Kuantum Papers Ltd (KUANTUM) Q3 FY23 Earnings Concall Transcript

Kuantum Papers Ltd (NSE: KUANTUM) Q3 FY23 Earnings Concall dated Jan. 20, 2023

Corporate Participants:

Pavan Khaitan — Managing Director

Roshan Garg — Senior President and Chief Financial Officer

Analysts:

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

Sandesh Barmecha — Haitong Securities — Analyst

Dalpat Mehta — Suncity Advisors — Analyst

Anil Garg — Individual Investor — Analyst

Saket Kapoor — Kapoor & Company — Analyst

Vardhman Sancheti — AVS Equiserve Limited — Analyst

Govindlal Gilada — Individual Investor — Analyst

Arun Chulani — First Water — Analyst

Rabindranath Nayak — Sunidhi Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Kuantum Papers Q3 FY23 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions]

I now hand the conference over to Mr. Rajesh Majumdar from Batlivala & Karani Securities India Private Limited. Thank you. And over to you, sir.

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

Yeah, thanks, Tanvi, and good day to all of you. We have with us today the management team of Kuantum Papers represented by Mr. Pavan Khaitan, Vice Chairman and Managing Director; and Mr. Roshan Garg, the Chief Financial Officer. Congratulations, sir, on a great set of numbers. I think the Company has been doing well consistently for the last few quarters, and we have seen that the paper prices have been strong for most of last six months or eight months.

So I would — without saying anything more, I would like to hand over the floor to you for your opening remarks. Over to you, sir.

Pavan Khaitan — Managing Director

Thank you, Rajesh, for this introduction and also to B&K Securities for hosting this earning calls today. Good afternoon, everyone, and a very warm [Technical Issues] for this quarterly earnings conference call to discuss the results and business update for the third quarter and nine months ended financial year 2023. It’s a pleasure to connect with all of you again.

Let me briefly take you through the quarterly business highlights and industry developments, following which Mr. Roshan Garg, our CFO will take you through the financials. I’m happy to announce that we closed the third quarter of FY23 on a very strong note with the Company reaching its highest-ever revenue and EBITDA mark on the back of healthy pricing scenario and cost optimizations. The Indian paper industry is on a relatively strong footing on the back of implementation of the NEP, the National Education Policy, and the ban on single-use plastic imposed by the Government of India.

This has opened a huge opportunity for the industry as paper is the rightful replacement to plastic products used for packaging, including food wrapping. Overall, the Indian paper industry is expected to continue its growth trajectory in the coming years, driven by an increasing trend in demand and supportive government policies. During the quarter, our Company has seen strong demand for our products, which has resulted in a robust increase in our revenues and profitability.

This quarter, we reported our highest-ever revenue and EBITDA with significant growth on year-on-year basis. There is a healthy growth in order books and on the back of strong demand pull for our products and higher NSRs. The focus on improving our operational efficiencies and cost optimizations have helped us achieve an EBITDA level of 30% this quarter. The Company has now finalized plans to spend INR285 crores towards capacity expansion and cost optimizations particularly on the energy front.

We will increase the production capacity on all our four existing paper machines back to 25% in the next financial year. Towards this, the modification work on our PM1 and PM2 has already started in December of 2022. From a sustainability perspective, we continue to educate local farmers on the benefits of social forestry and have also increased the production of in-house clonal varieties of wood species. Innovative technologies are being adapted to save water consumption by up to 20%, 25% in our plant operations which will have a salutary effect on our environment.

Now I will request Mr. Roshan Garg, our CFO to give you a brief about the quarterly financials.

Roshan Garg — Senior President and Chief Financial Officer

Thank you, Pavan, ji, and good afternoon, everyone. I would like to brief you on the financial performance of the third quarter and nine months period ended financial year 2023. We reported our highest-ever quarterly revenue of INR351 crores, which increased by 53% on year-on-year basis. The EBITDA for quarter three FY23 stood at INR105 crores, which grew by 244% on a year-on-year basis, with EBITDA margin reported at 30%.

Net profit stood at INR57 crores and PAT margins reported at 16.3%. For nine months FY23, income from operations stood at INR966 crores, representing a growth of 67% year-on-year. EBITDA stood at INR265 crores, growing by over 200%. Nine — net profit stood at INR71 crores. This is after an adjustment of exceptional items being non-cash of INR63.42 crores, which has been mentioned earlier in June ’22 quarterly results. Robust cash flows have allowed the Company to further prepay loans of INR105 crores of the restructured term debt loans in December 2022. This is in addition to the quarterly installments being paid from September ’22 onwards. During the year, the external credit rating has been further revised upward to A Minus for long-term loans and A2 Plus for short-term loans from Triple B Plus and A2 respectively by CARE Ratings Limited.

We would now be happy to discuss any questions, comments or suggestions you may have. Thank you.

Questions and Answers:

Operator

Thank you. Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Sandesh Barmecha from Haitong Securities. Please go ahead.

Sandesh Barmecha — Haitong Securities — Analyst

Thank you for the opportunity. Sir, can you just give sales number for…

Operator

Sorry to interrupt here. Sandesh, your voice is breaking up. It’s fluctuating. Sir, if you are using any external device, we would request you to please speak through the handset instead.

Sandesh Barmecha — Haitong Securities — Analyst

Can you hear me now?

Operator

Yes, better.

Sandesh Barmecha — Haitong Securities — Analyst

Great. Thank you. Sir, can you give me sales volume for this quarter, last quarter and Q3 FY22, if possible?

Pavan Khaitan — Managing Director

We are operating at 100% capacity. We are doing 38,000 tons in this quarter as well as the previous quarter. And that is why we felt the need to increase our capacities and that by the investment in our machines to increase capacities by about 25%.

Sandesh Barmecha — Haitong Securities — Analyst

Right, sir. Sir, what was the volume last year, sir, same quarter?

Pavan Khaitan — Managing Director

Last year, the same quarter was similar, about 39,000 tons. Actually, it varies according to GSM.

Sandesh Barmecha — Haitong Securities — Analyst

Okay.

Pavan Khaitan — Managing Director

We are now being able to attract orders of lower GSM but with a higher realization.

Sandesh Barmecha — Haitong Securities — Analyst

Okay.

Pavan Khaitan — Managing Director

So a little bit of difference in volumes you will notice there, but not much on an overall term.

Sandesh Barmecha — Haitong Securities — Analyst

Not overall term. Sir, what would be our outlook for paper prices for next quarter — this quarter?

Pavan Khaitan — Managing Director

So, fortunately, we are serving the market needs where the prices I believe are quite stable now. Though we have seen a slight dip of about INR1,000 per ton currently, but as a result of our strong hold in the market, we — our realizations were at INR90,000 per metric ton plus, which has gone up from INR86,000 per metric ton in the previous quarter. So we are yet at a very high pricing level. So even if there is a reduction of INR1 or INR2, not more than that, we will still have a very, very good top-line and bottom line.

Sandesh Barmecha — Haitong Securities — Analyst

We expect to see it continuing for next two quarters as well, right, sir, basically? Hello?

Operator

Sorry, sir, we were not able to hear you.

Pavan Khaitan — Managing Director

That is true. We will see a continued trend in the pricing at a similar level.

Sandesh Barmecha — Haitong Securities — Analyst

Okay. Sir, Chinese pulp prices have corrected from peak of around $865 per ton to — they’re currently trading around $800 per ton. So what would be your outlook for global pulp prices for next two quarters? Would we witness sharp slowdown in the paper and packaging demand along with supply side pressure also since large new supplies are there to commence in Q4 as well? So do we see any correction happening on that end, pulp prices and so on?

Pavan Khaitan — Managing Director

So I — it’s a good question, Sandeep [Phonetic]. Earlier we would witness a corresponding change in paper prices according to the ruling pulp prices inevitably be between about a one-month, two-month lag. But we have not witnessed such price reduction despite pricing coming down earlier, wood pulp pricing had reached to the high level of $1,200 per ton. And even despite coming down by about $400 a ton, the pricing of paper has actually gone up in the interim from a level of about INR65,000 per ton at the start of the year, we are now ruling at INR90,000 per ton. So that correlation, a direct correlation between wood pulp pricing and paper pricing within India is not there anymore, prevalent there anymore.

Sandesh Barmecha — Haitong Securities — Analyst

Okay.

Pavan Khaitan — Managing Director

However, we do not rule out the correlation completely, and I think that is why we are seeing a slight reduction in pricing because — largely because demand is now stabilizing at these levels. And I think with the implementation, rightful implementation of NEP, the demands would pick up and help stabilize the pricing further.

Sandesh Barmecha — Haitong Securities — Analyst

Okay. Sir, if I may, sir, what would be our mix between low GSM and high GSM production of paper, sir?

Pavan Khaitan — Managing Director

We are doing about 50-50 percent. 50% is in the GSM ranges up to 56%, 58% GSM and balance is 60% GSM and above. So that’s the 60% GSM is the cutoff mark between what we call as a high GSM paper and below that is the low GSM paper.

Sandesh Barmecha — Haitong Securities — Analyst

Okay. Sir, if I may, last question, sir. Sir, what would be the price difference between domestic and imported paper prices near the port area at the moment and how different is it from the pre-COVID levels?

Pavan Khaitan — Managing Director

So today the export realization for us is about INR8,000 lower than the domestic market. And yes, in the COVID times, the export market was actually helping us fetch a better price that was largely because the Indian market was almost not there, schools, colleges, high consumption areas being totally locked down and completely closed. So that’s the scenario. And I think this is what we witnessed the export market because of larger competition days normally gets ruling of — price ruling of about INR8,000 to INR10,000 lower than the domestic market.

Sandesh Barmecha — Haitong Securities — Analyst

Right, sir. Okay, thank you so much, sir. I’ll come back in the queue.

Operator

Thank you. [Operator Instructions] The next question is from the line of Dalpat [Phonetic] Mehta from Suncity Advisors. Please go ahead.

Dalpat Mehta — Suncity Advisors — Analyst

Yeah, good evening, sir. We can see the growth is muted for the quarter two and quarter three in value terms as well as you — as you told right now in the volume terms also. Can you give some guidance for the Q4, will the same trend continue or there may be some change?

Second question is my — in regards to your expansion plan for INR285 crores, wherein you have mentioned that it’s only modernization of paper mill and pulp mill. Will there be any capacity expansion or is there no capacity expansion? And my third question is regarding this part of other expenses. This is — consist of power and fuel cost of chemicals and leather [Phonetic], which constitute around 43% of the total expenses. So there, what’s the type of saving reduction we are — we have achieved or we are planning in future to reduce this cost part? Thank you, sir.

Pavan Khaitan — Managing Director

Dalpat, ji, the trending for volumes is going to be very similar. As I mentioned, we are currently operating at [Technical Issues] capacity, that trend is going to continue. And with the similar pricing level that I’m budgeting for in the next quarter, we are targeting revenue of close to INR350 crores in the Q4 as well.

Dalpat Mehta — Suncity Advisors — Analyst

Yeah. Yeah.

Pavan Khaitan — Managing Director

Regards to our capacity expansion, it’s a combination of investment in our paper machines, pulp mill and the energy side. So yes, the investment in the paper mill will release about 25% additional capacity from the current 150,000 tons, we are going to — we are planning to go up to 200,000 tons per annum capacity. And investments in pulp mill will reduce our cost of operations, as well as on the energy side, it is going to help reduce our energy costs by about close to 20%.

So that will cover your question on your expenses of power and fuel. The power and fuel expenses actually went up phenomenally because cost of coal rose up dramatically in the past year from a level of about INR5,500 per ton, coal was being sold in the market for close to INR14,000 per ton to INR15,000 per ton. So that was the reason why high fuel cost was observed for us as well as most other industries. And what — there is where the need has been felt to reduce this dependence on energy cost and reduce it by optimizing our operations accordingly.

Dalpat Mehta — Suncity Advisors — Analyst

Okay, sir. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rajesh Majumdar. Please go ahead.

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

Yeah, hi, sir. I had one question on this syllabus change. If I remember correctly, that the syllabus change for ICSE and CBSE was supposed to be a big driver for the paper industry in the near-term. Has that taken place or will it take place? Can you give us some color on that?

Pavan Khaitan — Managing Director

So, Rajesh, it has yet not been implemented. This part of the syllabus change has — is yet in the offing. It is expected in the — one is expecting that for the next education year, which starts in August of ’23 for the colleges at least it should start, for the schools it may come in, in the month of March and April of ’24. But even if the syllabus for colleges changes, that could show a dramatic shift in demand and a pull of demand for paper for the industry.

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

That’s roughly about 40% of our market, right?

Pavan Khaitan — Managing Director

Yes.

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

Yeah, yeah, thank you so much.

Operator

Thank you. The next question is from the line of Anil Garg, Individual Investor. Please go ahead.

Anil Garg — Individual Investor — Analyst

Hey, hello, sir, congratulations for the good set of numbers. I have few questions that I would like to understand from the management. I have been tracking the Company’s performance from last two years and witnessed a sharp increase in the margins from Q1 of this financial year. Till last quarter of the previous financial year, margins were in the range of 13% to 15% and then in this year, the margins are almost doubled. So what are the major reasons for that? Is it all due to the better NSR or have the Company undertaken any cost reduction measures?

Pavan Khaitan — Managing Director

So, thank you for that question. We actually set out a large backward integration project of — consisting of our own wood pulp mill, chemical recovery and our captive power in the year 2018, which got commissioned in March of ’21. Now the fruits of that entire capex plan is coming to bear, and we have seen a huge reduction in cost of our operations as well, which has lent very, very healthily and dramatically to this EBITDA margin increase.

So if you see the price increase has helped us grow by about 30% odd, but the cost reduction also been dramatic. So both have helped in tandem to increase our EBITDA levels from the — as rightfully said from about 15% to the current 30% mark.

Anil Garg — Individual Investor — Analyst

So is this margin sustainable over there or is there any further scope of increase in the margins from here?

Pavan Khaitan — Managing Director

Yes, we are targeting a slight bit increase with this further investment that we are planning, which is growing our volumes by 25% and reducing our energy costs and chemical costs somewhat. Energy costs is surely going to be reduced by 20% odd, and chemical costs by way of better efficiencies, we are targeting an EBITDA level of 33% now going forward, which we should be able to achieve in financial year ’24-’25. The whole of next year will take to implement this entire capex plan of INR285 crores, and the results of that will be very, very visible in financial year ’24-’25.

Anil Garg — Individual Investor — Analyst

Okay. And what is the present raw material mix? And if you could highlight about the current prices of agri or — agri and wood?

Pavan Khaitan — Managing Director

So we are doing a 50-50 percent of agro pulp and wood pulp and which we are sort of manufacturing all internally. We are buying agro pulp — we are buying wheat straw to make our agro pulp and certain species of wood chips and veneer chips. It’s a variety of wood species that we buy. And even we include bamboo in that, and all that is pulped and sort of blended to make the wood pulp of the desirable quality that we require.

Anil Garg — Individual Investor — Analyst

Okay. And one last question…

Pavan Khaitan — Managing Director

And I think if you see…

Anil Garg — Individual Investor — Analyst

Yes, yes.

Pavan Khaitan — Managing Director

Today, wheat straw pricing is at about INR10,000 per ton and wood pricing is at about INR7,000 per ton to INR7,500 per ton average.

Anil Garg — Individual Investor — Analyst

Okay, okay. And one last question, any update on capex on tissue paper plant?

Pavan Khaitan — Managing Director

Yes, that is part of this INR285 crore spend. So yes, we will be investing in sort of the tissue line as well and upgrading that and commissioning that.

Anil Garg — Individual Investor — Analyst

Okay, thank you, sir. Thank you.

Operator

Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead.

Saket Kapoor — Kapoor & Company — Analyst

[Foreign Speech] And thank you for this opportunity. Sir, you did mention that because of the efficiency that would be put into place, we will be reducing our requirement for chemicals also. So could you please elaborate more on the same whether what were you trying to explain, sir?

Pavan Khaitan — Managing Director

So in the pulp mill, we are going to put up twin-roll press, where the efficiencies of pulping increase dramatically and the requirement of chemicals reduces for the pulp making process. And we’re going to put this twin-roll press in both our agro pulping street as well as our wood pulping street. So that will help in reducing the cost of operation and cost of chemicals in our pulp making process.

Saket Kapoor — Kapoor & Company — Analyst

And by what percentage, sir? And is it this technology only we are — we are newly introducing or other mills have already done the same? Is there a new norm there?

Pavan Khaitan — Managing Director

No, it’s already an established technology, all the big mills are already — have already implemented this. And we will be also taking of this technology and helping upgrade our pulping facility.

Saket Kapoor — Kapoor & Company — Analyst

And what kind of reduction, sir? Sir, mainly the chemical includes the caustic part or others also, if you could give — elaborate slightly more on the same?

Pavan Khaitan — Managing Director

Even the caustic, yes, the caustic addition in our pulping process will decrease as well as the bleaching chemicals. So this — because of the establishment of this twin-roll press, the losses that we incur on our pulping will reduce, and that is why the subsequent processes will require lesser chemicals to bleach and prepare the pulp.

Saket Kapoor — Kapoor & Company — Analyst

Okay, sir, last small point. Sir, what have been our utilization levels, you mentioned it for this quarter and for the nine months?

Pavan Khaitan — Managing Director

Utilization of what?

Saket Kapoor — Kapoor & Company — Analyst

Our plant utilization?

Pavan Khaitan — Managing Director

100%. Our machines are working to 100% capacity, and — for the last two quarters, even the first quarter as well. And that is why the need has been felt to upgrade our plant operational capacities, and that is why this plan of capex plan has been made to increase our operational capacity by about 25%.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. And sir, there was some news also for the import, some amount of import going ahead, I think to the BIS standards, there were some manufacturers who were looking for this certification from government. And now with that into the way, there will be some quantity or there will be a quantity of paper now being imported in the country. So any update you would like to give? And what had been the imported quantity for the nine months, sir, and the comparative number?

Pavan Khaitan — Managing Director

So, I think this is with respect to copier paper, and the BIS standards with respect to copier paper are set to change a bit, and which will clearly impact the imports of copier into the Company. Currently, the import levels are very, very minuscule [Technical Issues].

Operator

Sorry to interrupt here. Management members, we are unable to hear you. It seems like we have lost the connection for the management. We will reconnect their line. Please be on hold. This is the operator here, we have the management line reconnected. Sir, you may proceed, please.

Pavan Khaitan — Managing Director

So the question with respect to imports of paper, I think that was the BIS standards are likely to change for the copier grade of paper, and that is going to clearly affect the imports as well. And currently, in the last — in the current financial year, there have hardly been any volume of imports of copier grades, and largely this is also because the PIMS was implemented by Government of India. That’s the price import monitoring system whereby every quantity and volume of paper has to be declared by the trader and government is regulating the imports of paper in a big way. So good control on imports is there, and I don’t see a huge effect of imports in the long run affecting our paper industry in future.

Saket Kapoor — Kapoor & Company — Analyst

Correct, correct, sir. Sir, volume number, can you give any share on a comparative basis with these steps taken by the government? And it is only to provide the level-playing field to the Indian producer, because I think so, Indonesia and all are — had been in — had been there for the selling or dumping, if I may use in the country, it is to avoid that issue or what could be the reason for these monitorings that have taken place?

Pavan Khaitan — Managing Director

No, so, pre-COVID, we were importing about 4 million tons of paper on an overall aspect and the industry size within India was about 15 million tons to 16 million tons. So almost 25% capacity was coming in by way of imports that has drastically come down. And this year, we are seeing levels of — at the year end, we should see no more than 1.75 million tons overall coming into India.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And can you give some more understanding what should be the likelihood going ahead, I mean, these norms will have a — had — already had the impact or going ahead this 1.75 million tons will — can further go down or is it the incremental demand, inherent demand in the country that will continue with some import, there has to be some import in that case?

Pavan Khaitan — Managing Director

So, India is witnessing quite a strong demand, and I think it is quite an attractive situation for any kind of trader or exporter from abroad to deal in. And I think India is an attractive destination for trading and business opportunity. So I think with growing demand, there is likely to be a certain effect on increasing imports. But I’m sure it will stay at a similar level, maybe it can go up to 2 million tons, 2.5 million tons, but then the market will also grow from the current 18 million tons to 20 million tons, it is likely to grow up to 25 million tons to 30 million tons in the next four years, five years. So it’s going to have a corresponding effect on market growth versus increase in imports, if any.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. And on the chemical part, sir, you were explaining, sir, I reached the point, the requirement will go down, how have the pricing been, sir, for the chemical requirement, especially for the caustic and the bleaching agent, the price point?

Pavan Khaitan — Managing Director

Definitely for us with us having a complete chemical recovery plant, our requirement for caustic is very, very minimal. We hardly — our demand is only for makeup chemical, which is about 3% of our entire demand, and that’s about no more than 250 tons a month. So even though yes, caustic prices are currently ruling at about INR62,000 per ton level, but the impact for us is very, very minimal because of our own chemical recovery system that we have in place.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And what is our market share, sir, currently in the copier segment?

Pavan Khaitan — Managing Director

Copier segment, so our — we deal very, very differently. We are serving the entire marketing needs of the publishing sector, the printing sector, the notebook manufacturing and all sorts. So our — so total copier production for us is about 20% of our entire production, and we are able to market that quite efficiently and economically.

So as such, if you see the percentage in the copier market will be low, but our realizations for our copier brand is higher than the others. So it’s a good mix for us and we are quite happy dealing with these volumes, because we are also getting a good NSR on our writing and printing paper segments to match.

Saket Kapoor — Kapoor & Company — Analyst

Thanks. Thank you. I have a couple, but I’ll join the queue again, sir. And thank you for the elaborate answer. Thank you.

Operator

Thank you. The next question is from the line of Vardhman Sancheti from AVS Equities [Phonetic]. Please go ahead.

Vardhman Sancheti — AVS Equiserve Limited — Analyst

Congratulations, sir, on a good set of number. My question was that, what is the current tissue plant expansion in INR285 crore?

Pavan Khaitan — Managing Director

That’s the spend envisage, there is about INR35 crores to INR40 crores and will help us establish a capacity of about 35 tons a day.

Vardhman Sancheti — AVS Equiserve Limited — Analyst

35 tons. Sir, are we making tissue paper as of now?

Pavan Khaitan — Managing Director

Sorry?

Vardhman Sancheti — AVS Equiserve Limited — Analyst

Are we making any tissue paper as of now?

Pavan Khaitan — Managing Director

No as of now there is no tissue paper. No, sorry.

Vardhman Sancheti — AVS Equiserve Limited — Analyst

Okay. And what on the other grades of paper are we looking in for new development?

Pavan Khaitan — Managing Director

So we are looking at this food grade wrapping paper, which has — which is an opportunity which has come about by virtue of this single-use plastic ban, and paper will be a rightful replacement for all kinds of food wrapping requirements. So we are doing extensive research and R&D into creating a food wrapping paper, and we should be entering that market in the next three months to four months.

Vardhman Sancheti — AVS Equiserve Limited — Analyst

Okay.

Pavan Khaitan — Managing Director

Even items like straws and cup stock and things like that sort of food-related paper items is what we are looking at and getting a good opportunity and growth prospect from.

Vardhman Sancheti — AVS Equiserve Limited — Analyst

Okay. Sir, after reaching like INR285 crores capex plan, so we will be reaching around 2 lakhs capacity, so what after that?

Pavan Khaitan — Managing Director

Well, I think with healthy cash flows and being able to create quite a big war chest of funds for ourselves, we could look at another either a specialty paper machine of one lakh tons or even look at a 300 ton to 400 ton board machine, but that only time will tell. But yes, suffice to say that we will have enough funds at — available at hand to look at that kind of project in about two years to two and a half years time.

Vardhman Sancheti — AVS Equiserve Limited — Analyst

Sir, like this would come around ’26, ’27?

Pavan Khaitan — Managing Director

Yes, yes.

Vardhman Sancheti — AVS Equiserve Limited — Analyst

Okay, okay, okay, thank you, sir.

Operator

Thank you. The next question is from the line of Shrimant Didoria [Phonetic] from Shree [Phonetic] Capital. Please go ahead.

Unidentified Participant — — Analyst

Yeah, good evening, sir. Am I audible?

Pavan Khaitan — Managing Director

Yes, please.

Unidentified Participant — — Analyst

Yeah. Sir, just one question for your agro-based pulping capacity, could you please comment on the pricing trends for the agro waste, what has been the rate in the past quarter and the previous quarter?

Pavan Khaitan — Managing Director

So in the past quarter, our average pricing was about INR11,000 per ton as such for wheat straw. In the previous quarter, it was about INR8,000 per ton. So quite a dramatic increase in pricing of this agro residue. But in the current quarter, Q4 of the year, we are seeing a decrease in costs, the new wheat straw crop will — is going to arrive in April and the farmers necessarily have to sell their entire available stock of wheat straw that they have and they only have these three months to do that. So we are witnessing quite a reduction in these pricing and which is quite a healthy trend and of reduced pricing for us.

Unidentified Participant — — Analyst

So what was this number same quarter last year, Q3 of ’22?

Pavan Khaitan — Managing Director

Q3 of ’22 was at about INR6,000 per ton.

Unidentified Participant — — Analyst

All right, thank you so much.

Operator

Thank you. The next question is from the line of Dalpat Mehta from Suncity Advisors. Please go ahead.

Dalpat Mehta — Suncity Advisors — Analyst

Yeah, sorry, sir, to disturb you again. Sir, and regards the paper business of the Company is concerned, you are doing good utilizing 100% of the capacity, improving the EBITDA and the year-on-year working is also good, that is all good and fine. But I am more interested to hear from your side on the Cellulosic Ethanol pilot project for the rice straw management for which you successfully established the technology and its — the commercial plant. So what is the next step? Is there any commercial plants coming up in near future or is there any tie-up going on with some PSU or some franchises looking to — or how the commercial part of that pilot plant can be beneficial to the Company in coming future? So would like to hear more from you on this subject?

Pavan Khaitan — Managing Director

So I’ll — Dalpat ji, I’ll keep this answer very short. We are wanting to be a strictly paper-focused Company. It was a sort of foray into wanting to create an innovative technology and it ends there. As a Company, we don’t intend sort of monetizing that technology at all. We will be sequestering that technology into a separate Company and that separate Company will see the light of day on its own accord. But no sort of expansion or operation of ethanol of any sort will come into Kuantum. Kuantum will continue to remain a paper-specific company.

Dalpat Mehta — Suncity Advisors — Analyst

Will there be any relationship of current shareholders with that company or it will be totally detached?

Pavan Khaitan — Managing Director

Totally different. That company will on its own come to the market as and when required. And I think as shareholders of this company, you will get an opportunity to invest there as and how the time allows in future.

Dalpat Mehta — Suncity Advisors — Analyst

Okay, sir. Sir, there is no issue, whether it’s a new company or it’s a same company, but as this company, Kuantum has invested and successfully implemented this pre-commercial pilot plant. So just I was interested to hear more on that line? And what is the potential of that technology or the plant or the project which either with this company or in a separate company, what can be the revenue guidance estimated on down the line? If you can…

Pavan Khaitan — Managing Director

I’m sorry…

Dalpat Mehta — Suncity Advisors — Analyst

If you can give some details?

Pavan Khaitan — Managing Director

I’m sorry, I will not be able to comment, because I’m clearly focusing on the paper side of it and restricting myself from the ethanol. As and how that ethanol story comes into public domain, you will surely hear about it, and at that point in time, we will make an effort to reach out to you. But I certainly on my part will not be playing any role in the ethanol operation at all.

Dalpat Mehta — Suncity Advisors — Analyst

Sir, is it not profitable or something else?

Pavan Khaitan — Managing Director

No, no, it’s certainly profitable. Ethanol is a very, very profitable and sort of greenfield project opportunities are huge, but I personally want to focus only on paper and growing this aspect. So that’s why I’m precluding myself from the ethanol, because I don’t want to divert my attention into — that also requires a huge amount of attention and time, and I will not be able to devote it successfully to both paper and ethanol.

Dalpat Mehta — Suncity Advisors — Analyst

Okay, sir, thank you. No problem. No issue.

Operator

Thank you. [Operator Instructions] The next question is from the line of Govindlal Gilada, Individual Investor. Please go ahead.

Govindlal Gilada — Individual Investor — Analyst

Thanks for giving the opportunity, sir. I’ve got a few questions. First thing, sir, it is a request or advice, this time you have given in presentation, the sales volume, last two quarters I am observing there is gearing production, sales volume, this time it is — sorry, sales and last time, it is production, So it is better sir, if you give both or at least our in-store is comparatively the better, last time, it is the production, this time, it is sales. So either you give sales volume every quarter or production volume every quarter or both, it will be most welcome if you give both?

Pavan Khaitan — Managing Director

So we are actually producing everything to order and our production and sales volume are normally very, very similar. You will hardly see any difference in these figures because whatever we produce we sell in the same quarter. And if you see our year-end stock position, it’ll — you’ll — or quarter-end stock position, you will find it within a manageable two days production level. So any which way you take it whether it’s the production volume or the sales volume, you’ll find them very, very similar. But point taken, we will keep to a similar pattern of presenting the data.

Govindlal Gilada — Individual Investor — Analyst

Yeah, thank you, sir. Then next question is an earlier participant or — you’re commenting that your EBITDA margin, 30% will be for ’24-’25. So I want to just categorically make clear, it is ’23-’24 or ’24-’25?

Pavan Khaitan — Managing Director

No, we are already currently achieving 30% and we will continue to achieve 30% in the ensuing financial year ’23-’24 as well. The 33% target is post when we establish this capex plan of paper capacity enhancement and energy cost reduction initiatives that is when we will target achieving 33% EBITDA in ’24-’25.

Govindlal Gilada — Individual Investor — Analyst

Yeah. So it is clear, sir. For next year, you’re targeting 30%, then year after that, ’24-’25, 33%?

Pavan Khaitan — Managing Director

Correct.

Govindlal Gilada — Individual Investor — Analyst

Yeah, that is. Then last question, sir, in last call, you are mentioning about paper price trend, similar trend can continue for next one or two years. So just I want to have clarity on that, still you hold that view, sir?

Pavan Khaitan — Managing Director

I’m sorry, the question wasn’t clear. Can you please repeat that?

Govindlal Gilada — Individual Investor — Analyst

In second quarter last previous call…

Pavan Khaitan — Managing Director

Right.

Govindlal Gilada — Individual Investor — Analyst

Somebody when asked, you mentioned that paper prices spend for next one or two years will be of similar what current prices are ruling in. So I am asking still you hold the same view, sir?

Pavan Khaitan — Managing Director

Yes, they will be very similar because they are at — trading at a higher level. So in the last year, the average paper pricing was about INR60,000 per ton and now they are ruling at sort of INR80,000 plus. We are commanding a price of INR89,000 per ton currently. So it will be in the similar strain of about between INR80,000, INR85,000 ton levels for the next one, two years at least.

Govindlal Gilada — Individual Investor — Analyst

That is great, sir. Then what is your outlook for pulp prices for next one or two years, sir, any — your view on that?

Pavan Khaitan — Managing Director

So, pulp pricing is a little difficult to detect and difficult to monitor, because internationally, one has to take into account what are the new capacities coming in, what are the capacities closing down. It is very difficult to project what the pulp pricing is, but they should also remain within similar ranges of between $700 to $800 per ton or there arounds.

Govindlal Gilada — Individual Investor — Analyst

So net-net, so these paper prices and pulp prices now already they’re in new range. Your pulp prices were $400 to $600, $700 range. Now it is $750, so we can conclude that this all will be for next one or two years we will not be seeing. Earlier, two, three years back paper prices INR60,000 pulp. So you need to tell that, sir. There will be no new range in next one or two years.

Pavan Khaitan — Managing Director

Correct, correct. I think with the roll-off sort of pricing going up with the cost, the cost push coming in and the sort of all kinds of prices going up and the inflation factor also coming in, we should be seeing these kind of price levels getting maintained at you are rightly commenting that pulp pricing should be about $700 to $800 and the pricing of paper, between INR80,000 and INR85,000, that’s correct.

Govindlal Gilada — Individual Investor — Analyst

What is current pulp prices sir?

Pavan Khaitan — Managing Director

Sorry.

Govindlal Gilada — Individual Investor — Analyst

Current pulp prices. What is current pulp prices?

Pavan Khaitan — Managing Director

Pulp pricing is about $780 for hardwood pulp and $840 for softwood pulp.

Govindlal Gilada — Individual Investor — Analyst

That is great, sir. Thank you very much, sir.

Operator

Thank you. The next question is from the line of Rajesh Majumdar from Batlivala & Karani Securities. Please go ahead.

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

Yeah, sir. So I had a couple of macro questions. I mean other than UN TNPL, no one else is expanding, capacity in writing and printing paper, as we all know as the economy matures post this one-time demand from syllabus-related etc. We will see the kind of demand growth rates in WLP slowing down. So why are we expanding capacity at all in WLP? That was the first question.

Pavan Khaitan — Managing Director

So even though the investment in paper machine capacity is coming in, Rajesh, but not necessarily that we will stick to writing and printing paper. As I’ve said, we are doing extensive research in making food grade paper. So the base paper remains the same, we can put in additional laminates of OGR and all and convert our same paper for food grade wrapping purposes. So we are not going to restrict ourselves to in the writing and printing segment. In fact, we’ve got a large portfolio of specialty papers as well and a good bit of 15% odd of our capacity goes into manufacturer of specialty papers, there could be an advancement in capacities there as well.

So we are quite flexible in our and nimble in our operations and we have the option to convert sort of going forward and as and how the opportunity will come in, we will sort of be sure to attract that kind of market with our diverse product portfolio.

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

So these are fungible production lines, which can be modified to make packaging paper, is it?

Pavan Khaitan — Managing Director

Maybe, maybe, maybe somewhat bit of components will may need to be added to sort of strictly make good quality food grade paper that can be used to looked at an appropriate time once the R&D activity gets concluded.

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

Okay. And so secondly, while you’re getting into tissue paper because we have seen two, three companies in this business struggling in the sense that export realizations are low and the domestic market hasn’t grown as expected. So the realizations and the margins are — will be dilutive for you. That’s for the other question.

Pavan Khaitan — Managing Director

Well, this is the plan right now, Rajesh, because as per our information, there are only largely two companies in India manufacturing tissue paper, which is Century and Oriental. There is no other player to talk home about and I think, tissue paper requirements are growing in India post the pandemic situation and the awareness of hygiene growing up, and I see a huge potential. In fact, tissue paper is growing at the healthiest rate of 20% CAGR going forward. So I think it’ll be worthwhile investing and it’s not too big an investment. It’s about 35 tons per day and which will sort of make our entire portfolio also more flexible, as you rightly suggested why stick into one category, we are looking at this differential category to bring flexibility in our volumes.

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead.

Saket Kapoor — Kapoor & Company — Analyst

Yeah, [Foreign Speech] Sir, when we earlier look, when it was just before the pandemic or just two, three years again China used to be a dominant player for the pulp and paper industry, how have things now currently changed and as the new regime said that China would be now only for the domestic market and what kind of roles will China play and then how then the price trends would likely be as you have guided for this 88,000, 90,000 bank. So, what have you factored in some China site, sir?

Pavan Khaitan — Managing Director

So I think China is facing its own sets of challenges and problems. One is that it is tending to a population, which is elderly and the working hands in China are reducing quite substantially. You would have read — may have read an article that came about three days ago that this is the first time in so many years that China’s population has actually declined. So they’re seeing a decreasing trend and the — which will clearly affect the working population as well and as well as the fact that China spent a lot in creating the infrastructure for machinery and industry, which may go a begging in future. And China will have to play its story very differently and contain its entire challenges that it is facing by way of the working population that they have. So I think the effect of China going forward will be limited. It won’t be as strong as what we witnessed in the pre-COVID years and we will see reduced intervention and impact of China in the world economy and trade going forward.

Saket Kapoor — Kapoor & Company — Analyst

Sir, just to drill once again, it is the aging population or the reduction in the population growth, correct. But what would go along with for the capacity since they have that excess capacity they and the market is remunerative, we can very easily create, many brief the utilization levels and against it the paper tree in the market again. I mean what stops them from improving the utilization levels, even though their inherent demand may go down as you were trying to explain or please correct me there, sir.

Pavan Khaitan — Managing Director

I think it will be a combination and variety of things. One is that, clearly there is a kind of anti-China sentiment that is getting generated in the world. People are not so amicable looking towards China as they were earlier. They are also sensing the kind of sort of Russian, Ukrainian crisis that has emerged there. We are the world is sort of on trepidation whether China would have the similar story with Vietnam as well.

So I think every government is looking at it very, very individually and we will be — Indian government is clearly above board in all this and very, very sharp on all this and will not allow intervention from China the way they used to do it earlier. And as even if they have these spare capacities available with them, the fact is that they need working hands to run them. And this is something which has been witnessed, not only in paper, but I think in many other industries China is failing in its dominance in the world industry and trade per se. So I think with that I would say that I’m just mentioning that the impact that China used to have prior to COVID will not — will be much, much lesser now going forward.

Operator

Thank you. And sorry to interrupt, Saket Kapoor, I would request you to please come back in the queue. The next question is from the line of Arun Chulani from First Water. Please go ahead.

Arun Chulani — First Water — Analyst

Hi. Thank you so much for this call. And I just want to understand, you said for the next two years, we’re going to be at record highs in terms of paper prices. So whether it’s INR85 or INR90, as you are at now. And you said primarily it’s due to inflation and, of course, your EBITDA is around 30 and brewing, beyond the school syllabus, what are the other kind of macro aspects that are keeping demand buoyant. As you might realize this, I mean, I know you said that also best packaging, you’re moving to other sectors, but what else is there.

Pavan Khaitan — Managing Director

We are a company, which sort of specializing in serving the marketing needs. We are a company which does customization for our customers as and how they require it, whether it’s the GSM or the size, or the quantity, whatever it be, we take those orders. We don’t work on standard orders. So our customization quality and sort of weariedness is much, much higher than any other company. And we are making a foray also into increasing our market penetration into areas, which we were not present in and picking up orders from there as well.

So we will — our market outreach program is increasing and we will be creating a new GTM, a go to market strategy going forward, which will help us maintain our increased production levels and volumes that we generate. And our sort of way to sell them will clearly be their — strategy will be developed to ensure that we sell that as well. And in addition to this RTE, which has come in, one is, obviously, is these single-use plastic band, which has come in. And as I’ve mentioned, we are foraying into the innovation and R&D towards making food grade wrapping paper, which is going to be a huge market and a huge volume. We may see — we may end up dedicating one of our machines, particularly only for manufacturing food grade wrapping paper.

That’s a huge opportunity that I’m seeing going forward.

Arun Chulani — First Water — Analyst

Got it. I’m just — I mean, what are the other drivers, because I understand and I appreciate that. But are there any other kind of aspects or that’s it because I wouldn’t imagine that your competitors are standing still letting you penetrate their market. So that will be pushed back and so on or they are all even go into food wrapping. What is the overall kind of pull to keep you at 100% utilization to keep you at 85% to 90% realization — I mean INR85 to INR90 per kilo realization.

Pavan Khaitan — Managing Director

I’m not sanguine about keeping those kind of lavation. So even if they do come down, we are going to see a core rated effect in reduced costs as well. So if you see our agro pricing has gone up from INR6,000 to INR11,000 per ton. I am very sure and confident and even our fuel pricing is at an all-time high. I’m very sure if that impact out comes onto paper pricing, we are going to see somewhat effect on reduced cost of inputs as well, which will help enable me to sort of maintain my margins thereabouts. So I’m quite confident that it’s not going to be a dramatic impact on my profitability angle as well.

And one more factor would be that India is again a growing population and India is sort of projected to grow to about 1.8 billion population in by 2050, and which will clearly mean an increased demand for schools, education, education is going to grow schools, educational institutions are going to grow, which will mean an increase in demand for paper as well. So I think all in all, for the next decade, clearly is going to be on a optimistic footing.

Arun Chulani — First Water — Analyst

Got it. Sure. Thanks a lot.

Operator

Thank you. The next question is from the line of Rabindranath Nayak from Sunidhi Securities. Please go ahead.

Rabindranath Nayak — Sunidhi Securities — Analyst

Thank you for the opportunity, sir. One question, what is the average pulp cost for you in this quarter? And what is the — agro based cost is around, which cost is around INR10,000 per ton, and INR10,000 to INR11,000, and INR7,000 for wood. If wood remain constant, and this price will come down to around say INR6,000 to INR7,000, which drove prices, what would be the pulp cost, what is the current cost and what would be the pulp costs?

Pavan Khaitan — Managing Director

Average pulp cost is about INR43,000 per ton with agro currently being about INR41,500 and wood being INR46,500. So with agro pulp costs coming down, I will sort of observe and budget for a reduced agro pulp cost and agro pulp costs should come down to about INR38,000 per ton level.

Rabindranath Nayak — Sunidhi Securities — Analyst

Okay. Sir can you please give me about the different grades of paper prices in this quarter?

Pavan Khaitan — Managing Director

Average grade, we commanded about INR90,000 plus per ton.

Rabindranath Nayak — Sunidhi Securities — Analyst

No, no I’m just talking about different grades of paper, for example, writing, printing and copier, and the different grades of paper.

Pavan Khaitan — Managing Director

Specialty paper, some of them command as I — as INR98,000 per ton, this is a colored copier and colored paper that I made. Writing and printing paper maplitho is at about INR92,000 per ton. [Indecipherable] about INR90,000 per ton, copier is at about INR92,000, but then you take the cost of packaging is higher. So again, the profitability that you get from copier is, again about INR89,000 to INR90,000 per ton.

Rabindranath Nayak — Sunidhi Securities — Analyst

So this includes GST, right?

Pavan Khaitan — Managing Director

No, no, this is net realization. GST is, if you include GST, then we are commanding INR100,000 per ton plus.

Rabindranath Nayak — Sunidhi Securities — Analyst

Okay, okay. Thank you. Thank you.

Operator

Thank you. That was the last question for today. I now hand the conference over to Mr. Rajesh Majumdar for closing remarks.

Rajesh Majumdar — Batlivala & Karani Securities India Private Limited — Analyst

I would now like to hand over the conference to the management for closing remarks, if any.

Pavan Khaitan — Managing Director

Thank you all for participating in this earnings con call. I hope we’ve been able to answer all your questions satisfactorily. If you do still have any further questions, or would like to know more about the company, please reach out to our IR managers at Valorem Advisors. We are very thankful to you all and to our investors who have stood by us and had the confidence in the company’s growth plans. And with this, I wish everyone a great evening. Thank you.

Operator

[Operator Closing Remarks]