Kuantum Papers Limited (532937) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '24 Conference Call of Kuantum Papers Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, ma'am.

Good morning, everyone. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations for Kuantum Papers Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the first quarter of the financial year 2024. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's belief as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is probably to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Pavan Khaitan, Vice Chairman and Managing Director; and Mr. Roshan Garg, Chief Financial Officer. Without any further delay, I request Mr. Pavan Khaitan to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Purvangi. Good morning, everyone. It's a pleasure to connect with all of you again, and welcome to this earnings conference to discuss the company's Q1 financial year 2024 earnings. I'm delighted to report that despite a decrease in net sales realization in the overall paper industry, we had a good year-on-year growth in Q1, and we also achieved an all-time high EBITDA margin of 35% during this quarter due to a better product mix and cost efficiencies. Furthermore, on other operational highlights, we successfully optimized the machine speeds of both PM4 and PM3, resulting in an increase in our operational efficiencies and paper production. In line with our sustainability efforts, we have installed a Sedicell at the Effluent Treatment Plant for further improvement in the quality of effluent, which will lead to reduction in overall water consumption. We also installed a Dust Suppression System for agro-raw material handling section, which will effectively minimize fugitive dust emissions. Additionally, we have expanded our production capacity for clonal saplings by 8 lakhs at our in-house clonal propagation center, as part of the Social Farm Forestry program. On the financial strength side, I would like to inform that we started last year June with a complete restructured debt of close to INR 600 crores, which after prepayment of such debt is now standing at a total debt of only INR 350 crores, out of which the restructured part is only 50% at INR 175 crores and INR 175 crores is a new loan. So there is a substantial reduction in the restructured debt from INR 600 crores to INR 175 crores today. Also, our external credit rating has increased handsomely quarter-on-quarter, 3 quarters we have been upgraded in our external rating, and it stands today at an A stable. Now I will request Mr. Roshan Garg, our CFO, giving a brief about the quarterly financials.

Thank you, Pavan, and good morning to all participants. I would like to provide an overview of our financial performance for the first quarter of the financial year 2024. During the year and under review, our revenue was reported at INR 313 crores, representing a 14% year-on-year increase. Our EBITDA is INR 110 crores, which is an 80% increase compared to the same period last year, and EBITDA margin stood at 35%. The significant improvement in absolute EBITDA and EBITDA margins were supported by cost reduction in agro pulp and wood pulp, which decreased by 16% and 17%, respectively, compared to the previous quarter due to lower prices of wheat straw, wood chips and veneer waste. Moreover, we effectively manage the cost of chemicals such as caustic, quick lime, sulphur and sulphur dioxide, which contributed to improved margins during Q1. Additionally, our focus on efficiency projects at the power plant resulted in noteworthy reduction of 16% in fuel consumption per tonne of paper compared to the previous quarter. As a result of these efforts, our net profit for the quarter was INR 65 crores with PAT margin of 20.8%. Thank you. With this, we open -- now open the floor to the questions and answers session.

[Operator Instructions] The first question is from the line of Imran from Longbow India Capital.

Sir, can you please maybe tell us how has been the pricing for, let's say, your copier paper and the other uncoated paper category?

INR 1,000 per tonne in this quarter...

Sorry, sir, I think there was some disturbance in the line, maybe my line. Can you please repeat?

Yes. So pricing of copier has been in the range of INR 85,000 to INR 86,000 per tonne in this quarter. And for the uncoated varieties, it is closer to about INR 87,000, INR 8,000 per tonne.

Right. And sir, this is, I think, significantly higher if you compare, let's say, 1.5 years back when commodity prices were not very, very high. So do you see this pricing maybe coming down in the coming quarters?

So maybe in the short term, in the very next quarter, we might see a reduction and -- but that is a historical change because this is considered to be the lean season. The Q2 of every year is always the lean season where demand goes down and so does the pricing of all grades of paper. But Q3, we are again expecting the [ oil ] prices to go up again and reach nearer to current levels.

Sir, can you please also maybe enlighten us what would be the imported uncoated and copier paper prices and how they have been behaving the current new normal?

So imported copier is in the range of about $750 to $800 per tonne. And -- but we are seeing an uptrend in them, and we are witnessing an increase of almost $20 per tonne on incoming imports of copier paper.

Right. And this is significantly lower on what you have told me the pricing that you get, so INR 85 versus INR 65 or INR 70 a kg. Why is there such a high difference in the 2 same commodities?

So it's with the marketing strength that we have in run, and we've been able to create this pan-India. We've got these about 85 to 90 dealers working for us, and we've created a market pull for all our products and including copier and it's a product mix that we sort of maintain for ourselves between the entire range of products that we make, which is copier, uncoated and specialty grades.

Right. I get it. I hope I'm not in between other participants who want to ask questions. I just wanted to check with the operator.

No, no, carry on, please.

Sir, you may continue.

Okay. Okay. And sir, one -- just one more thing on this copier paper side. So can you please also highlight how much per kg or per tonne transportation cost you have to pay, let's say, when you move 100 or 200 kilometers from the factory.

Well, normally, we take -- we give supplies in truckloads. We are not distributing in the kind of quantities that may be being suggested. But even over a span of 100 or 200 kilometers, we have, in fact, invested in our own trucks now and which will cover these shorter distances. But entire truckloads will go and the logistics cost will be close to about INR 1,500 to INR 2,000 per tonne.

INR 1,500 to INR 2,000. And I'm assuming, let's say, the competitors -- not competitors, but the people who are importing, they will first get the product to the coastal areas. And then from there, do they use road transportation or they go for railways because railways is a much cheaper mode of transportation, right? So what is your sense, sir, how they are doing the business, the imported paper guy?

So you're right there. They first need to land on the coastal regions and then the normal road transport is a normal course of transporting all these goods because railways, if you say, even though it's more effective, but the entire load becomes much more, the MOQs are much more there for railways. So it's much more efficient to transport all these materials through road.

And if somebody is, let's say, importing from -- taking the material from Gujarat to, let's say, Delhi, I think that's a decent travel time and distance. So about 1,200 kilometers. So are they spending INR 6,400 on the product plus INR 20 on the transportation. This is how the math works?

No. So the transportation costs will be close to about INR 4,000 to INR 5,000 per tonne depending on how effectively they are able to arrange transport. And you can add about INR 4,000 per tonne as handling charges for this material at the port. So all in all, about INR 8,000 per tonne is what you can add to the original basic price of INR 64,000, INR 65,000 per tonne.

Right, right. And sir, the raw material that we use, is it locally sourced for the uncoated and the other categories? Or do you also import some of the raw materials?

So Imran, all our material is sourced locally within the states of Punjab, Himachal and Haryana, and all our agro material comes from these states and even the wood is sourced locally. So all of this constitutes about almost 95% of our pulp requirement, about 4% to 5% is what we use as imported wood pulp, which is required. The softwood pulp is required to be added to maintain the dimensional stability of the paper that we produce. That's important.

That's right. And the chemicals, they are also within India or you import chemicals?

All are sourced within India.

All right. I'm done with my questions.

[Operator Instructions] The next question is from the line of Hemant Nahata from YES Securities.

Sir, I had a question on our CapEx plans. So as I'm aware that we are upgrading some of our machines. Just wanted to know whether this will disrupt any volume in Q2, Q3 or Q4 going forward? Have you made some calculation, what kind of volume disruptions this will have?

Yes, Hemant, thank you for that question. Yes, we are in this current quarter, which is Q2, we will be upgrading both our PM1 and PM2 one after the other. And there will be a downtime of about 18-odd days, 18, 20 days on each machine. So yes, correctly assessed by you, there will be a certain downtime on these machines, which will lead to a disruption. But what we've done is that we have made our PM3 and 4 more efficient in the meantime, helping us offset a substantial part of this reduction, which comes in from PM1 and 2. So PM1 and 2 are our smaller machines, where the capacities are limited, and PM3 and 4 are our bigger machines and will be able to offset a large part of these capacity reductions.

So sir, as the calculation has to be made, we will be able to achieve at least what we have achieved as a volume during the previous year, correct sir?

Yes, we will try and maintain those kind of volumes.

[Operator Instructions] Next question is from the line of Satyan Wadhwa from Profusion Investment.

Can you share some light on what sort of volume you are expecting to do this year, given the second quarter might be a little bit softer. So what should one then expect for the second half and the full year? And how should one be thinking in terms of what the volume would be like for next year post expansion? And also what is the sustainable EBITDA per tonne that you think in terms of as a margin that you can typically intake?

So thank you for these questions. Despite this downtime, which we are going to sort of incur on upgradation of PM1 and 2. Post upgradations, there will be an increase of 50 tonnes per day on these machines. So at the year-end, we expect our increase to be in the range of -- or we will sort of close the year at about 1,62,000 or 1,64,000 tonnes at the year-end. And post completion of upgradation of our PM3 and 4, which will happen next year, we are planning to touch 2 lakh tonnes per annum.

That 2 lakh tonnes would be potentially achieved in FY '25? Or will that spill over into FY '26?

No. FY '25-'26, we will achieve because the upgradations on PM3 and 4 will be commissioned -- I mean, the commissioning will happen sometime next year by November or December.

Right. Okay. Okay. Fine. So basically, next year, volume will be somewhere in the middle then, I guess, probably 1.7 to 1.8 or something like that.

Satyan, sorry to interrupt, your voice is not coming clear.

Sorry, I was saying, so FY '25, one should work with maybe 1.7 lakh tonnes to 1.8 lakh tonnes. Is that reasonable?

FY '25, yes, that I would say, yes, that would be a reasonable figure. We will try and achieve certainly 1.75 lakh tonnes is on the table for sure.