Kuantum Papers Limited — Q3 FY25 earnings call

Call held 14 Feb 2025

Management summary

Kuantum Papers reported a challenging Q3 FY25 with operational income declining 3% QoQ to INR 270 crores and net profit falling 30% QoQ to INR 21 crores, primarily due to high imports and global supply chain issues. Despite these headwinds, the company achieved healthy volume growth of 1,25,000 metric tonnes for 9M FY25 and maintained a strong EBITDA margin of 18.66% for the quarter. Strategic initiatives like a INR 40 crore cost optimization plan and a INR 735 crore mill expansion, expected to increase capacity by 50% by March 2026, are progressing well.

Highlights

  • Healthy volume growth with paper sales reaching 1,25,000 metric tonnes for the first nine months of FY25.

  • Strong EBITDA margin of 18.66% for Q3 FY25 and 22.02% year-to-date, supported by cost optimization and product mix.

  • Cost-optimization plan targeting annualized savings of INR 40 crores, including INR 15 crores from AI-driven Project Nirmaan.

  • Mill expansion project of INR 735 crores is progressing on schedule, expected to increase production capacity by 50% by March 2026.

  • Developed a new Kuantum Korra product variant with over 90% agro-furnish, offering exceptional smoothness and quality.

Concerns

  • Operational income declined 3% QoQ to INR 270 crores in Q3 FY25.

  • EBITDA decreased 17% QoQ to INR 50 crores in Q3 FY25.

  • Net profit fell 30% QoQ to INR 21 crores in Q3 FY25.

  • High levels of imports and Red Sea crisis are putting pressure on market prices and exports.

  • Rising wood prices due to competition from the MDF industry.

Key financials

2 periods

Q3 FY25

  • Operational Income
    ₹270 Cr
    QoQ -3%
  • EBITDA
    ₹50 Cr
    QoQ -17%
  • EBITDA Margin
    18.7%
  • Net Profit
    ₹21 Cr
    QoQ -30%
  • PAT Margin
    7.8%

9M FY25

  • Operational Income
    ₹830 Cr
    YoY -9%
  • EBITDA
    ₹183 Cr
    YoY -32%
  • EBITDA Margin
    22%
  • Net Profit
    ₹89 Cr
    YoY -41%
  • PAT Margin
    10.7%
  • Sales Volume
    1,25,000 metric tonnes

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
    • Mill expansion project to strengthen operational capabilities and increase production capacity by 50% ₹735 Cr
    We are also pleased to report that the mill expansion project, with an investment of INR 735 crores, is progressing as per schedule, with some project supplies and installations already having been completed. We expect the project to be fully commissioned by March 2026, further strengthening our operational capabilities and taking the production capacity up by 50%.

Guidance & targets

Cost Optimization

  • Annualized Savings Cost Optimization · annualized · High confidence INR 40 crores
    A comprehensive cost-optimization plan spanning 11 verticals was launched across the mill in November 2024, targeting annualized savings of INR 40 crores.

    — Pavan Khaitan

Profitability

  • EBITDA Margin Profitability · FY25 · High confidence above 20%
    And I think we should be able to maintain this above 20% for the entire year of '24-'25.

    — Vikram Kumar Khaitan

Capacity

  • Production Capacity Increase Capacity · by March 2026 · High confidence 50%
    We expect the project to be fully commissioned by March 2026, further strengthening our operational capabilities and taking the production capacity up by 50%.

    — Pavan Khaitan

Pricing

  • Paper Prices Trend Pricing · coming quarters · Medium confidence uptrend
    Prices are only going to go on an uptrend in the coming quarters. And I think by end of Q1 of the next financial year, we should see the turnaround happening, if not earlier.

    — Pavan Khaitan

Production

  • Overall Production Production · FY26 compared to FY25 · High confidence rise
    So overall we will see a rise in production even for the financial year '25 - '26 compared to this year.

    — Pavan Khaitan

What to watch in Q4 FY25

Cost Optimization Savings Realization

Next quarter
Current Plan launched in November 2024 targeting INR 40 crores annualized savings.
Target Progress towards achieving annualized savings.

Why it matters

Execution on cost efficiency is crucial for margin resilience in a challenging market.

A comprehensive cost-optimization plan spanning 11 verticals was launched across the mill in November 2024, targeting annualized savings of INR 40 crores.

Risks & concerns

  • High Imports & Red Sea Crisis Impact

    high

    Increasing imports are suppressing market prices, and the Red Sea crisis is causing high shipping costs, impacting exports.

    Management acknowledged

  • Rising Wood Prices

    medium

    Competition from the MDF industry is increasing demand for wood, leading to higher raw material costs.

    Management acknowledged

  • Cost Competitiveness of Paper Packaging

    medium

    Plastic packaging remains cheaper than paper packaging, requiring a conscious decision from consumers for environmental sustainability at a higher price point.

    Management acknowledged

  • Production Impact from Machine Upgrades

    medium

    Planned machine upgrades will cause 20-30 days of downtime per machine, specifically impacting production in Q1 FY26.

    Analyst acknowledged

Q&A highlights

7 direct
Volume growth drivers in a challenging market Direct
I think the volume growth is coming by way of consistency in our operations and what we have already created for ourselves in the market. We have a policy of being able to collect all our orders in advance and we produce to the orders that we collect.

Explains Kuantum's ability to achieve volume growth through consistent operations, strong marketing, and diverse product portfolio despite industry-wide declines.

Asked by Archana Gude

Industry demand scenario, pricing behavior, and import impact Direct
fair bit of imports happening. Imports are increasing of the varieties that we are dealing with. And that is what is suppressing the market even further. And added to that, as a country, we were being able to export a fair bit of a volume to the European and Western markets. That, unfortunately, is not happening because of the Red Sea crisis and shipping volumes and costs coming up high.

Provides a comprehensive overview of the current market challenges (imports, Red Sea crisis) and future demand drivers (government tenders, new education policy).

Asked by Archana Gude

Status of anti-dumping duty on paper Partial
the association of which we are also a part, we have put in a request, we have put the government on to the stream to look at this very, very seriously. It has come in in parts, for instance, on copier paper, there is some kind of anti-dumping clauses that are in consideration.

Indicates ongoing efforts by the industry to seek government protection against imports, with some initial progress on specific paper types, and hope for broader action post-elections.

Asked by Archana Gude

Sharp increase in wood prices and future availability Direct
the fact that there is quite an advent of another industry, which is drawing on wood supplies, which is the MDF industry. They are also capturing a large part of the wood supply in the market and that is what is impacting the wood pricing to go up.

Identifies competition from the MDF industry as a key factor driving up wood prices and highlights Kuantum's proactive measures in social forestry to ensure future wood supply.

Asked by Archana Gude

Confidence in maintaining EBITDA margins for FY25 Direct
I think what even right now what we have presented is that in the nine months of the current year, we have returned an EBITDA of 22%, which I think is quite phenomenal considering where the paper industry is headed... And I think we should be able to maintain this above 20% for the entire year of '24-'25.

Management expresses confidence in sustaining strong EBITDA margins for the full financial year, attributing it to ongoing cost efficiency and operational efforts.

Asked by Krushi Parekh

Status and future plans for the tissue paper plant Direct
We have put that project on hold for the time being. We postponed that because we saw a far better opportunity for ourselves in terms of renovating all our existing machines. And this project cost itself is to the tune of INR 735 crores... we will certainly be looking at setting up another tissue machine and or a specialty paper machine in future.

Clarifies a strategic shift in capital allocation, prioritizing the renovation of existing machines (INR 735 crores) for better returns before revisiting plans for a new tissue or specialty paper machine.

Asked by Prashant

Impact of machine upgrades on production volume Direct
downtime expected on each of the machines is between 20 days to 30 days... So overall we will see a rise in production even for the financial year '25 - '26 compared to this year. ... in first quarter when first machine goes into shutdown... probably the production in first quarter will be impacted.

Details the phased schedule of machine upgrades and confirms an expected production impact in Q1 FY26, providing clarity on short-term operational challenges versus long-term benefits.

Asked by Prashant

Paper industry cyclicality and outlook for margin bottoming out Direct
the cyclicality of the paper industry is reducing. Earlier, it was considered to be a seven-year cycle, but that has reduced to a much shorter period of one to two years now... I can safely say that we would be able to achieve an average EBITDA of almost about 23% to 25% if we average out in over five years.

Management provides a long-term perspective on the paper industry's cyclical nature, suggesting a shorter cycle and a healthy average EBITDA margin over five years, with potential for market reversal by Q1/Q2 FY26.

Asked by Bhavesh Chauhan

2 min read 7 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Kuantum Papers reported Q3 FY25 operational income of INR 270 crores, a 3% QoQ decline, with EBITDA at INR 50 crores, down 17% QoQ, and net profit at INR 21 crores, a 30% QoQ decrease. For the nine months ended FY25, operational income was INR 830 crores (down 9% YoY) and net profit was INR 89 crores (down 41% YoY). Despite the challenging environment, the company maintained a strong EBITDA margin of 18.66% for Q3 and 22.02% year-to-date.

Strategic Cost Optimization & Efficiency

The company launched a comprehensive cost-optimization plan in November 2024, targeting annualized savings of INR 40 crores, including INR 15 crores from AI-driven Project Nirmaan. Commissioning of twin roll presses for agro and wood pulp streets has led to reduced chemical consumption, effluent load, and 1,800 cubic meters daily fresh water usage. These initiatives, along with lower agro-pulp costs and improved product mix, helped sustain margins amidst market pressures.

Mill Expansion & Capacity Growth

The INR 735 crore mill expansion project is progressing on schedule, with some supplies and installations completed. This project is expected to be fully commissioned by March 2026, increasing production capacity by 50%. Management has prioritized this expansion over a previously considered tissue paper plant, deeming it more rewarding for existing machine renovation.

Industry Dynamics & Demand Outlook

The paper industry faces challenges from high imports, supply chain issues, and price corrections. The Red Sea crisis has impacted exports due to high shipping costs. However, demand for writing and printing paper is expected to pick up in coming quarters, driven by the publishing season, government tenders, and the new education policy, which will generate demand for new textbooks across 22 languages.

Raw Material Sourcing & Wood Availability

Rising wood prices are a concern, partly due to increased demand from the MDF industry. Kuantum is actively addressing this by significantly scaling up its social forestry programs, distributing 40 lakh saplings annually (up from 8 lakh previously). This long-term strategy aims to ensure increased wood supply in the next 1-2 years, as eucalyptus saplings take 3-4 years to mature.

Product Innovation & Market Positioning

Kuantum has developed a new variant of its Korra product, made with over 90% agro-furnish, offering exceptional smoothness and quality. The company's strong marketing presence across India and a diverse portfolio of over 18 paper varieties and numerous SKUs contribute to consistent volume growth and market leadership, insulating it from some import pressures, especially in Northern India.

Paper Packaging Market & Sustainability

The company is seriously exploring barrier-coated papers for food wrapping applications, a segment driven by the single-use plastic ban. While technology exists (with successes in Western markets), paper packaging currently faces a cost disadvantage compared to plastic. The shift will require a conscious decision from consumers and industry to prioritize environmental sustainability, potentially at a higher price point.

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