Kuantum Papers Limited (532937) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kuantum Papers Limited Q4 FY '24 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil Shetty. Thank you, and over to you, sir.

Thank you, Sagar. Good afternoon, everyone. On behalf of Nuvama Wealth, we are delighted to host senior management of Kuantum Papers Limited. From the management side, we have Mr. Pavan Khaitan, Vice Chairman and Managing Director; and Mr. Rohan (sic) [ Roshan ] Garg, CFO of the company. So we'll start the call with the opening remarks from the management, then we'll move to the Q&A session. Thank you, and over to you, Pavan sir.

Good afternoon, everyone, and welcome to our earnings conference call and financial year ended 2024. Let me first start off by thanking our host Nuvama, for hosting today's earnings call. I will be taking you through the quarterly and annual business highlights, following which Mr. Roshan Garg, our CFO, will take you through the financials. Despite financial year '24 being a challenging year for the paper industry in India, we at Kuantum Papers did well and maintained EBITDA margins of 27.5% in financial year '24 despite facing a pressure from the market and challenges of increased imports. The company has initiated various cost optimization and efficiency programs. We have initiated Project Nirmaan, a mill-wide optimization journey, utilizing AI, Advance Process Controls, which is Industry 4.0, enhance operational efficiency and bottom line performance. We have also upgraded our Turbine 4 with the state-of-the-art technology that will result in generating 15% additional power from this turbine with the same steam consumption. I would like to share that we have introduced a new product Kuantum Korra, which is specifically designed for the notebook segment. This high-quality paper has been crafted with almost 90% to 95% agro pulp, which is through extensive R&D over the last year. To bring about focus on environmental, social and governance areas, we have gone live with our online ESG tools for comprehensive monitoring and evaluation of KPIs across the operations. Under our motto Kuantum for Earth, clonal sapling production has been enhanced to 40 lakh clone [indiscernible] through the installation of new high-tech chambers at our house nursery. Our unrelenting focus on water conservation has resulted in savings in consumption by about 5 cubic meters of water per tonne of paper in this financial year. [indiscernible] the mill upgradation and modernization plan, and I'm pleased to share that -- commercial discussions and orders are well underway. This will result in an increase in production by 50% [ in a positive ] manner over the next 2 financial years and will truly mark our overall operations. Now I will hand over to Mr. Roshan Garg, our CFO, to give you a brief about the quarterly and annual financials for FY '24. Thank you.

Thank you, Pavan ji, and good afternoon, everyone. I would like to brief you on the financial performance of the fourth quarter and also the full financial year ended March 2024. For the fourth quarter under review, operating revenue stood at INR 299 crores with EBITDA of INR 64 crores. The company was able to maintain its -- [ Net Sales ] INR 74,500 per tonne in quarter 4, which was in line for FY '24. EBITDA level declined from 26.3% in Q3 to 21.3% in Q4, mainly due to accounting for loss on sale of old machinery, which was kept on standby post the commissioning of the Backward Integration project and was finally sold in the current quarter. Profit after tax for the quarter amounted to INR 34 crores with PAT margin of reported at 11.35%. Moving to the financial year ending 2024, the company's operating revenue reached at INR 1,211 crores, indicating a year-on-year decline of 7.5%, which is primarily due to decrease in the sales realization. The average sales [indiscernible] for FY '24 was INR 77,000 per tonne to INR 94,000 per tonne for the financial year which was an exceptional year for the industry. EBITDA for the year stood at INR 3 crores with a healthy EBITDA at 27.5%. We were unable to maintain this EBITDA level -- decline in sales realization due to continued focus on process and cost optimization. The net profit reported at [indiscernible], which grew by 35%, driven by significant reduction in [ overall debt ] that we were able to do over the year. PAT margin reported at 15.2%. Pleased to inform you that the Board has also recommended a final dividend of INR 3 per share, that is 300% on the face value of INR 1 [ per share ] for the financial year 2024. With that, we now open the line for question and answer session. Thank you.

[Operator Instructions] Our first question is from the line of Kunal Tokas from Fair Value Capital.

Hello, am I audible?

Yes, please.

Okay. And also before I ask my question, may I point out that the management's voice is pretty low and muffled. So if you can do something about that.

Sir, can we go ahead with the other number which was being provided because...

We'll just switch.

Please go ahead, sir.

All right. So my first question, I guess, you gave us the number for the realization for the full FY '24. That was INR 77,000, down from INR 96,000. INR 96,000 was clearly abnormal. What was the figure for Q4?

[Technical Difficulty]

I'm sorry to interrupt, sir. Your voice is breaking on this particular line. Sir, it's not that clear.

[Technical Difficulty]

Sir, on the earlier line, at least, we were able to hear you a little bit. But in this, it's not...

I'll switch back to the earlier one. Can you [Technical Difficulty] on the earlier line?

Sir, I have unmuted your earlier line. We can turn that. Please go ahead, sir. Participants, please stay connected while we get the management line back. Ladies and gentlemen, we have reconnected the management line back. Sir -- Kunal sir, can you please again proceed with your question?

Sure. Can you hear me?

Yes, sir. You're loud and clear.

Sorry about this.

My question was your sales realizations have dropped from the unusual level of INR 96,000 to now more realistic INR 77,000 for the full year FY '24. What was the number for Q4?

Q4 was -- average was about INR 74,000.

So further drop?

Yes. So currently, we are at those levels because yearly average is more because in the earlier part of the year, we were still continuing from our high of INR 96,000, gradually it's come down.

Okay, sir. And what do you -- what according to you is responsible for the steadily falling NSR and related to this, what is your outlook for this?

I think basically, the market condition, the industry is -- in pattern and largely because volumes, the supply side and the demand that is there in the country has been actually accentuated by 2 issues. One is increased imports into our country from the -- as well as because of the Red Sea, our exports have come down from last year. All that extra volume is finding the Indian market. And this extra volume, obviously, is putting a little bit of [indiscernible] on pricing, and that's why it's the reason for this price trickle. But nonetheless, it has come on the -- a decrease in cost of inputs as well, maintain our EBITDA margin at 27.5%, 28%, which also is quite a robust performance, I think.

Surely, sir. And if we move further down the P&L statement to your gross margins and to your raw material costs, can you give some insight on what the trend looks like? Have the cost increase for timber as well as agro pulp and what is the outlook?

Ladies and gentlemen, the line for the management has been dropped. Please stay connected while we reconnect the line back. [Technical Difficulty] Ladies and gentlemen, we have the management line being connected. Sir, please go ahead.

Yes. Sorry for all this technical impasse, thankfully we are back. So as I was saying the agro pulp cost continues to be [indiscernible] what we've witnessed in the previous quarter. In fact, we have seen a further cut of decline because the pulp [indiscernible] raw material input is wheat straw which is further going in for a correction and going on a few hundred rupees per tonne on the paper costs. So we are seeing 3 favorable turns on our agro pulp costs, and that should continue for at least about 3-odd months or until the quarter ended September at least.

And wood pulp, sir?

Wood pulp continues to be the same. Wood pulp is being managed at very, very similar cost. No change either upward or downward in the -- from the last year, and we are managing wood pulp procurement at same cost as last not incurring any higher costs and some even imported wood pulp continues to be at good levels because we've managed to [Technical Difficulty] offset these higher imported wood prices and [indiscernible] in those cases.

Okay, sir. And if we -- if you look at your EBITDA margin, they have been coming down since the last 1.5 years, and that is as we know, because of the unusual year last year. But you have been saying for the last 2 con calls that your EBITDA margins will remain stable. The gap continues to come down. Where do you see your EBITDA margin stabilizing now?

Yes. Well, perhaps Kunal, last year our EBITDA margin was at about 28%-plus and this year, we've closed at 27.5%. And I think that the challenges that we're facing, declining prices and challenges from export, I think the reduction of 0.5% doesn't seem to be quite meaningful. And I appreciate that we've been able to maintain our EBITDA margins, healthy margins. And in fact, this is on that of loss on our sale of fixed assets that we book, which we mentioned, which our CFO, Mr. Roshan Garg mentioned in his outline. And we needed to sell these assets because in about 2 years ago, 3 years ago, we did a backward integration project, where some of these old machineries were sidelined, were needed to be mothballed. And we have sold that machinery and that loss on sale has amounted to about 1.5% on our overall EBITDA margins. So if our operational EBITDA margin are still touching about 29%, so I think I would be correct in saying that we are still being able to maintain our EBITDA margins. And going forward, I would say that other than about 1% or 2% change either ways we should be able to be in the same range of about 28%, 29%.

Sir, if I were to [indiscernible] this question and ask a hypothetical question. What would be the margin level below which you would hesitate to commit more capital to the business? I mean, I know there is a lot -- there are a lot of things to consider, but if you can answer that.

I think there's a long list available, Kunal. At 29%, there's a lot of budget move around with. Even if we earn about 18%, I'll still be able to commit [indiscernible] and keep my CapEx plans because they are going to further add to my top lines and bottom lines quite well.

Okay, sir. And just another quick question. What does the international pulp price trend look like? Because the international pulp prices are a major reason for the high imports into the country.

Yes. So I think currently, the levels that are about $850 per tonne on softwood, about $800 per tonne on hardwood. Future-wise, I would see them settling down around $650 to $700 level should be a decline because there are, I hear of, new capacity being created and that will increase the supply of global pulp, and that's why my reason of stating that pulp will [ normalize ] -- will trend at about $600 or $650 to $700 per tonne, and will rest at that.

Did you say $700?

Yes. Currently, they are at about $850. But in the future, if you see in 1- to 3-year horizon, this should come down and settle down at levels of about $700 per tonne.

The next question is from the line of Satyan Wadhwa from Profusion Investment Advisors.

What would you think is the right level of output that you'll be able to achieve in FY '25? You still have 75 lakh tonnes. And how is the new plant or the new machinery progressing in terms of when do you think that will come online?

Thank you, Satyan, for the question. I think considering we are operating at about INR 73,000 to INR 74,000 per tonne NSR, I should see an upward trend happening post September, and I think we average NSR, we should be able to achieve by about 6%, 7% increase per tonne. I think the last quarter normally tends to be the best in the industry, and that trend should come back other than the hiccup that you saw in the last quarter of '23, '24. But history suggests that first quarter normally is the best and that is why we are budgeting for higher average realization for ourselves. And we should [ be ] at about INR 76,000 to INR 77,000 of thereabouts. And with respect to our CapEx, that's going on, on schedule. We are advancing on all our orders and discussions -- technical discussions are all over. Orders -- part orders for part machinery have already been placed. And we should be concluding all orders by -- within the next 2 months, but our implementation period, which we have suggested for ourselves, part machinery, which will be commissioned by March of '25 and the balance in the next year of '25, '26. We are on track as far as that commissioning of that project is concerned.

Okay. Great. And for FY '25, is there any increase in the percentage of specialty paper that you can guide us to?

Yes. We should see -- currently, we are operating at about 15,000 to 20,000 tonnes annually. We should see an increase of about 5,000 to 6,000 tonnes from that segment, which is a good 20% increase over the last year.

The next question is from the line of Pradeep Rawat from Yogya Capital.

So my first question is regarding the industry outlook. So can you give an industry outlook with respect to domestic paper capacity addition or any closure?

Pradeep, there is none that is there in the offering. We do not envisage any -- there is no question of any greenfield project coming in because there are no announcements, nothing has happened. And we do not know of any closures as well. So I think we are going to see a similar trend of volumes that are there in the market, similar supply side. In fact, demand may increase because now with the elections getting over, the new government coming in, settling in, we should see the implementation of the new education policy getting executed and that should give a fillip to the demand of paper -- writing and printing paper in the country.

Can you quantify that demand like in percentage terms?

That would be a little difficult right now because it will only depend on which grades, which classes and the -- for which the new education policy will be implemented. If they're done in a greater manner so only certain classes and not all, we should expect about a 5% increase in volume growth by the balance of the year.

Yes. And with respect to exports, you said that exports came down. So can you highlight the reason for that?

So this is that Red Sea crisis, which is happening. Gulf channel is at the moment under duress with all those pirates and all operating in that area, and that is what has impacted exports happening from India to the Gulf areas and European destinations.

And imports is happening from Southeast Asian country and Chinese?

Yes, yes, yes.

Okay. And can you give -- my second question is regarding the utilization rate, what is our utilization rate?

So our utilization overall is about 90% of installed capacity. But other -- if you see differently, it's 100% of machine available time. So there is [ downtime ] that the machine is required to undertake to change various parts of the machine and things like that. So available machine hours, running hours were are operating on 100% capacity.

Yes, understood. And my last question is regarding the guidance. Can you please provide the volume-based guidance for FY '25?

FY '25, we will touch about 165,000 tonnes with the implementation of the PM 1 and 2 towards the latter part of the year. We should see some increased volumes coming from the commissioning and modernization of these machines. So I think we closed this year at 156,000 tonnes. We should see ourselves closing at closer to about -- between 166,000 and 168,000, about 10,000 to 12,000 tonnes volume increase will be there in the current year.

[Operator Instructions] Our next question is from the line of Rohan Patel from Turtle Capital.

[indiscernible]

Sorry to interrupt, Mr. Patel, your voice is very much muffled, and it's quite low. If you're using the speaker phone, may we request to use the handset, please.

Sure. Now am I audible?

Yes, better.

Yes. So if we see your realizations for quarter 4, it's around 74,000. And can we see a 10%, 15% jump going forward? Or it will stay for 74,000?

No, we will certainly see a rise in pricing going forward. Maybe in Q2, it will remain on similar levels but Q3 onwards, we normally see a jump, historical trends suggest that. And with the economy and education policy opening up, we should see a revised impetus of volume growth and demand coming in, and that should help lift up the prices certainly by about, as you suggested, 10%, 15% is there for the asking going forward.

Okay. And if I can get what is EBITDA per tonne for quarter 4 FY '24 as a whole?

EBITDA per tonne? EBITDA per tonne would be in the range of about INR 22,000 per tonne on the financial year basis. And Q4, it's about INR 19,000 per tonne.