JK Paper Ltd (JKPAPER) Q4 FY23 Earnings Concall Transcript

JK Paper Ltd (NSE:JKPAPER) Q4 FY23 Earnings Concall dated May. 19, 2023.

Corporate Participants:

Ashok Gupta — Senior Vice President, Finance & Accounts

KR Veerappan — Chief Financial Officer

A.S. Mehta — President & Director

Analysts:

Harsh Shah — L&T Mutual Fund — Analyst

Deepak Lalwani — Unifi Capital — Analyst

Amit Doshi — Care PMS — Analyst

Tushar Verma — — Analyst

Sandesh — — Analyst

SB Bhaiya — Individual Investor — Analyst

Niraj Mansingka — White Pine Investment Management — Analyst

Rajesh Majumdar — B&K Securities — Analyst

Presentation:

Archana Gude — Analyst

Good evening, everyone. Welcome to the Q4 FY ’23 Earnings Conference Call of JK Paper Limited. [Operator Instructions] Please note that this conference is being recorded.

I’d like to welcome Shri A.S. Mehta, President and Director; Shri Veerappan KR., Chief Financial Officer; Shri Ashok Gupta, Senior VP, Finance and Accounts of JK Paper. I thank you for giving us this opportunity to host the earnings call.

I shall now hand over the call to the management for the opening remarks. Over to you, sir.

Ashok Gupta — Senior Vice President, Finance & Accounts

Thank you, Archana ji. So, I will request Mr. Veerappan to read the financials, and then Mr. Mehta.

KR Veerappan — Chief Financial Officer

Do you want to put the presentation?

Ashok Gupta — Senior Vice President, Finance & Accounts

So, Archana ji, that we have already uploaded the presentation, we will not go through the presentation. Can we directly go to the financials if…

Archana Gude — Analyst

Sure, sir. Let’s do.

KR Veerappan — Chief Financial Officer

Yes. Good evening, all. Of course, the presentation — as Ashok mentioned, presentation has been already uploaded. I am sure all of you would have seen. But we thought we’ll just take 5 minutes, 10 minutes to just briefly go through on the important points. And then we will open the session for the question and answers.

JK Paper service performance for the last year ’22-’23 has been a great year. And you can see from the results, it’s been a phenomenal year. Just a few points. The capacity utilization was at 103.9% against 100% last year. And the turnover is the highest ever, which is then the results — published results. And one important thing which happened last year was acquisition of two companies in Corrugated Packaging business. And both the companies put together, they have around seven plants across the country. So that’s been one fill in the gap [Phonetic] in the last year.

And of course the trust on the plantation activities continues. Last year alone around INR8.32 crores saplings have been planted covering 55,700 acres. And we continue to be the wood and carbon positive company. Just one information I would like to make, we are proud to say that the company has covered so far around 6 lakh acres of plantation and we have planted already over 110 crore saplings till date, right from the beginning. And last year, few new products have been introduced like JK Eco-green Purefil and Tuff Freeze, P2P.

As regards credit rating, our — I think, JK Paper is the first company to have upgraded — getting into the AA rating from AA minus stable, we’ve got upgraded to AA. And our subsidiary — by both the agencies CRISIL as well as India Ratings. And our subsidiary, Sirpur, has also — has been upgraded two notches in this year from A positive to AA minus positive.

Yes, the financials are there in front of you. The volume details are there and the revenue and EBITDA margin fourth quarter was around 29.8%, full year 33.1%. So there is an increase of 5.6% over last year. And this gives the yearly trend and this year has been a phenomenal year and from INR4,244 crores, we have moved to INR6,772 crores and you can see the rise in EBITDA also from INR1,122 crore to INR2,184 crore and so the PBT and PAT. And for the first time, last year we did INR544 crore PAT delivered and now it’s more than double in one year. It’s already — of course, we have crossed the INR1,000 crore milestone, but not only INR1,000 crore, we have crossed INR1,200 crores, INR1,208 crore is the PAT delivered last year.

Yes, these are the continuous improvements you can see on the various parameters in terms of the interest rates and ROCE. We are right now at 21.1% post-tax. And the borrowing situation, the cash situation has been healthy. We have been reducing the net debt constantly. At this point of time, at the consolidated level, we are at around INR1,900 crores of net debt. The net debt to equity is less than 0.5 and net debt to EBITDA is less than 0.1, we’re at 0.89. So these are the volume jumps. Volume has already gone from right from 2005, if you see the journey, and from 2020, there has been a significant jump.

A.S. Mehta — President & Director

Now let’s just complete.

KR Veerappan — Chief Financial Officer

Yes. I think rest, by and large, we have covered, so Mehta ji, would you like to say anything more before we open to question and answers.

A.S. Mehta — President & Director

Sure, sure, sure. So, you want to continue the presentation.

Ashok Gupta — Senior Vice President, Finance & Accounts

Yes, we can continue or remove it. [Speech Overlap]

A.S. Mehta — President & Director

Then stop this.

Ashok Gupta — Senior Vice President, Finance & Accounts

I’ll request Mr. Mehta ji to say a few words and then we can open the session for question and answers.

A.S. Mehta — President & Director

Very good afternoon, everybody, and thanks for joining this call. In fact, the year ’22-’23 has been very favorable market as well as a good year for the paper industry. I would say that the ’22-’23 has been the outlier year for the industry in many, many ways. The demand was robust. Also the global pulp prices were very high. So the integrated player, those are in the country, most player are the integrated player. So since the pulp prices were higher, paper prices globally were higher. So we got the advantage of the higher NSR. So the volume, NSR both played a positive factor for the much improved performance during the year.

Also during the year, our new packaging board capacity, which we could utilize up to 90%, because the strength of the market and the demand in the market. So that also played a significant role. And also [Technical Issues] in fact from our Sirpur point of view, because after acquisition, this is the second year of the full running of the plant and there also we could produce close to 90% of the capacity. And when the market was favorable, in fact, whatever we produce, we could sell at a good price and that’s the reason that at Sirpur we clocked somewhere around INR300 crore plus the PAT which is phenomenal, I mean if you think about the company of 1,30,000 ton of capacity.

And also when there is a sentiment about the replacing the plastic, so there is a good moment as far as we are concerned for the packaging material. So this is on the paper side. Of course, there were challenges because of the commodity prices, because of the energy prices, but somehow we could recover from the market and we were fairly comfortable.

Also during the year, all the operating parameters also we did very good. And the acquisition, the Corrugation business, because we entered into this business. So our Ludhiana plant, the erection and commissioning were a per schedule. And the top of it, the icing on the cake was the acquisition of the India’s number one corrugation these two companies put together.

And in the quarter four where this was consolidated in our results, broadly they were in line with what was projected. So this is all about and yes the market is likely to be volatile in coming days. But the strength of JK Paper and the whole — the team what we have, we should outperform the industry again in time to come.

Thank you. Now, I mean, we can address all the question, and the house can be open.

Questions and Answers:

Archana Gude — Analyst

Sure. Thank you so much, sir, for this presentation and your words. Let’s start the Q&A session. We have Harsh Shah as the first speaker. Harsh, please go ahead.

Harsh Shah — L&T Mutual Fund — Analyst

Yes. Thank you very much. Congratulations to the team for such a successful year. I just have few questions on the Q4 results, and then I have couple of questions on the way going forward. Firstly, on Q4, can you just explain in terms of the margin variations that we are seeing on a quarter-on-quarter basis, firstly, on gross margin and, I guess, there is a bit of high elevated other expenses. Was there any one-off in this quarter?

A.S. Mehta — President & Director

Okay. I mean, I would suggest that please put all your questions, so that those can be addressed in one go.

Harsh Shah — L&T Mutual Fund — Analyst

Sure. Sure, sir. Second is again towards the Q4 result only, you mentioned that we have acquired both corrugated packaging companies in this year. So is there any numbers that you can give like in terms of this quarter? Has those two companies contributed anything to your revenue and also to your margins, bottom line, etc.? Those were the two questions that I had on Q4 results.

And then just going forward, in one of the interviews Mr. Veerappan said that company intends to achieve INR7,000 crore of turnover next year. Can you just also help us understand? Of course, there has been volatility in pulp prices, we are seeing that globally. But in terms of margins, where you will be profitability, we have clocked INR1,200 crores. Will it be similar? Will it be lower? If lower, what is the variation that internally you guys are planning?

And last question, that is again on strategy level guys. In terms of scaling up the businesses that you have acquired, what is the plan going forward? How big can it just be businesses and how a consolidated JK Paper will look like after full integration of those two acquired businesses also? So these were the broad four questions I had.

KR Veerappan — Chief Financial Officer

Yes. Your question on Q4 margin variation, I think we have mentioned, Mehta ji had also mentioned and we’d also, there has been a little bit of a price drop in the Coated Paper and the Packaging Board. And as far as the other expenses are concerned, I think, if I’m not wrong, you are seeing the consolidated number. And consolidated this time we have the two companies Horizon Packs and Securipax Packaging expenses also added in that expenses. So that’s why compared to last year, it looks higher. Otherwise, it’s just a consolidation impact. And as far as the numbers on Corrugated Packaging business is concerned, in Q4 we have delivered around INR190 crores topline. And overall, if you see in the consolidation, it’s around INR228 crores topline or INR231 crores and bottom line will be in the range of INR23 crores.

A.S. Mehta — President & Director

All right. As far as your question on the turnover or outlook for ’23-’24 and also the Corrugation business, I would say that on a full year consolidation basis, the Corrugation business should give close to INR1,100 crore of turnover and EBITDA of INR100 crore to INR120 crore, depending on what kind of craft — paper prices trend remains in the market in coming year. So that’s one part. And if we consolidated on a full year for craft, I mean the Corrugation business and the paper and packaging board business, we should be close to INR7,000 crore to INR7,500 crore as our topline. Does it answer…

Harsh Shah — L&T Mutual Fund — Analyst

And consolidated margins, sir? Like consolidated profitability that EBITDA…

A.S. Mehta — President & Director

Margin, it is difficult at this stage, because see please understand Corrugation business will give EBITDA margin of something around 10% to 16% depending on which period are we in. Because sometime the — right now, if you ask me, the EBITDA margin is 12% to 14% in this industry. And in time to come when you utilize the capacity better, it could be fell to 16% EBITDA in the Corrugation business. And the Paper business, I would say that the price volatility will be there and commodity volatility will remain in ’23-’24. So it’s very difficult, but I can only tell you that the margin of ’22-’23 will not be there in ’23-’24.

Harsh Shah — L&T Mutual Fund — Analyst

Understood, sir. That was very helpful. And just lastly and just one other thing that you mentioned earlier, if you have to going forward, see JK Paper standalone, that will be a pure paper business and consolidated will have packaging. Is that the right way to see or how Sirpur will be accounted for?

A.S. Mehta — President & Director

No, Sirpur is also consolidated and Sirpur is purely a paper company, right. And the JK Paper is also Paper and Packaging Board. And the consolidated, certainly, you will have a corrugation business. So that’s very simple. I mean something around INR6,000 crore plus will come from paper and INR1,100 crore, INR1,200 crore will come from the corrugation business.

Harsh Shah — L&T Mutual Fund — Analyst

Understood, sir. Sir, that was really helpful. Thank you and all the very best.

A.S. Mehta — President & Director

Thank you.

Archana Gude — Analyst

Thank you, Harsh. Next we have Deepak Lalwani. Sir, please go ahead.

Deepak Lalwani — Unifi Capital — Analyst

Yes, hi. Thank you, gentlemen, for taking the questions. Sir, my first question, if I heard you right, the corrugated paper contribution in this quarter was INR190 crores topline and INR23 crores PAT, right?

KR Veerappan — Chief Financial Officer

No, no. I mentioned about EBITDA, INR190 crore topline in Q4 and around INR18 crores EBITDA in Q4. Overall year — we had December also some 20 days, so overall year, it’s around INR23 crores EBITDA.

Deepak Lalwani — Unifi Capital — Analyst

Okay. And what will be the contribution to PAT?

KR Veerappan — Chief Financial Officer

Contribution to PAT is about INR4 crore.

Deepak Lalwani — Unifi Capital — Analyst

INR4 crores, okay. And sir, since although we are early in this business, any learnings you would want to share with us? And the way for the business going forward, as to how you would, sort of, ramp up and come to the profitability guidance that you have?

A.S. Mehta — President & Director

See, the corrugation business and as you rightly said that this is too early for us, because we are also learning this business. And every day, there is some new learning for us in this business. But I would say that we have a good team in that business. And the erstwhile promoter, they are still continuing with us and they are contributing in a very, very positive manner. So we have a good mix of team, some of the people coming from JK Paper business and the existing or the erstwhile promoter they are continuing. And also we have recruited some more people in the Corrugation business. So going forward, there will be a good mix of professional people, and also those older people. But I am confident that we have a good team and this business should do better in time to come. See, the learning is that, in that rate, you need to have a very strong relationship with the customer. And once you have a good customer acquisition, your capacity utilization goes up and that adds good value for the business.

Deepak Lalwani — Unifi Capital — Analyst

Right. Got it, sir. And in your comments to earlier participant you mentioned that there is a correction in the quarter and the packaging prices. And you also see that the China pulp prices have been — have corrected quite a bit. So, any short-term guidance if you would want to give on the realization and any cost levers — do we have any cost levers to sort of protect our EBITDA per ton that you make? Any comments on that?

A.S. Mehta — President & Director

See, I would say that, the paper industry EBITDA margin, I would say that if it remains in the band of 20% to 25%, it is a decent EBITDA margin. So — and that gives a healthy ROCE also, if the EBITDA is 20% to 25%. And I would say that right now also even the coated paper prices have come down, packaging board prices have come down. But at the same time the pulp required, mechanical pulp required for packaging board has also come down sharply, I mean, from a $900 a ton, it has already touched $500 a ton. So that also gives an advantage. So going forward, if we are able to have something around 25% margin, there is a very decent margin and we should be happy with that kind of a margin. As I said that the 2022-’23 has been an outlier year, and we can’t expect kind of a margin over 35% or a 40% margin in time to come.

Deepak Lalwani — Unifi Capital — Analyst

Right, sir. Got it. And how much has been the price drop, if you can give us the range in both the segments?

A.S. Mehta — President & Director

See in the coated paper, price drop has been close to 20% and the packaging board prices have also come down by 10% to 12%.

Deepak Lalwani — Unifi Capital — Analyst

Sure, sure. And sir, if you can indicate the utilization levels in our packaging plant and the Sirpur unit? And any guidance for the volume growth in FY ’24 will be useful?

A.S. Mehta — President & Director

See, both these plants are operating at 90%, packaging board new machine, as well as the Sirpur. And in fact, we have already touched some 90% plus now and hopefully in this year, maybe after the second quarter, we should be operating at 100% at both the facilities.

Deepak Lalwani — Unifi Capital — Analyst

Okay. Got it. After this price drop, do you expect any further correction or do you think for the next two quarters, three quarters, we are done with this sort of correction?

A.S. Mehta — President & Director

See very difficult at this stage, because entirely it will depend upon the global — pulp price trend I know and slightly this may be higher pulp prices later on, because pulp price anything below $550 is not right price for the pulp manufacturer, because their cost of production and the other issues. So a sustainable pulp prices would be in the band of $525 to $575 or $600. So if at this level, it’s not a sustainable price level for the pulp manufacturer also. So if the pulp prices goes up again, then there will be opportunity for a stable output prices as well as there may be some opportunity to correct the prices again northwards. But it will remain very volatile in this year ’23-’24.

Deepak Lalwani — Unifi Capital — Analyst

Understood, sir. Sir, lastly on your balance sheet, any targets you have on the debt repayment for ’24?

Ashok Gupta — Senior Vice President, Finance & Accounts

The normal repayment whatever that we have scheduled that will continue and we are also exploring that if some high cost debt can be prepaid. So [Indecipherable] the repayment will be about INR450 crores.

KR Veerappan — Chief Financial Officer

It’s INR500 crore. Consolidated level around INR500 crore plus — INR500 crores to IN540 crores will be repaid.

Ashok Gupta — Senior Vice President, Finance & Accounts

That’s the repayment normal, but certainly that we are keeping that interest cost also in mind. So wherever you find that opportunity to pre-pay that we will continue to do so.

Deepak Lalwani — Unifi Capital — Analyst

Sure. I have more questions, but I’ll join back in the queue. Thank you.

Operator

Thank you, Mr. Lalwani. Next we have Amit Doshi from Care PMS. Sir, please go ahead.

Amit Doshi — Care PMS — Analyst

Yes. Sir, you mentioned yesterday in an interview that this wood procurement cost is increasing. So can you just share some thoughts around that, what is it and how it’s impacting us?

A.S. Mehta — President & Director

All right. See the wood procurement cost is increasing because the wood — the requirement has gone up because of two factors, one is the MDF and plywood. When the construction industry is doing better than the requirement of and the demand of plywood and MDF goes higher and they need additional wood. And since they don’t do plantation, so the pressure comes on the plantation done by the paper industry. So, in fact, in Northern part of the country, as well as in the Western part of the country, prices moved up substantially. And later on the impact also was felt in the Southern part of the country. So there is an increase in the wood cost.

At the same time also there is a linkage with the MSP announced for the food grains. Because the farmer will always compare their income stream with other crops. So if they get better reward in doing a cotton or a paddy or a wheat or sugarcane or any other crop, they will have a shift from plantation to the crop. So we need to keep all the time in mind that what kind of a revenue I am able to generate for a farmer. So that is why there is an increase in the wood cost.

Yes, wood cost increase will have an impact on the profitability. So in fact last year alone in the Western part of the country price increase was substantial. It was more than 25%. But in the Northern part and Southern part, it was decent, it was something around 6%, 7% or so. But we have — it was, okay, because the output prices we could increase and we could recover from the market, so this was fine. See the present raw material costs also and present prices in the market, I mean these are all manageable and find no issue at all at this point of time. But if the output prices goes much below, then it will start hitting the paper industry.

Amit Doshi — Care PMS — Analyst

Okay, okay, okay. Got it, got it. Sir, in terms of our NSR, what has been our NSR for Q4 and Q3? And this question is because we don’t have that topline breakup in the PBT that you have given. So we are not able to understand. And second, the question linked to it is, this — the global pulp price you mentioned came down from $900 in August ’22 to say $500 now, which is not sustainable. But broadly, how they are linked? So if the global pulp prices are down by 40%, would our NSRs also come similarly down by 40% or what, if you can just explain that linkage as well along with the numbers?

A.S. Mehta — President & Director

Global pulp prices and the NSR, there is not a direct link, sometime and — see in the long run, there has to be a linkage between a pulp price and a paper price. You understand that many a times that linkage is broken, because ultimately it is the demand and supply of the output, not the pulp. So if the demand and supply of the paper is fairly balanced or if the demand is more than the supply, then irrespective of the pulp price, the paper price would be different.

But at the same time, if the supply is more and demand is less, irrespective of the pulp price, the paper prices were be lower. That we have seen in the past also. Our general understanding of the paper industry is that if the pulp is X, the paper prices should be $250 X plus. This is the general understanding. So if the long-term — the trend, if somebody plot the long-term, I mean, you will find a delta of $200 to $250 depending on the energy cost. At the current energy cost, the delta can be as high as $300. So if the pulp price is $500, paper prices should be in the band of $800. And as long as the demand supply again, this will play a role, so that’s the factor.

Amit Doshi — Care PMS — Analyst

Okay, okay. And if you can share NSR of Q4 versus December?

A.S. Mehta — President & Director

I think the NSR we don’t share, because it is — to my mind, this is the number I don’t want to talk on the NSR because this is one area where we want to be slightly…

Ashok Gupta — Senior Vice President, Finance & Accounts

Which is [Indecipherable] indicated about the trend. So I think that should be sufficient enough because it is a mix and as well as various combination into that. So that has grew by that trend.

Amit Doshi — Care PMS — Analyst

Sure, sure, sure. Sir, regarding corrugated business, so this Ludhiana plant, when it is likely to come on-stream and kind of contribute to our topline, bottom line? And in terms of the raw material procurement chain that we — such a strong change that we have in our paper business. So in corrugated, how comfortable we are in terms of our raw material availability and no stuff like that?

A.S. Mehta — President & Director

See, the Ludhiana plant, the trials are going on and because you understand that it takes time because we — erection and commissioning were there and it was done sometime in October, November, December and thereafter the trials were going on, because sometime it takes time because we were new. Also the workers we recruited they were untrained people. So we were training the workers. The machine supplier, they were also stabilizing the machine.

Broadly now, some part is stable but there are still one teething issues are bothering us. Hopefully by next month, we should be able to stabilize the machines. And also one major equipment one, which was delayed because of the zero COVID policy China and some supplies from China to the machine suppliers were impacted. So, in fact, we are likely to get that machine sometime in June. So, once that machine is installed, then only we will get a sizable production from Ludhiana facility. So, hopefully, in next two months, three months time, we should be up and running the Ludhiana plant at a decent level.

Amit Doshi — Care PMS — Analyst

Okay, okay, okay. And sir, you mentioned about INR540 crore of debt repayment. I believe, even if we have say a 20% margin next year with INR7,000 crore topline, we will have close to INR1,000 crore or plus cash generation. So what could be a priority in terms of utilization of that additional INR450 crores of cash, I mean presuming things happened this way.

A.S. Mehta — President & Director

Building the war chest, so that in future we can do something more.

Amit Doshi — Care PMS — Analyst

Okay, okay, okay. Got it. Yes, I think, I have more, but I think I’ll join the queue. Thank you so much. And wish you all the very best and really appreciate the higher dividend that you announced.

A.S. Mehta — President & Director

Thank you.

Archana Gude — Analyst

Thank you, Mr. Doshi. Next we have Tushar Verma. Sir, please go ahead.

Tushar Verma — — Analyst

Yes. Hi, sir. Very good afternoon. Actually I have three questions in total. My first question is what is the current prices of paper board and uncoated paper as compared to Q4 FY ’23 and to average of Q4 FY ’23 actually? And my second question is, what is the reason for the sharp increase in finance costs from Q2 to Q4, that is we can see from INR36 crore to INR63 crores, respectively? And my last, and final question is, why are we not buying back the shares companies generated so much of cash and share value is so low? Thank you, sir. That’s all from my side.

KR Veerappan — Chief Financial Officer

See as far as the finance cost is concerned, we have a forex ECB loan of around INR85 million and we do — as per the Ind AS, we need to do a reinstatement of these liabilities. At 30th September, the euro-rupee was at INR80.11 and 31st March it has gone up to INR89.61. So that’s the reason that reinstatement liability has been booked. It’s more of a book entry, if you see the loan tenure, we are by and large, there is not much of a gain or loss. But yes, period-to-period, based on the accounting entry based on Q2 to Q4 there is a move.

Ashok Gupta — Senior Vice President, Finance & Accounts

So you have to calculate considering the — whatever that we are reported as interest figure versus that whatever that average loan outstanding. So, you will get the correct picture of that, what is that average rate of interest, which comes to close to 7.4%, 7.5%.

A.S. Mehta — President & Director

There was one more.

KR Veerappan — Chief Financial Officer

He asked coated paper price.

A.S. Mehta — President & Director

As I said that the coated paper and the packaging board price drop, I have said. And as I said that the NSR product wise we don’t want to give in the public domain, because we don’t publish. So this is one part. Any other…

KR Veerappan — Chief Financial Officer

The future cash…

A.S. Mehta — President & Director

The future cash, I would say that as I already said, whatever cash surplus we are generating, we invested close to INR2,000 crore only last year on the new packaging board this, and also the acquisition of Corrugation business. So we have utilized so much of the funds from the company. Now, we want go again build the treasury, build the war chest and in fact I had given the target that we should have close to INR1,500 crore of the war chest before we do anything. So that is the plan.

Tushar Verma — — Analyst

Okay, sir. Thank you so much for the answers. That’s all from me.

Archana Gude — Analyst

Thank you, Mr. Verma. Next we have Sandesh. Sandesh, please go ahead.

Sandesh — — Analyst

Hello, sir. Hello everyone, congratulations on good set of numbers, first of all, for the full year actually. And this is the fruits of seeds, which was won actually five years back. So now going ahead just wanted to understand, sir, what would be our roadmap for next five years? Is that — what kind of capacity are we trying to achieve by FY ’24. Is it going to be bit like crore broad-based capacity expansion across our existing portfolio. We are — are we keen to grow paper board segment as it is a more structural growth story? Or is it like any other more product category we like to penetrate like craft paper or back integrate our corrugated packaging operations. Are we looking for any kind of inorganic opportunities at the moment as well?

A.S. Mehta — President & Director

Okay. Good. Thank you very much for complementing the team for the result. In fact, I would say that one more contributing factor was a very favorable market. And you don’t get favorable market all the time. So that’s one part. But we do — our role, we play our role in much, much better manner and that we will continue to do.

As far as the roadmap, your question is concerned. I would say that ’23, ’24, our effort would be to utilize our Packaging Board new capacity and also the Sirpur to the 100%. So that we get the incremental the top means — the volume topline and also the advantage of profitability from higher capacity utilization. That’s one part.

Corrugation business, we are still learning. But certainly we will do better on the higher volume, utilization and new customer acquisition. So that also add value for JK Paper. Thereafter, I mean, it’s very difficult at this stage, because we are evaluating all the options for capital allocation. As I said that once we build our war chest, thereafter the capital allocation it will depend, whether the craft paper gives me advantage or whether the new acquisition gives me advantage. I mean that will all depend on the year ’23-’24, how it pens down and how the market behave. Then we take a call.

Sandesh — — Analyst

So if I just have to look at the history of JK Paper, sir. Sir, at a lower capacity like we have been able to do large capex. And at the current capacity, we have the ability to even larger capex. So sir, even if you try to build a war chest, you can still very much afford to go for a capex even now. So what are your thoughts on that, sir?

A.S. Mehta — President & Director

You are absolutely right. But see I can only tell you that 15 years back we took a risk and a chance. And you’re right that, that time our balance sheet size was small and we took a major capex. But all the time you don’t take such kind of a risk and you would recall that on a smaller balance sheet we took a call and expanded and spent INR2,000 crore and just after that for two years, we were in the rent. We incurred loss — heavy losses in the year ’13-’14 and ’14-’15 and that we don’t want to repeat. And we don’t want to disappoint our investor and all the stakeholders. Now whatever call we take, it has to be a very judicious call, very balanced call. And so that we do which is sustainable with the strong fundamentals and the financial fundamentals.

Sandesh — — Analyst

Okay. Very much appreciate that sir. Sir, a question more on technical side, sir. So if we have to have a rough conversion of cost of pulp into paper in U.S., USD per ton basis, sir, assuming our hard BHKP prices settles around $500 per ton. So what should be import parity prices of paper and writing in India, if we were to assume the forex rate at INR83 per USD, and if you also include current logistic, and existing duty structure, sir?

A.S. Mehta — President & Director

See as I said that, if the pulp prices remain at $500, then the prices at the level should be somewhere around $800 to $850. And plus some kind of a $50 clearing, forwarding, other logistics or whatever it is. So, $900 price, so you calculate INR82 — $900, INR82 something downward INR74. So INR74, INR75 is a decent price, if the pulp prices are $500. But please understand on a long-term basis pulp price of $500 is not a sustainable remunerative price for the pulp manufacturers. It will be close to $550 to $600. And if $600 is the price, the pulp price $600, the paper and board prices would be close to $950 to — $900, $950, which means INR80.

Sandesh — — Analyst

Okay, great sir. On a broader sense, sir, we’re expecting — so what is the — what will be the status of new education policy, sir? When do we expect it to get implemented? And also for industry side, can you quantify what kind of incremental demand it is expected to bring? And you know, and how long do we expect the NEP’s growth to be there in the market?

A.S. Mehta — President & Director

See the new education policy as far as the part is concerned, part is being implemented from the year ’23-’24. And so the publication — some publication and printing has already started. And I mean, in fact, it started sometime in November, December ’22 and this should be over — I mean it is already over now, because the new session has already been started now and the school and those will open from July some part of the country, and some part maybe from 15th of June. So part has already started. But the full implementation, our understanding that it will happen, the next education session. So that means the year ’23-’24 again will have a good demand of the writing, printing paper. But it is very difficult to quantify because — very difficult. I would only say that to what extent it is for the school, to what extent it is for colleges, to what extent it is for the professional book printing or commercial book printing, I would say that there will be a sizable demand, because of the new education policy, yes.

Sandesh — — Analyst

Okay. So just one request from our side, sir. Sir, if you can at least publish investor presentation every quarter. So we can have access to quarterly operational data that will be absolutely great, sir.

A.S. Mehta — President & Director

All right. Thank you.

Sandesh — — Analyst

Thank you so much, sir. Thank you.

Archana Gude — Analyst

Thank you, Sandesh. Next we have Mr. S.B. Bhaiya. Sir, please go ahead. Mr. Bhaiya? Sir, there is no response, we’ll move on.

SB Bhaiya — Individual Investor — Analyst

Yes, yes, are you hearing me now?

Archana Gude — Analyst

Yes, yes, please go ahead.

SB Bhaiya — Individual Investor — Analyst

Sir, I’ve been associated with your company for last more than 15 years and I’ve seen your journey from say before 2010. So all your expansions actually right from your paper expansion and then paper board expansion, you have done wonderfully well. All your expansions, you have done very, very well.

A.S. Mehta — President & Director

Thank you so much.

SB Bhaiya — Individual Investor — Analyst

Yes, please.

A.S. Mehta — President & Director

Yes, yes, I said thank you so much.

SB Bhaiya — Individual Investor — Analyst

Right. So you have been doing many market leading performance and every where actually there is absolutely nothing to talk about. Of late actually, I’m seeing a distinct shift in your strategy. So from being a paper player, suddenly you started investing in a major way paper board before that, you invested in Bangalore plant. I think it was something IT related. So what is the — actually way you’re going forward, are your — that is shifting from paper to paper related items, or related — so are you shifting the company from paper company to paper-related companies? I just wanted to hear your opinion about it?

A.S. Mehta — President & Director

Okay. Thank you so much. See in fact, our core strength is — core strength is manufacturing. And also our core strength is volume manufacturing. And also over a period of time, we developed our core strength as a marketing also a core strength. So, these core strengths, I mean, I would say that complement and supplement for a volume production, as well as the true marketing. So I would say that we will continue to be a very strong player in the paper industry. There’s no doubt about it. So whether it is packaging paper, or it is writing, printing papers, we are going to remain as a very strong paper plant. What we thought…

SB Bhaiya — Individual Investor — Analyst

Sir, though I take it that you did not find sufficient opportunity in the paper sector actually before looking for this corrugated boxes. I’m told that right other than what you are doing that is you are already in writing and printing, you are already in paper board, which is — which are major segments. But there are other segments also, which you are doing very well and you are not presenting those. So what made you actually diversify from paper to paper board — sorry, corrugated boxes? So actually there are reasonable opportunities I thought in paper sector itself, right. Tissue paper is very, very fast growing, which you are absolutely not present. And I’m told Century and even Orient Paper is doing very, very well there.

So anyhow what are actually — this is actually your diversification right now is totally unrelated, you do not have any experience in there. So being an investor actually we have got question marks that how will — you will — doing it that. But if you actually expand in your paper business, at least we have got reasonable degree of story that you will be doing very well in whatever you’re doing in paper sector. So what made you go out of the paper and invest this early [Phonetic] in corrugated boxes, which I am told that, right, these are all concentrated by small scale people and low margin items and you have to near to the customer also because of the transportation cost. So you cannot expand operations in one particular place. So is there a — as an investor, we are seeing a distinct shift in this strategy and I don’t know what has made you to think so?

A.S. Mehta — President & Director

No, no. I mean, your question is very, very right. But at the same time, our thought and our responses also weigh very precise and specific. I can tell you that, yes, as I said that we will remain a very strong paper player. There’s no doubt about it. See the paper writing and printing paper, we are fairly strong and we have been strong and after Sirpur acquisition because that added close to 1,30,000 ton of writing, printing paper. So that’s one addition in the paper. Then we added 1,70,000 ton of white packaging, virgin packaging board machine only last year. So again, expanded in paper. So, please understand, so now the white paper we are close to 8,00,000 ton capacity, which is India’s, I mean, the almost largest paper and packaging board capacity we have today. And we are going to do the debottlenecking in all the other stuff what we can do.

At the same time, please understand globally also all the paper player, I mean, I’m telling you that the corrugation business is a very, very growth-oriented business in time to come. And those who enter first, they will have the prime mover advantage of consolidation opportunities. See in India, it is fragmented, but let me tell you that in U.S., the top five player of corrugation industry, they command 80% market share. In India, there will be thousands of players, but the size of the player, I mean just two acquisition, we became India’s number one corrugator. But still, number one corrugator has just 4% market share in the corrugation industry.

So this is so much fragmented. But it will provide the huge opportunity in time to come for a consolidation, quality product. I mean, in fact in India, there are 10,000 corrugators in the country, but automatic machines are there only with 200 people. Imagine, now in time to come, when you have a quality requirement, there will be a huge opportunity for the corrugation player in time to come. This is one part.

But also we thought that there is a huge synergy for JK Paper in corrugation business because the white virgin board what we produce goes to all the FMCG player, all the food player, all the pharmaceutical player and the same player are also buying the brown boxes. So I have a set of customer, who are getting my carton board or my white board as a packaging material and they are going for a brown material to somebody else. So I mean we thought that, why don’t we become a total packaging materials as a supplier to those customer, because we know those customers. We have the connect with the customer. This is one reason.

The tissue, you asked this question. In fact we debated for many years, and in fact I have been debating this for 10 years internally and we don’t find, this is a remunerative product line in the paper industry. Century, Orient, they are producing, but I don’t think they are making decent money in those, in that product line. I mean, reasonable money they must be making, but it’s not very rewarding paper category. Hope I answered all of your questions.

SB Bhaiya — Individual Investor — Analyst

No. Going forward, can I…

Archana Gude — Analyst

Mr. Bhaiya, can you please — Mr. Bhaiya, can you please come in the queue. There are couple of participants, please.

SB Bhaiya — Individual Investor — Analyst

Thank you. Thank you very much. Yes.

Archana Gude — Analyst

Sure. Next we have Mr. Neeraj Mansingka. Sir, please go ahead.

Niraj Mansingka — White Pine Investment Management — Analyst

Yes, sir. Thank you for the opportunity. Wanted to — few things, what has been the inflation in the wood prices in last one year or two years in a percentage terms. Just wanted to know that?

A.S. Mehta — President & Director

Something around 7% to 12%, depending on the — which market you’re buying.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay, which is in fact like an inflation only right, it’s not as if it we can…

A.S. Mehta — President & Director

No, I think, more than the inflation, the inflation I would consider something around 5%, 5 and odd percent [Phonetic], but the wood price and depending on the different location from where are you buying, it was 7% to 12%.

Niraj Mansingka — White Pine Investment Management — Analyst

And do you see further inflation to continue or the pressure has moderated?

A.S. Mehta — President & Director

No, no, I’m saying that there will be further pressure.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay, got it. Sir, in terms of the NSR, I know you don’t share the prices, but can you give a broad range of how much the NSR has changed in percentage in last one quarter? I just want a range of — that’s okay. And industry would also be — industry market prices would also be okay, rather than only your prices. On an average…

A.S. Mehta — President & Director

As I said that the coated paper prices came down by close to 15% or 20%.

Niraj Mansingka — White Pine Investment Management — Analyst

Yes, 20%.

A.S. Mehta — President & Director

Packaging board also dropped by something around 10% to 12%.

SB Bhaiya — Individual Investor — Analyst

And the writing printing?

A.S. Mehta — President & Director

Writing printing, they were not wrong, they were no wrong.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. Okay. So do you see this because of the demand in the printers of because of the NEP or this is — what might be the reason of less demands fall in the…

A.S. Mehta — President & Director

No, it was NEP. Predominantly NEP and also now there is again a trend of the physical copies rather than just online reading. The people are interested again reading a physical book, the people are now — the school, colleges and coaching center, they are again back to the physical rather than just a virtual. So that helps.

Niraj Mansingka — White Pine Investment Management — Analyst

Got it, sir. Sir, and the other question is on the international prices versus Indian prices. What we have observed is that India’s paper prices, the premium versus the international prices has increased in the last two quarters. Can you comment on that? What is the reason? And do you see this moderation coming on or are you see that to stay for some time?

A.S. Mehta — President & Director

No, no. Which Paper are you comparing international and domestic?

Niraj Mansingka — White Pine Investment Management — Analyst

Uncoated Paper.

A.S. Mehta — President & Director

Uncoated?

Niraj Mansingka — White Pine Investment Management — Analyst

Yes, writing printing, yes.

A.S. Mehta — President & Director

So uncoated paper prices globally also they were very high. In fact that six months back even maybe eight months, nine months back, the global prices were much higher than the domestic prices even. In fact, our export realization was higher than the domestic realization. But we were…

Niraj Mansingka — White Pine Investment Management — Analyst

Okay, okay. Can you give a color — can you give a color on the premium or discount of India versus international, that would be useful?

A.S. Mehta — President & Director

No, no. Right now the international prices are lower. It may be lower by 7% to 10%. At one point of time, it was higher by 8%, 9%. But right now, it is lower and it will get corrected in due course of time.

Niraj Mansingka — White Pine Investment Management — Analyst

And last five years, six years, what would be that average, India was at premium or at a discount?

A.S. Mehta — President & Director

I would say that the global prices were lower by 3% to 5% long-term average.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. The global was lower — global prices right.

A.S. Mehta — President & Director

Yes, global…

Niraj Mansingka — White Pine Investment Management — Analyst

India always commanded a premium to international prices generally.

A.S. Mehta — President & Director

Yes, yes. But as I said that, all the time, it will depend upon demand and supply trend of that particular period.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay, got it. That’s…

A.S. Mehta — President & Director

Immediately if a new capacity comes in the market, there will be a drop in prices.

Niraj Mansingka — White Pine Investment Management — Analyst

Sir, two small questions again. On instead of giving a dividend, why don’t you do a buyback or so that it will not only improve the valuations plus also be efficient on the taxation side?

A.S. Mehta — President & Director

See, there are pros and cons of both and there are set of investors who would say that we are happy with the dividend. And there are investor who would say that we are happy with the buyback.

Niraj Mansingka — White Pine Investment Management — Analyst

So, investor would be happy, would be not only mostly in our mutual fund, which would be having taxation benefit, but all individual investors would be wanting a buyback, right?

A.S. Mehta — President & Director

I don’t know.

Niraj Mansingka — White Pine Investment Management — Analyst

Promoter also incentive as a — promoter also have an incentive to pay taxation.

Ashok Gupta — Senior Vice President, Finance & Accounts

That all depend at which investor want to tender or want to do it. So if they want to continue to hold, some investors still want to continue the dividend. So it depends that how the investor is keeping their stock in the portfolio. So investor to investor it differs, so as a regarding hedging policy that board…

Niraj Mansingka — White Pine Investment Management — Analyst

Sorry, sir, just a suggestion because, it takes care of two things rather than one thing, yes.

A.S. Mehta — President & Director

All right. The suggestion is noted.

Niraj Mansingka — White Pine Investment Management — Analyst

Yes, sir. And last thing is on the corrugated plant. Can you tell what is the capacity? And I think you had to also there was an acquisition cost of INR578 what I read in the annual, how much do you need to pay more? And how much is the potential to add capacity? Can you just share something on that?

A.S. Mehta — President & Director

I think the capacity of the plant we acquired is what 2,60,000 tons.

KR Veerappan — Chief Financial Officer

2,60,000 tons.

A.S. Mehta — President & Director

Yes, 2,60,000 ton. And in this industry utilization, the best utilization is considered 70% plus, because in the peak time you utilize 100% and the off time you are at 40%, 50%. So average utilization 70% plus is considered very good utilization.

Niraj Mansingka — White Pine Investment Management — Analyst

Have you paid in the entire sum, or is there something to be paid left?

A.S. Mehta — President & Director

As I said, then we have declared that we have paid 85%.

KR Veerappan — Chief Financial Officer

We have bought 85%, 15% is still left [Indecipherable].

Niraj Mansingka — White Pine Investment Management — Analyst

And how much is the potential to add capacity in those two locations?

A.S. Mehta — President & Director

See, there will be, as I said, that these two locations, in one location we are adding capacity. By end of this year itself, there will be some addition. And the other location we don’t have to add. In fact, we need to acquire customer and utilize the capacity better.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. So, I can relate it. The location that you are adding capacity will take your 260,000 tons total to how much?

A.S. Mehta — President & Director

I think it is something around 20,000

KR Veerappan — Chief Financial Officer

Around 20,000 additional.

A.S. Mehta — President & Director

So, 280,000.

Niraj Mansingka — White Pine Investment Management — Analyst

280 ktpa. And when you’re saying you need to acquire customer second location. So then the utilization on the current state would be lower?

A.S. Mehta — President & Director

Yes, currently it is lower. So if we utilize, if we acquire customer, we can utilize it better.

Niraj Mansingka — White Pine Investment Management — Analyst

And how much is average utilization for this [Speech Overlap].

A.S. Mehta — President & Director

Right now it is about 60%.

KR Veerappan — Chief Financial Officer

60%.

A.S. Mehta — President & Director

Right now, it is 60%, so we want to take it to 70% plus.

Niraj Mansingka — White Pine Investment Management — Analyst

Got it. So, but that’s — that is hardly any left. So do you also plan further expansion or do you see — because this is a very large industry.

A.S. Mehta — President & Director

It is a huge capacity left out, because 10% to 15% additional utilization, means it is something around 30,000 tons to 45,000 tons, which is sizable.

Niraj Mansingka — White Pine Investment Management — Analyst

Okay. And what is the average utilization in industry for this corrugated paper?

A.S. Mehta — President & Director

I think it would be close to 60%, 65% average, but the best player would be doing 70%, 75%.

Niraj Mansingka — White Pine Investment Management — Analyst

No, no. I’m talking about average NSR for this on industry, a range.

A.S. Mehta — President & Director

The NSR you asked. NSR, I have no idea. I have no idea. Because as I said that we’re still learning this trade.

KR Veerappan — Chief Financial Officer

And NSR is not a relevant thing because the craft paper prices all, it’s passed on that, so that based on the craft paper price fluctuation, NSR also will fluctuate. So that may not be a right [Indecipherable].

Niraj Mansingka — White Pine Investment Management — Analyst

Got it, got it. Thank you. Thank you from my side.

A.S. Mehta — President & Director

Thank you.

Archana Gude — Analyst

Sir, should we take last participant Rajesh. He is in the queue from a long time.

A.S. Mehta — President & Director

Okay, fortunately.

Archana Gude — Analyst

Yes, Rajesh, please go ahead.

Rajesh Majumdar — B&K Securities — Analyst

Yes. Hello, sir. How are you?

A.S. Mehta — President & Director

Good, thank you.

Rajesh Majumdar — B&K Securities — Analyst

I had just a couple of questions. When you look at the Q4 volumes, just 191kt, is it reasonable to assume that because of the prices, price reduction. We are not producing up to full capacity now in at least coated paper, and even the uncoated paper volumes are lower Y-o-Y basis. So Y-o-Y, in fact, the volumes are slightly lower. And second related question is that for the coming year will we then see a lower utilization as it like we were talking about 800kt in all. I’m talking about standalone business. Will we again see 750kt, 770kt given the price correction?

A.S. Mehta — President & Director

What is that. There is no volume drop as far as we are concerned. Coming year also the volume is going to be higher, it can’t be lower.

Ashok Gupta — Senior Vice President, Finance & Accounts

Rajesh ji, you have seen the presentation uploaded, you know, that…

Rajesh Majumdar — B&K Securities — Analyst

Thank you. Sir, Q4 — okay, Q4 compared to Q4 is just 191kt, it’s the same.

Ashok Gupta — Senior Vice President, Finance & Accounts

Yes. The 191kt, 191kt it is same. The bridge that we have given, there is a slight drop compared to last previous quarter in uncoated. But if you see that overall 12 months period on the uncoated segment it is — again it’s 389kt, it’s 436kt, it’s a 12% growth.

Rajesh Majumdar — B&K Securities — Analyst

So should we take this year’s volume is also similar 770kt or something like that?

A.S. Mehta — President & Director

It should do better than this.

Rajesh Majumdar — B&K Securities — Analyst

Okay. Even after the price correction, you are saying the volume will be better.

A.S. Mehta — President & Director

Yes.

Rajesh Majumdar — B&K Securities — Analyst

And secondly, sir, my question is, do we have an option of using more imported pulp now that the pulp prices are lower instead of buying more wood in the market, in which case can we get our RM cost more?

A.S. Mehta — President & Director

Always we keep some kind of a ready reckoner on the table that at what price, it makes sense for me to use imported pulp and at what price it makes sense for me to produce the local pulp. So it sell max case [Phonetic] for producing the pulp out of wood here.

Rajesh Majumdar — B&K Securities — Analyst

Okay. That’s fair. And my last question is that we have seen the impact of pulp prices has not yet been felt in writing and printing. But will we see that impact in the coming quarter or the next two quarters because you indicated a price of — sustainable price of INR80, but if you look at it, I’m not asking you the exact realization, but it will still be somewhere around INR84, INR85 right now. So there is still scope for a downside to about INR75 after which it will come back up again. Is that the way the trend is likely to play out, what do you think, your opinion on that?

A.S. Mehta — President & Director

As I said that the pulp prices globally on a long run, it should be close to $600, long run. So if it is $600 the global and the prices in the band of $900 to $950. And when it is $950 that means the NSR should be close to $950, it should be close to INR80.

Rajesh Majumdar — B&K Securities — Analyst

INR80, yes, but it’s still higher than INR80 as of, I mean, my assumption…

A.S. Mehta — President & Director

I mean, see, it is higher than INR80, it maybe INR2, INR3 plus or minus depending on the category and the demanding on other thing, but this should be and there would be a play of demand-supply. If there is a good demand, the prices will remain at a higher level. If the demand is lower, let’s say after the year ’23-’24 when the new education policy implementation as already happened and there is a plateau of demand, the price will come down also.

Rajesh Majumdar — B&K Securities — Analyst

Okay, right. So if I am permitted to ask one last question, what is the sustainable margin that you can see in this industry because we have seen like in rupees per kg margins go from INR10 to INR30 is a very large range over the last few years. What is the sustainable rupees per kg margin at an EBITDA level that you can build in on a longer-term?

A.S. Mehta — President & Director

See, as I said that we don’t calculate in rupee per kg, we calculate as a percentage of net sales. And I would say that anywhere between 20% to 25% is sustainable decent margin for the industry where your ROCE would be healthy.

Rajesh Majumdar — B&K Securities — Analyst

So, 20%, you can say, it will not break down below 20% significantly if at all?

A.S. Mehta — President & Director

It’s should not. But there has been a time, where it was lower than ’21.

Rajesh Majumdar — B&K Securities — Analyst

Yes, exactly, yes.

A.S. Mehta — President & Director

Yes, yes.

Rajesh Majumdar — B&K Securities — Analyst

And sir, we had also seen in the IPMA data, I mean post-COVID, there are lot of small scale guys that had actually gone out of business and the export import ratio of India was for two years, ’20-’21, ’21-’22 had turned against — in favor of exports, but if we look at ’22-’23 imports have surged again. Is that a cause for worry?

A.S. Mehta — President & Director

See the imports are — because there was a higher demand in the domestic market. So, I mean, the export came down and the import was higher as far as the coated paper is concerned, the import grew, and also the other paper category, but it is not very sizable. I would say that still India will remain as a — I would say that net exporting country in time to come.

Rajesh Majumdar — B&K Securities — Analyst

Thank you, sir.

A.S. Mehta — President & Director

But it will all depend on the craft paper export to China. If the export to China of craft paper comes down, then this is — there will be again at distortion.

Rajesh Majumdar — B&K Securities — Analyst

Great, sir. Thank you so much. Thank you so much. Yes.

A.S. Mehta — President & Director

Thank you.

Ashok Gupta — Senior Vice President, Finance & Accounts

Thank you, Archana ji.

Archana Gude — Analyst

Should we conclude the call?

Ashok Gupta — Senior Vice President, Finance & Accounts

Yes.

Archana Gude — Analyst

Any final comments, sir, Mehta, sir any final words?

A.S. Mehta — President & Director

No. Thank you very much. And as I said that the year has been a good year. But the year ’23-’24 is likely to be volatile and we need to be prepared for that volatility but at the same time because the JK Paper has its own strength, so we should do better.

Archana Gude — Analyst

Thank you so much, sir. And all the best.

A.S. Mehta — President & Director

Thank you.

KR Veerappan — Chief Financial Officer

Thank you.

Ashok Gupta — Senior Vice President, Finance & Accounts

Thank you. Thank you all.

Archana Gude — Analyst

Thank you.