JK Paper — Q4 FY22 earnings call

Call held 18 May 2022

Management summary

JK Paper delivered a strong performance in Q4 and full year FY22, achieving record turnover, EBITDA, and PAT, driven by high capacity utilization and effective price increases. The new packaging board plant is ramping up ahead of schedule, contributing to future growth. Management expressed confidence in debt reduction and maintaining pricing power despite raw material cost inflation.

Highlights

  • Consolidated Turnover for FY22 reached ₹4,244 Crores, marking a new high.

  • EBITDA for FY22 surpassed ₹1,000 Crores, totaling ₹1,121 Crores.

  • PAT for FY22 achieved a record ₹544 Crores.

  • Full-year capacity utilization stood at 113%, increasing to 115% in Q4 FY22.

  • The new packaging board plant, commissioned on Jan 14, 2022, reached 85% utilization in March and is now over 90%.

  • Q4 FY22 saw price hikes of 10-12% QoQ and approximately 20% YoY.

  • Debt reduction target set at ₹300-350 Crores per annum for FY23-24.

  • Standalone EBIDTA margin for FY22 was 26% with an ROE of 18.1%.

Key financials

3 periods

Headline

  • Consolidated Turnover
    ₹4,244 Cr
  • EBITDA
    ₹1,121 Cr
  • PAT
    ₹544 Cr
  • Debt
    ₹3,000 Cr

Q4 FY22

  • Capacity Utilization
    115%
  • Interest Cost
    ₹32 Cr

FY22

  • Capacity Utilization
    113%
  • Interest Rate
    6.9%
  • ROE
    18.1%

What they filed

Q1 FY27: revenue up 6.3%, net profit up 48.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,424 1,390 1,652 1,600 1,421 −0%1,560 +12%1,807 +9%1,700 +6%
EBITDA222 140 199 226 165 −26%133 −5%226 +14%235 +4%
Net profit121 61 74 76 57 −53%15 −75%83 +12%113 +49%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Capacity
7,61,000 TPA Total
  • Writing Printing Paper 4,15,000 TPA 54.5%
  • Packaging Board 2,91,000 TPA 38.2%
  • Coated Paper 55,000 TPA 7.2%

Guidance & targets

Debt

  • Debt Repayment Debt · per annum · High confidence ₹300-350 Crores
    That is a loan repayment which will be close to Rs. 300 to 350 Crore

    — Ashok Gupta

Capacity

  • Sirpur Utilization Capacity · 2022-23 · Medium confidence 90%
    the smaller improvement capex are there which we will do in 2022-23 to achieve that 90% level

    — Shri AS Mehta

  • Ludhiana Plant Commissioning Capacity · sometime in Oct, Nov · Medium confidence Oct, Nov
    we are still hopeful that we should start the trial production somewhere in Oct, Nov

    — Shri AS Mehta

  • New Packaging Board Plant Utilization Capacity · in time to come · High confidence 100%
    now we will try to achieve 100% in time to come

    — Shri AS Mehta

Revenue

  • Additional Revenue from Full Utilization Revenue · full utilization · High confidence ₹500 Crores
    on overall topline full utilization can give upto additional Rs. 500 crs of revenue

    — Shri AS Mehta

Profitability

  • EBITDA Margin from New Units Profitability · current rate · Medium confidence 26-27%
    See the EBITDA I would say that current rate is what 26-27%, so maybe 1-2% here or there if the other factors remain the same

    — Shri AS Mehta

Other Income

  • Incentives Run Rate Other Income · next quarter onwards · High confidence ₹18-20 Crores
    What 30cr, No 30 cr is not the incentive it is something around 20cr or 18cr

    — Shri AS Mehta

Risks & concerns

  • Erratic coal supply from Coal India, leading to reliance on costlier imported coal.

    medium

    Coal India supplied erratically, especially in Gujarat, requiring purchase of costlier imported coal, though overall energy cost was contained in Q4 due to support for Odisha/Telangana plants.

    Management acknowledged

  • Global supply chain disruptions and logistic challenges affecting raw material imports.

    medium

    Challenges in raw material imports due to global supply chain issues led to cost increases, but production did not suffer.

    Management acknowledged

  • Rising global pulp prices, particularly for BCTMP pulp used in packaging board.

    medium

    BCTMP pulp prices increased from $600 to $900/tonne, impacting packaging board costs, but prices were passed on.

    Both acknowledged

  • Impact of European Union lifting ban on recycled paper imports to India on grade A paper prices.

    low

    Management believes that while recycled paper prices might correct, premium white paper prices will maintain their 8-10% differential and will not be significantly impacted.

    Analyst downplayed

Areas of evasion (2)

  • Product-wise NSR
  • Quantification of backward integration advantage

Q&A highlights

2 direct
Price hike in Q4 and coverage for inflation in chemical and coal prices. Direct
the price hike was close to something around 10-12% preceding quarter and compare to last year same quarter when you compare it is something around 20%, and yes we are more or less whatever chemical and commodity prices increase we were able to pass it on

Confirms the company's pricing power and ability to mitigate raw material inflation through price increases, indicating strong demand.

Asked by Deepak Lalwani

Future capacity expansion plans beyond the recently commissioned Gujarat packaging board plant. Direct
just after a expansion of Rs. 2000 Crores I don't think it is expected from us to invest further in the capacity immediately... the full you know impact of the expansion is yet to come we just started on January 14 and it will ramp up to its full capacity

Clarifies that the company will focus on fully utilizing existing and recently expanded capacities for the next 2-3 years, rather than undertaking major new expansions.

Asked by Bharat Bhagnani

Breakdown of blended NSR (Net Sales Realization) for Q4, interest cost calculation, and debt reduction targets. Partial
the NSR you have yourself quoted 69,000 and odd yes that the weighted average NSR but other thing it is not appropriate to give the product wise NSR for this point of time because this is certainly confidential information and I don't want to disclose this.

Highlights management's reluctance to provide granular product-wise pricing data, citing confidentiality, while providing clear guidance on debt reduction and interest rates.

Asked by Pradyumna

3 min read 7 chapters

Detailed narrative

Q4 FY22 and Full Year Performance Highlights

JK Paper reported its highest ever consolidated turnover of ₹4,244 Crores for FY22, with EBITDA reaching ₹1,121 Crores and PAT at a record ₹544 Crores. The company achieved an impressive full-year capacity utilization of 113%, which further increased to 115% in Q4 FY22. Standalone EBITDA margin for FY22 was 26%, and the Return on Equity stood at 18.1%, reflecting robust financial health and operational efficiency.

Capacity Expansion and Utilization Ramp-up

The new packaging board plant in Gujarat, commissioned on January 14, 2022, demonstrated a rapid ramp-up, achieving 85% utilization in March and currently operating at over 90%. Management aims to reach 100% utilization for this plant in the near future. The Sirpur unit, currently at 80%+ utilization, is targeted to reach 90% in FY23. These ramp-ups are expected to generate an additional ₹500 Crores in revenue, with ₹300 Crores from the packaging board and ₹150-200 Crores from Sirpur.

Raw Material, Cost Management, and Pricing Power

JK Paper successfully implemented significant price hikes, with Q4 FY22 prices up 10-12% QoQ and approximately 20% YoY, enabling the company to pass on increased chemical and commodity costs. While coal supplies were erratic in some regions, necessitating the purchase of costlier imported coal, overall energy costs were contained. The company acknowledged rising global BCTMP pulp prices (from $600 to $900/tonne) but noted that corresponding increases in packaging board prices helped mitigate the impact.

Product Mix and Market Leadership

The company maintains a strong market presence, holding a 29% market share in copier paper, 11% in coated paper, and 17% in packaging board. The total consolidated capacity is 761,000 tonnes, comprising 415,000 TPA for writing/printing paper, 55,000 TPA for coated paper, and 291,000 TPA for packaging board. The expansion in packaging board is expected to further strengthen its market share in this high-growth segment.

Debt Management and Financial Outlook

JK Paper's consolidated debt stands at around ₹3,000 Crores, with a debt-to-EBITDA ratio of approximately 2 times. The company plans to reduce debt by ₹300-350 Crores per annum in FY23-24. The interest cost for Q4 FY22 was ₹32 Crores, and the average interest rate for FY22 was 6.9%, with expectations to maintain it around 7% going forward. Management indicated that the full impact of the ₹2,000 Crores expansion is yet to be realized, which will further improve financial metrics.

Sustainability and CSR Initiatives

The company continued its focus on sustainability, adding 45,000 acres to its plantation area in FY22, the highest in a decade, and distributing 5.63 Crores saplings. JK Paper maintains a wood- and carbon-positive status. In terms of CSR, the company spent ₹10.44 Crores in FY22, reaching over 457,000 direct beneficiaries across 819 villages, with a focus on youth, women, and farmers.

Diversification into Defense Business

JK Paper has diversified into the defense sector through an acquisition, which is now a division of the company. This business focuses on high-potential areas such as night vision cameras, on-board computers for torpedoes, and civilian applications like people counting systems and aircraft movement tracking. Management highlighted the government's increasing emphasis on domestic procurement in defense and the business's alignment with digitalization trends, including IoT applications.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Forest Materials earnings calls