Yeah, I mean, just had one last question if I can squeeze that in. Given we have given a lot of time to the participants ahead of me, I just wanted one question to be put in.
Pavan Khaitan: Sure.
Rishi Mody: Yeah, so finally, just on the capital allocation policy, I know deleveraging is the priority, but that priority might be at a certain EBITDA envisionment that you have done, right? 14, 15 for this year, H2 and 18, 20 for next year. Say, if we overshoot that, would you be using the excess cash for prepayment of loans, or would you be looking at buybacks as a way to return capital to investors? Also, instead of dividend, would you be more incrementally looking at buybacks to raise the promoter stakes to 75%?
Pavan Khaitan: No, I think it's very clear that our concentration is on generating the rightful cash flow to repay and take care of our debt repayment liabilities. There is nothing else that is there on the table for now, and I am not looking at any changes in our equity capital structures.
Rishi Mody: Okay, got it. Thank you lots, sir, for mine.
Pavan Khaitan: Yeah.
Operator: Thank you. Ladies and gentlemen, in the interest of time, we can only take two more questions. Next question is from the line of Pushkar Jain from Mili Capital. Please go ahead.
Pushkar Jain: Yeah, hi, sir. On the power mix, you said 85% of our power is coal, and 15% is other sources, right?
Jagdeep Hira: Yeah, buy one.
Prachi Sharma: Right.
Pushkar Jain: The cost, like the price increase that you are stating, that 4% is already done, and maybe 7% to 8% will follow. Post this anti-dumping duty application, could we see a further price hike? What is the cost increase in terms of percentage? So we can get some understanding on how it is going to affect the EBITDA margin in the second half.
Jagdeep Hira: Right now, it is pretty difficult to predict what is going to be cost.
Pushkar Jain: Of course.
Jagdeep Hira: in relation on a coal, because there are some government policies coming in where coal is being diverted to power sector. As we said earlier, so 4% around price hike has been taken from the industry, which we are going to sustain and looking at around 7% to 11%. But looking at the present situation or the Q2 figures what we have right now, so around 2.5% to 3% input coal pricing have gone up.
Pushkar Jain: No, no, and total cost as a percent, if the realizations increase by 10%, what is the cost increase that you are foreseeing? So we get some normalized EBITDA per ton or per kg that is your target for FY27.
Prachi Sharma: You should look at about a 2% differential EBITDA, given the increased NSR and the increased costing.
Pushkar Jain: If the ADD comes in, we see a further price hike again from the 9%, 10% that we are talking?
Prachi Sharma: That is too far in the future to perceive. Once those things happen, let's see, because there are global market factors also at play. That is something that needs to be seen in the future.
Pushkar Jain: Right. Thanks, ma'am.
Pavan Khaitan: I think what should be relevant here is that there is a level to which the market will accept a price hike.
Pushkar Jain: Of course.
Pavan Khaitan: It is not unlimited. Yeah, so those kind of things
Pushkar Jain: As in our margin target will be like 14% for this year, and hopefully 17% to 18% for like the second half.
Pavan Khaitan: Sure.
Pushkar Jain: Yeah. Okay. Thank you.
Operator: Thank you. Ladies and gentlemen, we will take that as a last question. I would now like to hand the conference over to Mr. Pavan Khaitan for his closing comments. Over to you, sir.
Pavan Khaitan: Thank you all for participating in this earnings conference call. I hope we were able to answer your questions satisfactorily, and at the same time offer insights into our business. If you have any further questions or would like to know more about the company, please reach out to our investor relations managers at Valorem Advisors. Thank you.
Operator: Thank you. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.
