Kuantum Papers (NSE:KUANTUM) Q2 2027 Earnings Call

0:00 Good afternoon, ladies and gentlemen. Welcome to Kuantum Papers Q2 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after management's opening remarks. Please note that this conference is being recorded. I now hand the conference over to Mr. Navi Nagarwal, Head Institutional Equities from SKP Securities Limited. Thank you. And over to you, sir. Good afternoon, ladies and gentlemen. It's my pleasure to welcome you on behalf of Kuantum Papers and SKP Securities to this financial results conference call.

0:48 We have with us Mr. Pawan Khitan, Vice Chairman and Managing Director Mr. Jardeep Hira, Hold Time Director and CEO, Operations Mr. Vikram Kumar Khetan, Chief Financial Officer and Ms. Prashi Sharma, Chief Strategy Officer. We'll have the opening remarks from the management followed by a Q and A session. Thank you. And over to you, Pawanji. Thank you, Navin. Good afternoon, everyone. It's a pleasure to welcome you all to our earnings conference call for the second quarter and first half of the financial 2027. I would like to thank all participants for joining us today. This quarter is traditionally the lean season for the paper industry, which was further impacted by a surge in cost of inputs.

1:38 While domestic wood prices have softened due to improved availability, higher costs of agricultural materials and fuel costs, along with the impact of the West Asia war on chemical costs, continue to exert pressure on margins, reinforcing the importance of operational efficiency and cost optimization by the industry. Moving to Kuantum's operational highlights. We achieved a key milestone in our ongoing modernization program with the successful commissioning of PM3 on 08/28/2026, completing the rebuild in a record fifty nine days against the planned shutdown period of sixty five days.

2:23 The upgraded machine incorporates advanced technologies, including a film press, I table, table vision, web break monitoring, a state of the art calendaring system and an automatic starch cooking module. These enhancements are aimed at improving production efficiency, strengthening process control and delivering superior paper quality, further reinforcing our manufacturing capabilities and product competitiveness. We are proud to share that with this commissioning, all four paper machines have now been successfully upgraded and modernized in line with our mill upgradation plan. The plant also made meaningful progress in the fine tuning and optimization of the double displacement digester system for wood pulping.

3:18 The system has improved wood pulp yield by 1%, while we have seen a reduction in steam consumption from 1.8 metric tons to 0.8 metric tons per ton of pulp. These improvements have enhanced raw material utilization and reduced energy consumption, strengthening our cost efficiency and overall manufacturing performance. At the plant level, we achieved our highest ever monthly copier paper production of 4,482 metric tonnes in August 2026, reflecting our ability to cater to market demand for high quality A four paper.

4:03 During the quarter, we also undertook a major overhaul of our 20 megawatt turbine generator and 130 tonne per hour boiler with the objective of enhancing equipment efficiency, reducing energy consumption and ensuring reliable, sustainable plant operations. Additionally, under our total cost management initiative, we implemented a single vendor chemical solution across both agro pulp mill and hardwood pulp mill, delivering cost savings and further strengthening our focus on operational efficiency and cost optimization. On the product development front, our research and development team completed the development protocol for PFAS free 40 GSM oil and grease resistant paper for food wrapping purposes, and this paper has been commercially launched in the market in Q3.

5:01 This strengthens our specialty paper product portfolio and supports our focus on developing value added products for the evolving customer requirements. Sustainability continues to be an integral part of our long term strategy. During the quarter, we achieved our highest ever clonal saplings production of 17.93 lakh saplings. We also added about 2,300 acres under our social farm forestry program during this quarter, taking our total plantation coverage to over 22,000 acres. These initiatives reinforce our commitment to developing sustainable sources of raw materials and responsible resource management.

5:50 Going forward, our focus remains on maximizing the benefits of our upgraded manufacturing infrastructure, driving cost efficiencies and expanding our value added specialty paper portfolio to support sustainable profitable growth. With that, I would now like our CFO, Vikram Ketan, to take you through the financial performance for the period under review. Over to you. Thank you, sir, and good afternoon, everyone. Let me now take you through the financial performance for the second quarter of financial year twenty twenty seven. For the second quarter of financial year twenty twenty seven, operational income stood at INR $2.79 crores, declining 8% quarter on quarter.

6:36 This was primarily due to plant shutdown of one of our paper machine lines for upgradation and modernization, which impacted both production and sales volume. EBITDA stood at INR35 crores with EBITDA margins moderating by 84 basis points to 12.4%. This was primarily due to lower net selling realization during the seasonally lean demand period, coupled with higher raw material and fuel costs amid the ongoing West Asia conflict. Profit after tax for the quarter stood at INR 2 crore with net margins at 0.8%. Now coming to the performance for the first half of financial year twenty twenty seven. Operational income grew by 16% year on year to INR $5.33 crore. EBITDA stood at INR 75 crore, broadly in line with the previous year.

7:29 However, higher depreciation and finance costs impacted profitability with profit after tax for the period stood at INR 9 crores with paid margins at 1.5%. Going forward, our focus remains on improving operational efficiencies, optimizing costs and strengthening profitability through operational improvements. With this, we can now begin the question and answer session. Thank you. Thank you very much. We will now begin the question and answer session. Each participant is requested to limit himself or herself to a maximum of two questions. Time permitting, we shall revert for any further questions that you may have that remain unanswered.

8:16 Anyone who wishes to ask a question may press star and one on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants have requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sandia Jain from CarePMS. Just one question on the side of cost. Could you quantify the amount by which the cost has increased specifically because of the West Asia war? Well, they have impacted cost of chemicals, particularly sulfuric acid, which for which the resources come from West Asia.

9:07 And I think the impact is close to about two odd percent on sales if you take the entire chemical composition for the operation. That is on quarterly basis or monthly basis? Quarterly. Okay. And because of that, the fuel cost would have also increased. So that would have increased our costs of manufacturing of bringing in the raw materials. So does this 2% incorporate that as well? Yes. So the fuel cost primarily has been on the increasing trend, and the impact is going to be around 33.5%. Okay. And what would have been the relief that we would have got from the wood cost decreasing?

9:58 So overall, if we see on the contribution level and on the financial terms, Overall, both agro and both, we have been able to reduce overall cost and consumption by around 15% to 17%. 15% to 17%? Yes, of the raw material consumed vis a vis Q1. Okay. Could you quantify that number? The absolute number? Absolute numbers. I'm sorry, absolute numbers we won't be able to exhibit right now. This is more of a trend line that we are suggesting for the moment. Okay, got it. And how is the demand scenario looking like? Because as you mentioned quarter two was a lean quarter. So given the currency would be a better quarter, do we think we'll be able to pass on any further price increases?

10:52 Yes. Q3 certainly is looking upbeat. There are tailwinds suggesting that there would be a price improvement. However, looking to the Q2 performance, even despite passing through a lean period, we were still able to sell whatever we produce. We were still operating to 100% capacity utilization because of the way we have been able to make our market presence felt and we are able to collect orders in advance for our production lines. So did we take any price hike in quarter two? Quarter two, no, only towards the end, which didn't really have any impact on the Q2 financials. Q3 will certainly be better in terms of price realizations for us.

11:42 Okay. Do we have any numbers by or percentage by how much we plan to increase or pass on the price hike? We are expecting prices to increase in the range of 7% to 11%. Okay. That is it from my side. Thank you. Thank you. Thank you. Next question is from the line of Purba Zaveri from Ionic Wealth. Please go ahead. Hello. Good morning, sir. Good morning. So sir, just wanted to get a sense on the industry side. How the industry is looking? How the imports are shaping up for the paper as well as for the imported pulp as well? What is the price of the pulp right now, which we are also importing?

12:31 And can you also give a broad sense on, you know, how do you see for the next one to at least next up or next two years down the line, how do you see the wood prices trending going forward, sir? So that would be from my answer. Yes. So over two years, we are looking at incremental increase on globally, yes, I'm talking about globally, the pricing going up, which are at present in the range of 3% to 5%. And we could see the trend is moving up as global scenario is coming down. And similarly, as Pawanji said, we are looking at increased realizations as well in the domestic market.

13:19 If we talk of imports, we are as Ipam, we are looking at some support from the government bodies also putting the antidumping duties across all grades, which will be benefited by the industry. Also, I think imports are pretty much stable at the moment. We haven't seen an increase in imports happening, which they normally have occurred in the last two years, they have subsided to quite an extent because, again, because of the Gulf Coast situation and cost of freights and sort of cost of freights remaining at a high level. So that clearly has impacted and dented the volume of imports coming in and which I feel is stable and not impacting the industry unfavorably.

14:17 Sir, regarding the wood wood chip prices, I think it's around INR 12,000 a tonne. How do you think how do you see that going forward, sir, for the next few years? We clearly see an increase in availability of wood material, which should help in positively assessing and impacting the pricing of that product for us. Wood as a raw material should be more available in future and the pricing at least being stable or lowering, but certainly not increasing. And I think supporting that would be our own sort of clonal sapling increment that we have been able to achieve and we are going to sort of target achieving about INR 1 crore saplings annually in the next two, three years.

15:17 Next question is from the line of Utkarsh Nabandhi from Anant Rathi. Please go ahead. Yes. Hi. Good afternoon, sir. Sir, my question is that, like, we are seeing that the paper imports in India has gone down to multi month low level because of the increase in the ocean freight rate. And you have mentioned that we have taken certain price hike of 3% to 5%, and we expect more price hike to happen in the near future. So whether those price hikes are temporary in nature, do you think so that we can see a rollback of such price hike once the ocean freight rate normalizes?

16:03 Or do you think so these price hikes are going to sustain at least for the next two, three quarter period? So, no, I feel that these price hikes are going to be sustained at least for the next two quarters, primarily because the second half of the financial year normally is considered better for the industry, where all the fresh demand from all kinds of sectors for paper consumption sectors come in. So the price hike is going to be more sustained over the next two quarters. And as you said that the imports have come down, but so have exports. Exports have also seen a downturn from India to various parts of the world.

16:50 Again, the impact is because of ocean freights going high. So whatever was getting exported earlier is finding its way into the domestic market from the Indian players. So there is a kind of a stability on the demand and supply situation as far as paper industry is concerned. And sir, like do you believe that the recent price increase, which we have taken is sufficient to cover up the cost inflation pressure, which we are seeing in starch or in coal coal, like in the H2 FY twenty twenty seven versus what we have seen in the H1 FY twenty twenty seven? Well, this is a constant, I would say, competitive nature of the industry.

17:37 We can't really foresee whether what is enough, how much further cost impacts can come in because the both move very, very differently. It's certainly not a cost push industry where pricing can be increased if your costs increase. So those are happening at their own level and pricing increase is happening at another at the market operational forces level. The bright side is that prices have increased and as I'm saying that they are likely to remain on upward trend for the next two quarters at least. Me see. Let see if you can guide, what would be the share of the starch cost as a proportion of our revenue? And what would be our margin guidance for H2 FY 'twenty seven?

18:25 Well, starch cost would be no more than about 2%, percent, 2.5 of the entire paper cost. So there are many other factors. Starch is only one component, which is the cost which is rising. There is lot of other chemicals like sulphuric acid I mentioned in my opening statement. Raw material costs like beet straw, they are increasing. Fuel cost is increasing because coal supply is in a shortage kind of status. Most of the coal in India is getting supplied to power plants. So leaving the industry to getting their supplies only from the open market, which has increased fuel costs for us. So there is a lot of differential factors at play.

19:15 Costs have risen on differential terms. We are making everything making sense out of everything by getting the best output, doing our cost optimization and preparing our products accordingly and getting the best realization possible from the market for our products. What would be your margin guidance for H2 FY 'twenty seven, sir, if you can guide? I think it should be in the range of about 14 odd percent. Okay. Thanks a lot. Thanks a lot, sir. Thank you. Thank you. Next question is from the line of Madhav Drawar from SKP Securities. Please go ahead.

20:01 Hi, sir. Good evening. So my first question is on the K-five side. For K-five, what will be the operation capacity in q three and q four? And what will be the production run rate going forward in this year and FY 'twenty eight? So we should be able to produce marketable quantities, finished quantities of close to 600 tonnes per day. And I mean going forward, the optimization though we have the capacity to produce six seventy five tonnes as well, then that's what the project implementation was for. But that's on an anchored GSM of 64.

20:48 Market doesn't the market trending suggests it's moving lower and lower and a lot of our orders are coming in at 52, 54 and 58 GSM. So even though we are being able to charge a higher price for these lower GSMs, the product mix that we have defined for ourselves restricts our production, which is optimized at level of about 600 tonnes per day. Got it, sir. And so there was this seasonal IP, I'm getting the INR $6.75 crore INR $7,700 crore CapEx, which we had earlier announced that now INR 190 crores. Now I'm seeing another CWIC of around INR 139 crores. So what is that about?

21:36 So these are only efficiency initiatives, which were defined along the way. I mean, in such a large project implementation, we found that there were certain other auxiliary items that needed to be installed to get the rightful efficiencies and that is what accounted for this amount that you're saying. Also currently there are two environment requirement projects that are in the state of getting implemented, which is the lime kiln and the CNCG operation for handling all the gases that emanate from our operation. So those are what is under implementation.

22:25 Okay, got it. So what will be the full year CapEx in FY '27 and what kind of decisions are we going to look at by the end of this FY '27, '28? So CapEx has completely been covered. There are no further amounts that we are going to foresee for CapEx in the future, in the near future. I mean, we've completely and exercised our options and I'm proud to say that we have successfully completed the implementation. As far as depreciation is concerned, Vikram, do you have? Around it will be somewhere around INR80 crore per year.

23:12 And can you please throw some light on the wheat straw prices? So earlier there were some reports that The Punjab wheat production has been the highest. So what is your take? Yes, wheat straw pricing remained icy as of now, primarily because of unpredicted rains in the area and that too happened during the harvesting time of bedding. So there is bit of a until the festive is over, and we see it coming normalized post festive days. Okay. Okay.

23:59 Yes. So you're saying something? So I think currently there's a bit of an aberration, but post Diwali we see the wheat straw pricing coming down. Right now the entire labor force is involved in getting the rice crop harvested. So there is loading and unloading sort of availability of labor force for loading and unloading of vehicles is not there. So temporarily there is a kind of a scarcity situation, which is driving up pricing. So this higher pricing cannot really be accounted for as a normal situation, which is why because it's temporary. And post Diwali, we'll see the stock pricing normalizing.

24:47 And sir, last, I have just one question. So as you had earlier mentioned that coal availability is bit of a challenge. So are we getting our coal efficiency in the open market? Or is there a crisis over there as well? And what percentage of our power requirement, power mix is coming from coal? Normally, we are at 85%, 15%, coal and agro. Availability is not a concern, but yes, the allocated coal coming from the sanctioned, there is a concern because that has been directed to power sector primarily. Availability in the open market is there, only price competitiveness is a bit higher. Okay. Okay. That's it from my end. Thank you.

25:36 Thank you. Thank you. Next question is from the line of Nitin S. Dharmavat from Aurum H. Please go ahead. Yes. Thank you for the opportunity. Am I audible? Thank you. Yes. Yes. So first of congratulations for completing the expansion in record time. I just wanted to understand, you mentioned that last time that our revenue guidance remains 1,300 crores for the financial year 'twenty seven. Now with this some production stoppages due to expansion. Where are we now? And are we on target for this? And also wanted to understand the specialty mix now versus 25%, 30% target that we had given earlier.

26:28 So, yes, we are heading towards achieving our annual targeted sales value of INR1300 crores plus. We are going to be achieving that. As far as specialty paper portfolio is concerned, we are currently at a level of about 17%, 18%. And going forward, we will be sort of touching our target of 25% to 30% in the next year's time, twelve fifteen months time, because a lot of R and D is required to establish the rightful production and product quality specs on our machines. So we don't want to do it in a hurried manner. We will be taking our time to come out with the rightful product, rightful cost and create the rightful market for it.

27:19 Okay. And what are the September, October volumes and PM3 utilization and has the environmental clearance EC come through? So EC, we have applied. It's in the advanced stages. We are likely to get the relevant approvals soon enough, sooner than later. As far as PM3 in operation in October, it's pretty stable. I mean we've come to establish it at an optimized level very, very soon, which is complements to the entire team. And we are on our way to executing and implementing that completely. Wonderful. Okay. And so what is the annualized saving from this PCM contract?

28:07 We said that for the chemical we have one big contract now rather than a smaller one. And how long is the vendor lock in? And will it not expose us to a single vendor supplier risk and can cost the pricing leverage later? Not so in that case because both the lines have a different vendors. But we already have all the vendors portfolio and the chemical supplies coming in earlier. We have tested them, but the best one wins. And assumed cost saving would be around 1.5% to 2% on the overall chemical consumption. Okay. And can you also quantify the quarter two impact of the PM3 shutdown, that is from January 29 to August 25 on production volume, revenue and EBITDA? And how much of the margin gap to the 16% to 18% guide is shutdown related?

29:04 And how much is it cost? So around the production loss was around INR 6,003 hundred tonnes approximately. So that's primarily coming from PM3. And at EBITDA levels per tonne, approximately INR 40 crores would be cost on the top line. Got it. Got it. And what is the remaining INR 139 crore of capital work in previous CWIP? And why did payables jump? 139,000,000 is primarily the balance part of the project that had been outlined earlier. They are primarily towards environmental projects like LimeKill and CNCG.

29:51 So they are getting implemented in Q3 and that's what the outlay is for. And I mean, they are happening as per schedule and they will be spent out of these CWIP amounts. Got it. Got it. Also wanted to understand, you mentioned that now the demand scenario looks quite robust. So how confident are we for the current quarter and the next year? Current quarter will be too early because we already gone through two months of the quarter. So it won't be justified.

30:39 But wanted to understand what the subsequent year, the next year, that is financial year '28. Do you see this is going to spill over next year as well considering the global challenges that we have? My personal opinion is that we should see a far better performance in the next year, financial year 2027, 2028. I think the uncertainties cannot be there for so long. They are going to get balanced out. Even if the war situation remains or any uncertain disturbance comes in, by now the economies and the markets have by and large absorbed the impacts of such uncertainties.

31:24 And going forward, the way we are positioned, we are quite confident that with our enhanced capacities and efficiencies of higher productions, we should be able to contain those impacts even further and come out with a more robust performance going forward. Okay, sir. Thank you and wish me the best. Thank you. Thank you. Next question is from the line of Samad Singh from TPS Capital. Please go ahead. Good afternoon. Thank you for the opportunity. You mentioned the ADD and the anti subsidy applications covering the 41, 40 GSM writing and printing paper. So where do this time procedurally and what is the realistic timeline for preliminary finding?

32:19 So good part is that the relevant government departments have taken our representation on board. They have listed it out for determination and sent it to various other departments for their comments, basis which they will be able to define the way going forward on how and when to implement the anti subsidy duty or the anti dumping duty structure. And normally, once this happens, it takes between three to six months for successful completion. Got you. Okay. And the second part you mentioned on the reduced imports due to higher freight rates. So is my understanding correct that the higher freight rates due to the war have been a net positive for the industry and for our business?

33:19 Well, overall, yes, that would be the right assessment. But also the fact is that at the same time, exports from India to foreign markets have also decreased. So in a way the supply and demand situation has by and large stabilized. Once they start regenerating, one will the industry will have to redefine the market strategy and rediscover the markets abroad in order to keep this demand and supply situation on balance. Got you. And the last one was, what are the price hikes that we have taken both in quarter one and quarter two? Quarter one, no, there was no price hike whatsoever. Quarter two also largely the entire period remained without a price hike. We were able to initiate one only towards the last week of September.

34:15 That would be in the range of about four odd percent. But now going forward in Q3 and Q4, we are going to sort of initiate and are hopeful of initiating a price hike of between 7% to 11% overall. And just to clarify, in quarter one, I believe the industry had tried to take a price hike, but that was rolled back. Is that correct? And have you been able to maintain the price hike that we've taken in quarter two end of quarter two? Yes, we have been able the price hike is getting maintained what the industry has initiated in Q2. And I think going forward, the second half of the operational year largely is far better than H1.

35:03 And we are observing and budgeting for price hikes to go higher in H2. Got you. And sorry, one last one. Until ADD comes into place, are we looking at some sort of other help from in terms of either QCO or MIP that similar to what they've what we've got in the paperboard segment? So the representation that has happened to the government includes MIP as well. So there is a three pronged strategy that has happened on behalf of industry, which is MIP, anti subsidy and anti dumping. So the good part is that MIP is already in place for the kraft paper varieties, paperboard varieties that's already in place.

35:56 So our segment, which is the Writing Printing Paper segment has been taken up next. And hopefully, we'll see a similar favorable dispensation from the government for our section as well. Thank you very much. Thank you. Thank you. Next question is from the line of Arjun Vineethambe from Your Request. Please go ahead. Good morning, sir. My only question is, what is the situation on the sizing and cost and depreciation cost? Like when is the deleveraging benefits going to kick in? So today, we are at our peak debt level of about INR700 crores.

36:44 It's only going to improve from here. I think the next two years, it's the impact of interest and depreciation is relatively higher. We should be able to see it through with a better business prospect coming in for at least financial year 2728, which is closer for budgeting purposes. We are looking at doing a good operational revenue and profitability to be able to take care of both these options. And I think post that the reversal in leveraging will start, deleveraging will start and we will come on to a good operational level. Okay. That's great. And what are the total volumes sold? And what are the realizations we got in Q1 and Q2? Because in Q1 FY 'twenty seven, we have said that realizations would be around $72,000 to $75,000 per tonne in the next three to six months. So are we going towards that or below that? Like what's the trend? Is it still falling? Has it bottomed out or is it trending?

38:02 Where production is concerned in Q1, we were at about 46,000 tonnes level. This quarter because there was a shutdown of our PM3, lost about 6,000 tonnes volume and we have on the remaining machines we operated at 100 capacity and were able to get an output of 14,600 tonnes. Where realizations are concerned, we are on track. We've been able to implement a price hike in last week of September, as I mentioned earlier, which we are sustaining and we are looking at further price hikes in Q3 and Q4, taking the overall price hike to between 7% to 11% by the end of the year.

38:50 Okay. Okay. That's great. And not only from deleveraging point of view, but with respect to favorable environment in paper industry, how much margin expansion are we expecting? Like is the worst really behind us or is it still uncertain? I would like to reckon that the worst is behind us. It's only going to grow better. We have bottomed out as far as industry margins are concerned. We've reached levels of about 10% to 12%. An upward trend is what is getting suggested through association meetings and where we talk to other industry experts. And we should be able to reach back to levels of 18%, 20% EBITDA levels by the next financial year.

39:40 But the next financial year, sir? Yes. So from a point of view, what is your vision for next one year and like what's your vision 2030? Well, right now, the effort is towards stabilizing and getting the cost benefits and efficiency improvements that we've outlined as part of this project implementation. The good part is that we have achieved productions that were enlisted for all the core machines. And as now that the project implementation is over, the team is focused on getting the rightful cost initiatives and implementing various techniques to reduce and optimize costs and increase efficiencies.

40:32 Also along the way, we would be diversifying our product portfolio and entering the Specialty Paper segment and that effort is going to help also bring in a positive impact on our top lines and bottom lines. Okay. Thank you so much. And what was the volume growth and value growth in this quarter? This quarter, we've come down. As I said that 6,000 tonnes was reduced because of PM3 shutdown. But next quarter, we're going to regain that and Q3 should be better, far better than Q2. All right. All right. And regarding the MIP, but like as much as I know, in August 2025, the MIP got canceled, right? So after that, what is the situation on that?

41:34 So as I said that MIP for the paperboard craft segment has already been accepted and notified. And that segment is sort of getting the benefits of MIP that has been suggested by the government. Our MIP for the Writing Printing Paper segment is already in under investigation by the government And hopefully, we should see some kind of favorable outcome by the next three to six months. And the debt repayment for this year would be around INR 175 crores to INR 200 crores, am I right? No, for this year, yes, the total was INR 180 crores, which is on track and there is a similar amount for next year as well.

42:29 That's in FY 2027, right? That's right. Okay. Thank you so much. All the best. Thank you. Next question is from the line of Ranveer Kattaria from BRK. Please go ahead. Yes. Congratulations for the good set of numbers in this tough time. So I have few questions. So, firstly, I want to ask, are you doing something on the tissue lines? If yes, what percentage of the total revenue it is? No, we have not entered ventured into the tissue line. Right now, our current four machines, which are primarily for generating writing and printing paper products, those are the ones we've optimized and improved and upgraded.

43:23 And they're going to give us better varieties of writing and printing paper. As I said on our PM3, which we just commissioned, we've additionally put in a film press, which will help us get size surface size papers as against non surface size papers that we were doing earlier. So, a better segment of printing paper is what we're going to start catering to and get better economies of scale there. Okay. Okay. And you have raised 100 CRO of MCDs, I was just checking from the DISTOW exchange you have uploaded. So what is this all about? Like what is the end use of that? We have utilized the same for prepayment of existing term loan and we have been fully utilized.

44:13 Okay. Okay. And I was just checking your cost of goods sold has reduced by almost 1.5% while prices of these stores have increased over the last three months. So what is like how are you managed to reduce this cost of goods sold? Can you please highlight on this? So these are because of the efficiencies in our operation that we've been able to achieve. The cost of economy is the as our CEO, Jagdeep, also mentioned that with the implementation of our DBS, we are getting better yields on our wood pulp. We've been able to reduce steam cost there. So all has been done with a purpose, which was behind the implementation of this project.

45:02 The entire project was not only for upgradation of machines, but also to reduce cost of operation in various segments. That's what we've been able to achieve. Okay. Okay. And are you doing any institutional business, government business or it is all private? Well, mostly it is private because we are a market oriented operation. Most of our product goes to serve the needs of the customers, but not to say that we don't do government tenders at all. We do take them up on a case to case basis if we find it on favorable terms. Okay. Okay. Thank you. Thank you. That's it from my side.

45:48 Thank you. Thank you. Ladies and gentlemen, a reminder to all the participants, please limit your questions to two only. We will take the next question from the line of Aryan from AV Investments. Please go ahead. Thanks for the opportunity. So very heartening to hear that positive on the industry bottoming out and coming up in the next year. Just two questions from my end. So one is that, you know, usually when the industry goes through a tough time like it has in the last one, two years, we see consolidation happening in terms of deals getting acquired by larger players like yourself. So what trend has that been in the last one, two years in the industry? Have you seen consolidation?

46:36 That would be my first question. So, hi, we have seen consolidation in the industry to some extent. Recently ITC did take up Century and we've also seen JK taking up some smaller ventures in the packaging segment and related fees. So consolidation is something that will happen, but mainly it will be other than Century, I think it will be the smaller players, which will be taken up by the larger ones. Of course, but so industry has kind of bottomed out, that is fine. Second would be that we were seeing that China paper manufacturing company's profit has actually doubled.

47:21 So we would just like to get, you know, what information and opinion you have as to the Chinese and Indonesian paper manufacturers. You know, what is the outlook there? Is it... Because once the freight normalizes, then will it be in a situation where they will again start dumping their production with the which was kind of stopped due to the war? So what is the scenario kind of there on ground, if you can just inform us? China probably, I think, is not is going through a bad economic phase as of now. Paper industry as such are getting close there because of poor economy.

48:08 Indonesia always have been a leading exporter because domestic demand is very less. And we don't see any decline on Indonesian paper coming in, yes, from China, if you see the graph, it has gone down in Q2. And we don't see China coming up very soon as well. So what proportion of our Sorry, sorry. Don't really agree with that statement that China paper mills have doubled their profitability. I think that's not a statement that needs to be relied on. I don't know where that came from. No, you were just looking at the big manufacturer there. So if you'll see their profit for the last year, it has doubled. So that is the number we just have.

48:58 Just just just to name, has closed on their office. And Dragon have closed on their three paper paper cards. So these two are the biggest in China. Correct. Okay, sir. Got it. Thank you. Thank you. Next question is from the line of from Modi Advisory. Please go ahead. Hi. So a few questions from my end. First one, you mentioned something about the GSM issue. Like, we built our machines for 64 GSM, but the demand is now not there for 64. It's for 55, 56 Yes. And Right. And then we won't be able to produce the quantities that we had envisioned.

49:45 Now I'm just trying to understand, is this a structural thing? And is that CapEx not going to yield the returns that we expected? Or it's more like right now, this is an easier offtake and hence, we get up the utilization and then we move towards the higher value add products? Just trying to understand what did you mean exactly by that? Technically, it's mix of everything. Now we have a capability to produce six seventy five tonnes, and we are trying to the product mix as well. Specialty and industrial grade are majority on the lower GSMs. But having said that, we do have a capability to go up to six seventy five.

50:31 There, at the end of the year, that's the best that's the maximum throughput we can achieve. But having said that, vis a vis specialty, where you increase our top line, but the production levels are lower because of the lower grammages. So it nullifies both ways. So we should be targeting at a top line rather than the productivity level. To answer your question differently, for instance, the days we are making copier paper where the GSMs are 70, seventy five and eighty, we actually end up achieving six seventy five times. But that is not something which is prevalent day in day out for three sixty five days. So capability we have created now depending on market trending and market requirement, we do need to adapt and amend and that is what we are doing exactly.

51:24 If the market demand comes in for a lower GSM at a relevant better price, we do that. Okay. Got it. So understood. But this okay, fine. And second, I just wanted to understand, to use that price hikes, so we've seen a lot of everyone almost in the industry started taking price hikes already in Q3. In the last forty five or forty days, people have started taking significant price hikes. So just like, the 7% to 11% that we have been talking about to take in Q3, has that been taken or we're waiting for Diwali or... I'm just trying to understand, like, are we gonna capture the entire three months until new price and the new production levels or we're going to see it at a later stage?

52:19 So about 4% odd hike has already happened now and which is getting sustained and accepted by the market. Yes, you are right in your assessment that the next hike possibly will happen post Diwali when the entire market opens up, all the workers and operations start for paper converting. And that's when the demand will kick in and position will come in for a relevant price hike to happen then. So 7% to 11% price hike that I suggested was right through Q3 and Q4 as well. That's a very, very, very good price hike to my mind considering the current prevalent market conditions.

53:06 Got it. And against this, are the cost also increasing like, say, if I take Q2 as the base per tonne costage for us, is that also increasing at a per tonne level or with like I'm trying to understand on the cost front two things. First is, is there price inflation that is continuing into Q3? Second, the Q2 base that we have on the cost per tonne or say the absolute cost, does it include the new capacity cost or is there a ramp like there will be a production linked cost increase also that will happen in Q3 for the new capacity? So I think the production linked costs are actually going to get favorable for us.

53:51 With increase in production, the cost per tonne, cost per of producing should get lower with better steam and power efficiencies. However, there are temporary enhancements and increments in the pricing of our raw material and fuel. That is temporary in nature. We do have visibility of tailwinds happening and those pricing getting normalized and balanced in the coming one to one point five months. So it's an aberration right now. It should get normalized by November, end of December. But Q3, we should not see an absolute I'm for this sorry, Genk, cost Sadishi. We have other participants waiting for their turn in the queue, please.

54:41 Yeah. I mean, like, just had one last question if I can squeeze that in. Given we have given a lot of time to the participants ahead of me, so I just wanted one question to be put in. Yes. So finally, just on the capital allocation policy, I know deleveraging is the priority, but that priority might be at a certain EBITDA envisionment that you've done, right, 14 rupees for this year for H2 and $18.20 for next year. If you overshoot that, will you be using the excess cash for prepayment of loans? Or will you be looking at buybacks as a way to return capital to investors? And also instead of dividend, would you be more incrementally looking at buybacks to raise in the promoter stakes to 75%?

55:32 No, I think it's very clear that our concentration is on generating the rightful cash flow to repay and take care of our debt repayment liabilities. There is nothing else that is there on the table for now. And I'm not looking at any changes in our equity capital structures. Okay, got it. Thank you, Lasse. Thank you. Ladies and gentlemen, in the interest of time, we can only take two more questions. Next question is from the line of Peshwar Chains from Mediacaptor. Please go ahead. Yeah. Hi, sir. On the power mix, said 85% of our power is, like, coal and 15 is other sources. Right?

56:18 Like Yeah.. Right. And the cost, like, the price increase that you are stating that 4% is already done and maybe 7%, 8% will follow. If the post this anti dumping duty application, could we see a further price hike? And what is the cost increase in terms of percentage? So we can get some understanding on how it's going to affect the EBITDA margin in the second half. It's right now, it's pretty difficult to predict what is going to be cost on a coal because there are some government policies coming in where coal is being diverted to power sector.

57:03 But as we said earlier, so 4% around price hike has been taken from the industry, which we are going to sustain and looking at around 7% to 11%. But looking at the present situation or the Q2 figures what we have right now, So around 2.5% to 3% input coal pricing have gone up. No, no. And total cost has a percent delay. If the realization increased by 10%, what is the cost increase that you are posting? So we get some normalized EBITDA per ton or per kg, that is your target for FY 'twenty seven? So you should look at about a 2% differential EBITDA given the increased NSR and increased costing.

57:52 And if the ATD comes in, we see a further pricing gain from the 9%, 10% that we are talking? That is too far in the future to perceive once those things happen, let's see, because there are global market factors also at play. So that is something that needs to be seen in the future. Right. I think what should be relevant here is that there is a level to which the market will accept the price side. It's not unlimited. Those As kind of in our margin target will be like 14% for this year and hopefully 1718% for like the second half. Sure, sure. Yes. Okay, okay. Thank you. Ladies and gentlemen, we will take that as a last question.

58:43 I would now like to hand the conference over to Mr. Pawan Ketan for his closing comments. Over to you, sir. So thank you all for participating in this earnings conference call. I hope we were able to answer your questions satisfactorily and at the same time offer insights into our business. If you have any further questions or would like to know more about the company, please reach out to our Investor Relations Manager at Valorant Advisors. Thank you. Thank you. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.