Kuantum Papers

Kuantum Papers achieved its highest-ever monthly production of 8,303 metric tons on Paper Machine 4 (PM4) in September and highest daily production of 360 tons in July 2025, following its successful upgradation. The company is progressing with Project Nirman, an industry 4.0-led AI-based transformation, and has completed the advanced process control baseline study for PM4. Further machine upgrades for PM1 and PM2 are slated for December and January, respectively, with PM3 upgrade expected by the end of FY26, aiming to increase total capacity from a current 450 tons/day to about 650 tons/day.

The paper industry faces a challenging environment marked by elevated input costs, particularly for wood, and subdued realizations due to low-priced imports. The company highlighted the inverted GST duty structure, where tax on paper and boards rose to 18% while converted products reduced to 5% and notebooks became nil-rated, leading to higher working capital and vulnerability to cheaper imports. Management has represented this anomaly to the government and GST Council, expecting a revisit in the next meeting, and is seeking safeguard measures like Minimum Import Price (MIP) to curb the rapid influx of low-priced paper imports.

For Q2 FY26, operational income stood at Rs. 280 crores, a sequential growth of 25.5% driven by higher production and sales post-PM4 upgrade. However, EBITDA for the quarter was Rs. 34 crores, with margins at 12.3%, a decline of 582 basis points QoQ. This compression was primarily due to a Rs. 3,200 per ton decline in net sales realization and a Rs. 1,300 per ton increase in production costs, largely from higher agro and wood-based raw material prices. PAT for the quarter was Rs. 6 crores, translating to a 2.07% margin.

The company is undertaking a significant CAPEX of Rs. 735 crores, with Rs. 435 crores already incurred and Rs. 300 crores remaining to be spent. This investment is primarily for upgradation, including Rs. 340 crores for machine upgrades (PM1, PM2, PM3, PM4) and Rs. 200 crores for pulp mill upgradation (Double Displacement System - DDS), with the balance for chemical recovery, power, and environmental initiatives. The peak term loan debt is projected to be in the range of Rs. 600-650 crores, with working capital at Rs. 50-80 crores, and the cost of debt is currently 8.5-9%.

Kuantum Papers is strategically shifting its product mix away from the notebook segment, which is impacted by the inverted GST structure, towards higher-value Maplitho grades and specialty papers. The company successfully developed a new cream-based paper, Kappa Premium 3, for coating applications, strengthening its specialty portfolio. The specialty paper segment is targeted to grow from its current 20-22% to 28-30% of volumes. Additionally, the company executed EUDR and FSC compliant orders and distributed 18.21 lakh clonal saplings under its Social Farm Forestry Program, reinforcing its commitment to responsible sourcing and sustainability.

While raw material costs, particularly for agro and wood-based materials, increased in Q2 due to floods in Punjab, management noted early signs of moderation in wood pricing and improving availability. They anticipate paper pricing to show an improved upward trend in Q3 and Q4, historically a stronger period. The ongoing projects, including the DDS technology for the wood pulp mill, are expected to improve yields, pulp quality, and reduce production costs, contributing to margin recovery and aiming for an overall FY26 EBITDA margin above 15%.