Kuantum Papers Limited — Q2 FY26 earnings call

Call held 10 Nov 2025

Management summary

Kuantum Papers reported a 25.5% sequential growth in operational income to Rs. 280 crores for Q2 FY26, driven by higher production volumes following PM4 upgradation. Despite record production, EBITDA margins compressed by 582 basis points to 12.3% due to lower net sales realization and increased raw material costs. The company is actively addressing industry challenges like the inverted GST duty structure and import competition while progressing on capacity expansion and product innovation.

Highlights

  • Operational income for Q2 FY26 stood at Rs. 280 crores, reflecting a sequential growth of 25.5%.

  • Achieved highest-ever monthly production of 8,303 metric tons on Paper Machine 4 (PM4) in September.

  • Achieved highest-ever daily production of 360 tons in July 2025, reflecting enhanced efficiency post-upgrade.

  • Successfully developed a new grade, Kappa Premium 3, a cream-based paper for coating applications, strengthening the specialty portfolio.

  • Successfully executed European Union Deforestation Regulation (EUDR) and Forest Stewardship Council (FSC) compliant orders in Q2.

Concerns

  • EBITDA margin declined by 582 basis points QoQ to 12.3% in Q2 FY26.

  • Net sales realization declined by Rs. 3,200 per ton, impacting margins.

  • Production costs increased by around Rs. 1,300 per ton, largely due to higher agro and wood-based raw material prices caused by floods in Punjab.

  • The industry faces challenges from an inverted GST duty structure and rapid influx of low-priced paper imports.

Key financials

2 periods

Q2 FY26

  • Operational Income
    ₹280 Cr
    QoQ +25.5%
  • EBITDA
    ₹34 Cr
  • EBITDA Margin
    12.3%
  • PAT
    ₹6 Cr
  • PAT Margin
    2.1%

H1 FY26

  • Operational Income
    ₹503 Cr
  • EBITDA
    ₹75 Cr
  • EBITDA Margin
    14.9%
  • PAT
    ₹18 Cr
  • PAT Margin
    3.5%

What they filed

Q1 FY27: revenue up 36.3%, net profit down 48.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue279 270 277 223 280 +0%290 +7%301 +9%304 +36%
EBITDA61 50 60 40 34 −43%39 −22%48 −20%40 −1%
Net profit30 21 26 12 6 −81%10 −53%14 −45%6 −48%
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.

Capital allocation

high confidence
  • Capex ₹735 Cr
    • Machine upgrades (PM1, PM2, PM3, PM4) ₹340 Cr
    • Pulp mill upgradation (Double Displacement System) ₹200 Cr
    • Chemical recovery, power sector, and environmental initiatives (water supply, ETP)
    Well, in a way, I would say all of it is towards upgradation because there is no new component which is being added separately. Our wood pulp mill is already in place, but we are adding a line of double displacement system, which is going to only add and improve the yield of our wood pulp that we already produce. All the paper machines are getting upgraded one by one. So, there is no new machine per se, but we have outlined about Rs. 340 crores for the upgrade of our machines out of the Rs. 735 crore. Rest is going in for pulp mill upgradation, which is about close to Rs. 200 crores and balance for chemical recovery and the power sector as well. And of course, another important part is the environment. We have to take care of our environment. So, sustainability initiatives like water supply, raw water supply, and effluent treatment plant upgradation, that is also being catered to in this upgrade.
  • Debt Debt disclosed Cost 8.5%
    The peak debt, we are going to be in the range of between Rs. 600 crores and Rs. 650 crores that is on the term loan. Working capital is very, very consistent at between Rs. 50 crores and Rs. 80 crores, which is a very, very low kind of working capital for our size and scale of business. And cost is in the range of 8.5% to 9%.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · next two to three years · Medium confidence 18-20%
    We see our EBITDA margins going up to, let us say, close to 18% to 20% under these challenging circumstances.

    — Pavan Khaitan

  • EBITDA Margin Profitability · FY26 overall · Medium confidence above 15%
    But we will certainly try and keep it above 15% this year overall.

    — Pavan Khaitan

Capacity

  • Paper Production Capacity Capacity · post-capex completion (FY27) · High confidence 650 tons per day

    From 450 tons per day today

    from our current 450 tons per day paper producing capacity, we intend to reach about 650 tons per day.

    — Pavan Khaitan

  • Total Capacity Capacity · March (2026) · High confidence 675 MTP
    Sure. We will certainly be targeting to achieve that. (in response to 'So, we will be done with our 675, I think, so in March we will be at 675 MTP, right?')

    — Pavan Khaitan

Volume

  • Volume Growth Volume · FY27 · Medium confidence 30-40%
    Yes, we should be able to achieve that. (in response to 'is it fair to assume that we can expect a 30% to 40% volume growth next year?')

    — Pavan Khaitan

  • Volume Growth Volume · FY26 · High confidence about 10%
    So, this year, we will see about 10% increased volumes from last year.

    — Pavan Khaitan

  • Volume Growth Volume · FY27 · Medium confidence 40-50%
    And going forward with the full financial year 2026-27, we should be touching about 40% to 50% volume growth next year.

    — Pavan Khaitan

Product Mix

  • Specialty Paper Segment Share Product Mix · going forward · Medium confidence 28-30% of volumes

    From 20-22% of volumes today

    So, currently our specialty paper segment is at a level of between 20% and 22% and we are targeting that this will touch about 28% to 30% going forward of increased volumes.

    — Pavan Khaitan

Project Milestone

  • PM1 Upgrade Completion Project Milestone · December 2025 · High confidence December
    PM1 is now slated for December

    — Pavan Khaitan

  • PM2 Upgrade Completion Project Milestone · January 2026 · High confidence January
    PM2 for January

    — Pavan Khaitan

  • PM3 Upgrade Completion Project Milestone · FY26 (March 2026) · High confidence by end of year
    paper machine 3 is going to end up being upgraded by the end of the year.

    — Pavan Khaitan

What to watch in Q3 FY26

Resolution of GST anomaly

next GST Council meeting (implied next quarter)
Current Anomaly exists, representation made to GST Council.
Target Revisit by GST Council and potential corrective action.

Why it matters

Directly impacts working capital, input tax credit, and competitiveness against imports for the company.

We have been informed that in the very next GST Council, this revisit of this entire anomaly will be done.

Risks & concerns

  • Elevated Input Costs & Subdued Realizations

    high

    The paper industry faces elevated input costs, particularly for wood, and subdued realizations due to persistent inflow of low-priced imports.

    Management acknowledged

  • Inverted Duty Structure (GST)

    high

    GST changes resulted in tax on paper/boards rising to 18% while converted products reduced to 5% and notebooks became nil-rated, leading to higher working capital and vulnerability to cheaper imports.

    Management acknowledged

  • Increased Imports

    high

    Rapid influx of low-priced, quoted and unquoted paper imports into the country, with 7-8% increased volumes, impacting domestic industry performance.

    Management acknowledged

  • Raw Material Price Pressure

    medium

    Production costs increased by Rs. 1,300 per ton due to higher agro and wood-based raw material prices, exacerbated by floods in Punjab, though early signs of moderation are noted.

    Both acknowledged

Q&A highlights

7 direct
EBITDA margin improvement outlook post-capex Direct
We see our EBITDA margins going up to, let us say, close to 18% to 20% under these challenging circumstances.

Provides a key profitability target and timeline for the significant ongoing capex.

Asked by Madhur Rathi

Impact of inverted duty structure and GST changes Direct
We have been informed that in the very next GST Council, this revisit of this entire anomaly will be done.

Highlights a significant regulatory challenge impacting the industry and potential timeline for resolution.

Asked by Arihant Baid

Strategy to mitigate impact of GST changes and import competition Direct
we are concentrating on sectors which do not require us to push out paper for notebooks, therefore, preventing our sort of input tax credit reversal as well.

Reveals a strategic shift in product focus to adapt to regulatory and competitive pressures.

Asked by Madhav Jhawar

Overall industry impact of increased imports and government intervention Direct
the government is considering putting in place an MIP on imports, which is a minimum import pricing mechanism, and which is certainly going to be helpful towards the industry.

Indicates potential government support to counter import dumping, a critical factor for the industry.

Asked by Deepak Ajmera

Reasons for margin decline and raw material cost outlook Partial
paper pricing is likely to show an improved upward trend in Q3 and Q4, which historically trends have suggested happens... And also with the kind of implementation of projects that we are doing on our machines and pulp mill, that should help reduce our cost of production.

Addresses the key concern of margin compression and outlines factors expected to drive recovery.

Asked by Krushi Parekh

Delay in PM3 upgradation Direct
There is only a very slight marginal delay happened because PM4 was delayed because of the India-Pakistan war, unfortunately, though we were able to restrain the delay and impact to our favor.

Clarifies the timeline for capacity expansion projects and the reason for any minor delays.

Asked by Manan Poladia

Total CAPEX and its breakdown (upgradation vs. capacity expansion) Direct
all of it is towards upgradation because there is no new component which is being added separately... we have outlined about Rs. 340 crores for the upgrade of our machines out of the Rs. 735 crore. Rest is going in for pulp mill upgradation, which is about close to Rs. 200 crores and balance for chemical recovery and the power sector as well.

Provides clarity on the nature and allocation of the significant ongoing capital expenditure.

Asked by Anant Mundra

Distributor demand and market share strategy Direct
We are hopeful that we will be able to create differential market segmentations going forward. We will not cut into any other capacity because India as a market is also growing.

Explains how the company plans to leverage its expanded capacity and product mix without directly competing with existing supply.

Asked by Krushi Parekh

3 min read 6 chapters

Detailed narrative

Operational Performance and Capacity Expansion

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.

Industry Challenges and Regulatory Environment

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.

Financial Performance Overview

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.

Capital Expenditure and Debt Profile

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%.

Product Strategy and Sustainability Initiatives

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.

Raw Material and Cost Outlook

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%.

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

More Forest Materials earnings calls