Kuantum Papers Limited (KUANTUM.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kuantum Papers Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Nupur Jainkunia from Valorem Advisors. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Nupur Jainkunia from Valorem Advisors. We represent the Investor Relations of 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 financial year 2026. Before we begin, a quick 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 beliefs as well as assumptions made by the 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 conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now I would like to introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. Pavan Khaitan, Vice Chairman and Managing Director; Mr. Vikram Khaitan, Chief Financial Officer; and Ms. Prachi Sharma, VP, Corporate Strategy. Without any further delay, I request Mr. Pavan Khaitan to give his opening remarks. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and welcome to the earnings conference call for the first quarter of the financial year 2026. Let me begin by sharing a few business highlights, following which our CFO, Mr. Vikram Khaitan, will take you through the financials. The domestic paper industry continues to face significant challenges, marked by persistently high domestic wood pricing and an influx of competitively priced imports. These pressures have resulted in a visible strain on sales and margins across the sector. Cheaper imports have impacted sales realizations and intensified competition in the domestic market, leading to lower net sales realizations. In response to the sustained industry appeals, the DGTR has recently initiated antidumping investigations into paperboard imports from Indonesia, signaling potential trade protection measures. Despite these hurdles, we are witnessing a clear acceleration in market preferences. There is a robust growing demand for sustainable, recyclable and agro-based paper products, particularly in specialty, food grade and packaging applications. This evolution aligns with tightening regulations, heightened consumer consciousness around environmental stewardship and a broad-based move away from single-use plastics. At Kuantum, we've aligned our long-term strategy with these evolving customer needs and paving the path for responsible and purposeful growth. I'm pleased to update you on our ongoing projects and performance this quarter. Our largest machine at the mill which, is Paper Machine 4 was successfully upgraded on 30th June 2025. With the addition of a modern shoe press from Bellmer, advanced draining and drying systems, a modified wood and oil-heated calendar and upgraded automation, we are poised for a substantial boost in productivity and efficiency. This will also support our diversification into higher-value writing, printing and specialty paper grades. We've also completed the retrofitting of our recovery boiler in July 2025, including the installation of a 2-stage causticizer and a new electrostatic precipitator. This will enhance our chemical recovery efficiency and optimize process performance. Operationally, both Paper Machine 1 and Paper Machine 2 posted their highest ever monthly production figures in this Q1 FY '26. PM 1 reached 1,860 metric tonnes in the month of May and PM 2 achieved its mark of 1,491 metric tonnes in June. On the digitalization front, project Nirman, our Industry 4.0 and AI-driven transformation, is progressing well with stable MAX system performance on key production sections. The Phase 1 implementation for PM 4 is ready to launch in Q2, expected to further enhance productivity, consistency and cost efficiency. From an environmental and sustainability perspective, I would like to share that we are now fully compliant with the European Union deforestation Regulation, which is EUDR, reinforcing our dedication to combating deforestation and promoting the sustainable management of natural resources. Our social farm forestry program has gained traction, and we covered almost 1,400 additional acres in the quarter, bringing the total area under plantation to 13,870 acres and positively impacting nearly 16,000 local farmers. These achievements and initiatives are in line with our vision and commitment towards sustainability, operational excellence and value creation for all our stakeholders. With that, I would now like our CFO, Mr. Vikram Khaitan, to walk you through the financial highlights for the quarter.

Thank you, sir, and good afternoon, everyone. Let me share a summary of our financial performance for the first quarter of the financial year 2026. For the quarter under review, our operational income stood at INR 223 crores, reflecting a decline of 20.6% year-on-year basis and 19.6% on quarter-on-quarter basis. This was primarily due to planned shutdown of PM 4 for its upgradation, which reduced production by almost 9,000 tonnes and in turn impacted both revenue and EBITDA margins. EBITDA for the quarter was INR 40 crores, down 43.6% year-on-year basis. The EBITDA margin stood at 18.1%. Net profit for the quarter was INR 12 crores, making a decline of 68.3% year-on-year basis. PAT margins were reported at 5.4%. With this, we can now begin the question-and-answer season.

[Operator Instructions] We have our first question from the line of Manan Poladia from MKP Securities.

Sir, my first question is on the lines of the specialty paper thing. So I know that we're one of the only 2 larger companies that are in the space, and we're trying to foray into tissue paper and other specialty grades. If you could provide a bit more color on what specific products are we looking to get into and what the competitive landscape is around that? And my second question is on the CapEx front. If you could provide an update or what sort of time line we are looking at for the CapEx to like get over, that would also be great. I think that's my two questions.

Okay. Thank you for your questions. I'll take them up one by one. On our specialty foray, we are looking at creating largely flexible grade food wrapping papers. And we are getting the rightful coating plant, which is going to be an offline machine and which is also part of this entire CapEx that we have planned for ourselves, and that is going to come on stream during the currency of the -- either this year or latest by next financial year. It took a little bit of time finalizing the technology and the machine components because there is a lot to play around with, and we have to be careful for our kind of CapEx that we are intending to incur. So this is on the specialty front. On the CapEx front itself, our total cost is INR 735 crores, out of which till date, we have already spent about INR 400 crores on the CapEx. This entire CapEx is going to come on stream by June of 2026. But by March of 2026, which is the end of this financial year, the major upgradations of all our machines, which will happen one by one. PM4 was already completed in June. All other machines are going to get upgraded. So the next financial year '26-'27, we'll see the full force of this entire upgradation and the positive impact coming out next year.

Sir, just a follow-up on the specialty paper thing. If you could -- since you're getting into food grade wrapping papers, I know there's one more other company that's in this. But apart from that, if you could explain the competitive landscape a little bit more, that would be really great.

So I think competitive analysis, the environment is positive because the kind of consumer offtake that is going to happen because of the single-use plastic ban is going to be quite positive. The demand is going to grow. And we are going to see a fair bit of competition coming in with people wanting to invest in this category. At the moment, as you rightly said, there is one big operator in the industry, but there are a lot of small time operators who've taken single, single machines and buying paper from outside, coating them and creating the rightful product. How effective they are versus us, how effective we will be, time will tell. But I'm hopeful that with our kind of size and our kind of technical advancements, we should be able to fare quite better.

We have our next question from the line of Krushi Parekh from BugleRock PMS.

So my first question is that how much of the decline in sales and profitability can be attributed to the planned shutdown? And is there anything else that you would want to bring out apart from that?

Yes. It's a good question, Krushi. The shutdown, which undoubtedly was planned and it was for a period of almost 25 days, as enumerated by our CFO, it led to a reduction of almost 9,000 tonnes, which has greatly impacted the performance of this quarter alone. And we just did an analysis in our Board meeting also that had this not happened, we would have maintained our EBITDA margins at 22%, which we recorded even in Q4 of last year. So I may say that EBITDA margins would have been in place. However, the sales reduction is on account of a margin variation, which is very, very marginal. Hardly any variation in sales pricing of this quarter. So I think the majority of the reduction in sales value and EBITDA is on account of the loss of production due to the planned shutdown.

So can we expect -- because we intend to upgrade our machines one by one over this current financial year, so can we expect a similar kind of numbers for next 2, 3, 4 quarters as well?

No, I wouldn't say so. As I said, PM 4 is our largest machine where our output is almost 300 tonnes per day. So the impact is more. Other machines, 2 machines are about 40 tonnes each and 1 machine is 120 tonnes. So the impact will be much lower. And by that time -- during the time that they will be shut down, our PM 4 is also going to work at a higher capacity.

Okay. I understand. And second thing, sir, about this antidumping investigation that the government is undertaking. How can we understand the stage at which these investigations are and how do we update ourselves in terms of, if at all, any potential action will come on these imports or not. So I'm just trying to get some sense on how can we measure it, how can we follow it up?

I'll let Prachi answer that for me.

So the DGTR has just initiated the investigations, particularly into virgin multilayered paperboard from Indonesia. So I think this is the beginning of these kind of investigations where the DGTR has taken cognizance of the fact that the domestic industry has been impacted by routing of imports through Indonesia, whether it is from China or other Southeast Asian countries. So right now, since it's at the inception stage, they've just launched it in July. It remains to be seen as to how this progresses. And basis this complaint and the Indian Papermakers Manufacturers Association, IPMA, which is following up, whether this gets extended to other grades of paper as well because the industry has been talking to the government for protection from these FTAs and also these routings from Southeast Asia.

Okay. But any specific time line that we can benchmark ourselves from the past other such incidences either in the paper industry or in some another industry that we can work with?

So normally, these things do take its course and time. Nothing can be expected in a short while. But I think only time will tell since it's the government who is in control of this entire process and they don't reveal much. One only gets to know once the process is complete. I understand that we may look at about 4 to 6 months for some kind of impact to come in. But it could go even up to a year, 12 months or so.

[Operator Instructions] We have our next question from the line of Arihant from Bowhead India Fund.

Sir, I wanted to know since the start of this year from April '25, has there been any increase or decrease in paper prices, if you can tell in rough percentage terms?

So this quarter, Q1, we, in fact, witnessed a slight marginal increase in prices compared to Q4. we were able to increase our prices by about up to 1%, about 0.7%, 0.8%. However, in July and August, prices have declined up to 7% to 8% from June quarter.

Okay. Sir, and how do you see the outlook in short term, like in next 3, 4 months? Do you expect them to remain at current levels? Or do you expect them to increase?

So normally, this Q2 is the lean season of the industry. So this reduction in pricing is on expected lines. We are quite well versed with handling such kind of declines through our own operations and efficiencies because on the other side, even raw material input and pricing helps us maintain our margins. In future, 2 things will happen. The printing and publishing industry comes into vigor post Diwali. And this year, Diwali is also earlier on 20th of October. So we will witness a price increase and escalation happening by middle of October or so. Also, this year around, the government tenders have opened up much earlier as compared to the previous years. So the moment they are floated and executed, that is going to release a lot of pressure from the market side and the demand and supply situation will get balanced out. And that will also help in price stability and with an upward trend.

Okay. Sir, can you provide some color like what led to the decline in July and August paper prices by 7% to 8%, a steep decline?

As I said, this is the lean season. The demand for paper sort of declines a bit because everybody starts preparing for the new education year, which is '26-'27 only post Diwali. All the printing happens post Diwali, and that's when the paper industry picks up. So this we consider as normal for the industry. And this trend as we've been witnessing for the past many years, nothing untoward about it.

Okay. Got it. And one more question I wanted to ask regarding like the investigation has started for the paperboards category. So any color whether -- regarding investigation on writing and printing paper, when it will happen or if the government will take that.

We are hopeful because IPMA is representing on behalf of the industry, and we are thankful to them that they have taken up the cause for at least investigating into paperboards. Paper can follow next, we are hopeful.

Sir, how has the competitive intensity been from imports? Has this been like similar to last quarter? Or has the intensity increased?

It's very, very similar. It's not increased. It's very similar. So it's nothing alarming.

[Operator Instructions] We have our next question from the line of [ Tanmay Mota ] from Lucas Investments.

Hi Sir, can you hear me?

No.

A bit unclear.

Hi sir, can you hear me now?

No Tanmay, your voice is quite breaking.

Is it still breaking?

Yes. Can you move to a better network area?

Yes, one second. Can you hear me now?

Yes, a bit better.

It's much better.

I just had two questions. So one was on the lines of sort of global [indiscernible].

Sorry to interrupt you Tanmay, but we are not able to hear you properly. I request you to rejoin again.

Yes, I'll just rejoin.

We have our next question from the line of Tejas Khandelwal from Prudent Equity.

Yes. So sir, would you be able to give the capacity expansion for each of our machines and the time line? Like the Machine 4 contributes highest part of our capacity? And how much capacity increase you have done in Machine 4 and the remaining 3 machines, how much capacity increase is going to be in each machine and the time line as well?

So PM 4, we were averaging about 275 tonnes per day. That will go up to between 315 and 325 tonnes per day. That also because it depends on the GSM that is being produced on the machine, lower GSMs even at full efficiency will lead to a total overall dipped output. That's why I'm giving a range of 315 to 325 tonnes. Our next upgradation will be PM 1, which will be in November. That current capacity is 45 tonnes. We are planning to take it up to between 80 and 90 tonnes per day. Second, next will be PM 2 in December, very similar to PM 1 from the current about 40, 45 tonnes is going to go up to about 80, 85 tonnes. And third, PM 3 will happen in March of 2026. And from the current levels of about 120 tonnes per day, it will go up to 200 tonnes plus. I hope that answers your question.