Kuantum Papers Q4 FY26 earnings call

The operating environment remained challenging in Q4 FY26, with steady demand offset by continued pressure on input costs, particularly raw materials and fuel, and elevated energy costs due to geopolitical conflict in West Asia. Low-priced import pressures persisted throughout the year, leading to lower domestic pricing. The West Asia crisis also poses a risk of trade diversion, with export-oriented paper producers from China and Indonesia potentially redirecting surplus inventories to India at predatory prices, aggravating existing dumping in the domestic market. The industry is engaging with policymakers to seek safeguard measures against such inflows.

Kuantum Papers completed the rebuild of Paper Machine 2 in March 2026, enhancing its installed capacity to 75 tons per day through major upgrades. The 2-stage recausticizing plant was commissioned, improving process recovery efficiency. The Displacement Digester System (DDS) for wood pulping is under extensive testing, with commissioning targeted by mid-June, expected to enable lower temperature pulp cooking, higher yield, and lower utility costs. Post PM1 rebuild, average daily production increased by almost 20 tons per day on that machine in Q4.

For Q4 FY26, operational income stood at INR301 crores, registering a sequential growth of 4%, driven by an improved NSR of INR3,700 per metric ton. Despite input costs increasing by nearly INR2,000 per metric ton, EBITDA grew 22% QoQ to INR48 crores, with margins expanding 234 basis points to 15.90%. Profit after tax was INR14 crores, a 46% QoQ growth, and PAT margins improved to 4.75% sequentially.

For the full financial year 2026, operational income was INR1,093 crores, reflecting a marginal decline of 1% year-on-year, despite phased and strategic shutdowns. The company maintained a healthy production volume of 1,62,885 metric tons. FY26 EBITDA stood at INR162 crores, with margins at 14.80%, which was lower year-on-year. Margin pressure was primarily driven by a reduction in NSR of approximately INR2,000 per metric ton and an increase in cost of nearly INR3,200 per metric ton. PAT for the year was INR42 crores, translating into PAT margins of 3.84%.

Global pulp prices are currently in the range of $600-$700 per ton and are expected to remain stable due to added manufacturing capacity globally. Wheat straw pricing was challenging in Q4 FY26, being 50-60% higher compared to the previous year, partly due to floods impacting crop availability and its temporary use as fuel. However, management expects prices to come down once the rice sowing season starts in June. Input chemical costs have risen by 3-5% for some chemicals, which is difficult to pass on, leading to efforts to improve efficiencies.

Kuantum Papers is consciously reducing its share in the notebook paper segment from over 20% to 7-8% due to the 0% GST structure, which impacts input tax credit. This volume will be replaced by higher-quality papers for printing, publishing, copier segments, design notebooks, and high-end printing requirements. The company aims to dedicate 25-30% of its production volume to the specialty paper segment. Through AI implementation and other initiatives, the company expects a 5-8% reduction in total manufacturing cost from existing levels once all systems are in place.

As of March 31, long-term debt stood at INR720 crores. The company expects peak debt to be INR650-675 crores by the end of 2027 and plans to reduce debt by INR100-200 crores annually. The average cost of long-term funds is around 8.5%, and the company is actively exploring options for cheaper funds. After the current round of capex, no further major investments are foreseen, with the deferred tissue paper project being considered only once current operations are consolidated and debt is under control.