Financial Performance

Q2 FY27 Results:

  • Operational Income: ₹279 crores (declined 8% quarter-on-quarter)
  • EBITDA: ₹35 crores
  • EBITDA Margins: 12.4% (moderated by 84 basis points)
  • Profit After Tax: ₹2 crores
  • PAT Margins: 0.8%

The decline was primarily due to planned shutdown of PM 3 for upgradation and modernization, which impacted both production and sales volume. Margin moderation was attributed to lower net selling realization during seasonally lean demand period, coupled with higher raw material and fuel costs amid the ongoing West Asia conflict.

H1 FY27 Performance:

  • Operational Income: ₹533 crores (grew 16% year-on-year)
  • EBITDA: ₹75 crores (broadly in line with previous year)
  • Profit After Tax: ₹9 crores
  • PAT Margins: 1.5%

Higher depreciation and finance costs impacted profitability despite revenue growth.

Operational Highlights

Modernization Program:

  • Successfully commissioned PM 3 on 28th August 2026
  • Completed rebuild in record 59 days (against planned 65 days)
  • Upgraded machine incorporates advanced technologies including film press, I-table, table vision, web break monitoring, state-of-the-art calendaring system, and automatic starch cooking module
  • All 4 paper machines have now been successfully upgraded and modernized

Production Milestones:

  • Achieved highest ever monthly copier paper production of 4,482 metric tons in August 2026
  • Current production capability: 600 tons per day (optimized level)
  • Maximum capacity: 675 tons per day (at anchor GSM of 64)

Efficiency Improvements:

  • Double Displacement Digester System for wood pulping improved wood pulp yield by 1%
  • Steam consumption reduced from 1.8 metric tons to 0.8 metric tons per tonne of pulp
  • Major overhaul of 20-megawatt turbine generator and one 30-ton per hour boiler completed
  • Implemented single vendor chemical solution across both Agro Pulp Mill and Hardwood Pulp Mill under Total Cost Management initiative
  • Expected chemical cost savings: 1.5% to 2% on overall chemical consumption

Product Development:

  • Completed development protocol for PFAS-free 40 GSM Oil & Grease Resistant paper for food wrapping
  • Commercially launched in market in Q3 FY27
  • Specialty paper portfolio currently at 17-18% of revenue
  • Target: 25-30% specialty paper mix in next 12-15 months

Sustainability Initiatives:

  • Achieved highest ever clonal saplings production of 17.93 lakh saplings
  • Added 2,300 acres under social farm forestry program during quarter
  • Total plantation coverage: over 22,000 acres
  • Target: 1 crore saplings annually in next 2-3 years

Cost Structure Analysis

Cost Impacts:

  • West Asia conflict impact on chemical costs: ~2% on sales (primarily sulfuric acid)
  • Fuel cost increase: ~3-3.5% (due to coal supply constraints)
  • Raw material cost reduction: 15-17% quarter-on-quarter (both agro and wood)
  • Starch cost: ~2-2.5% of entire paper cost

Production Impact:

  • PM 3 shutdown period: 29th June to 21st August 2026
  • Production volume loss: ~6,300 tons
  • EBITDA impact: ~₹40 crores

Market Outlook & Guidance

Pricing Environment:

  • Q2: Minimal price hikes (only ~4% towards end of September)
  • Q3 & Q4: Expected price increases of 7-11%
  • Industry margins bottomed out at 10-12%, expected to reach 18-20% by FY28

Demand Scenario:

  • Q3 looking upbeat with tailwinds suggesting price improvement
  • Operating at 100% capacity utilization despite lean period
  • Company able to collect orders in advance for production lines

H2 FY27 Guidance:

  • EBITDA margin target: ~14%
  • Annual sales target: ₹1,300+ crores (on track)

Industry Dynamics

Import-Export Situation:

  • Imports stable due to high freight costs from West Asia conflict
  • Exports from India also decreased due to ocean freight rates
  • Demand-supply situation largely stabilized

Regulatory Developments:

  • Antidumping and anti-subsidy applications covering 40-140 GSM writing and printing paper under government consideration
  • MIP (Minimum Import Price) representation includes three-pronged strategy: MIP, anti-subsidy, and antidumping
  • Expected timeline for preliminary findings: 3-6 months
  • MIP already in place for kraft paper/paperboard varieties

Competitive Landscape:

  • Industry consolidation observed (ITC acquired Century, JK ventures in packaging)
  • Chinese paper industry facing challenges (Chenming closed operations, Nine Dragons closed 3 plants)
  • Indonesian exports remain stable

Capital Structure & Financial Position

Debt Profile:

  • Peak debt level: ₹700 crores
  • Debt repayment for FY27: ₹180 crores (on track)
  • Similar repayment amount expected for next year

Capital Expenditure:

  • Main modernization capex of ~₹700 crores completed
  • Additional CWIP of ₹139 crores for efficiency initiatives and environmental projects
  • Environmental projects: lime kiln and CNCG operation for gas handling
  • No further capex foreseen in near future

Depreciation:

  • Expected annual depreciation: ~₹80 crores

Management Outlook

Short-term (H2 FY27):

  • Focus on improving operational efficiencies and cost optimization
  • Price hikes expected to sustain for next 2 quarters
  • Better performance anticipated in second half

Medium-term (FY28):

  • Confidence in far better performance next year
  • Uncertainties expected to balance out
  • Enhanced capacities and efficiencies to contain cost impacts
  • Target to reach 18-20% EBITDA margins

Long-term Strategy:

  • Stabilize and maximize benefits of upgraded manufacturing infrastructure
  • Drive cost efficiencies through operational improvements
  • Expand value-added specialty paper portfolio
  • Diversify product portfolio while maintaining quality standards

Capital Allocation Priority

  • Primary focus on generating cash flow to repay debt
  • Concentration on debt repayment liabilities
  • No changes in equity capital structures planned
  • No current consideration of buybacks or dividend policy changes