Kuantum Papers Ltd (KUANTUM) Q4 FY23 Earnings Concall Transcript

Kuantum Papers Ltd (NSE:KUANTUM) Q4 FY23 Earnings Concall dated May. 03, 2023.

Corporate Participants:

Anuj Sonpal — Investor Relations

Sushil Khetan — Chief Executive Officer

Roshan Garg — Chief Financial Officer

Analysts:

Unidentified Participant — — Analyst

Prachi Sharma — Financial Strategist

Imran Khan — Longbow India — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to 4Q FY 2023 Conference Call of Kuantum Papers Limited. [Operator Instructions]

I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors.

Thank you and over to you sir.

Anuj Sonpal — Investor Relations

Thank you. Good morning everybody. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Kuantum Papers Limited. On behalf of the company, I would like to thank you all for participating in the company’s earnings call for the fourth quarter and financial year ended 2023. Before we begin, let me mention a short cautionary statement. Some of the statements made in today’s earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such statements are based on management’s beliefs as well as assumptions made by and information currently available to management.

Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today’s earnings call is purely to educate and bring awareness about the company’s fundamental business and financial quarter under review. Now, let me introduce you to the management participating with us on today’s earnings call and hand it over to them for opening remarks. We have with us firstly, Mr. Roshan Garg, Chief Financial Officer; Mr. Sushil Khetan, Chief Executive Officer of Operations, and Ms. Prachi Sharma, Associate Vice-President of Corporate Strategy.

Without any further delay, I request Mr. Sushil Khetan to start with his opening remarks. Thank you and over to you sir.

Sushil Khetan — Chief Executive Officer

Thank you Anuj for the introduction and good morning to everyone. Joining us today, everyone a very warm welcome to our quarterly earning conference call to discuss the results and business updates for the fourth quarter and financial year 2023. Let me now briefly take you all through the quarterly business highlights following which. Mr. Roshan Garg, our CFO will take you through the financials. In the last financial year, the Indian paper industry witnessed strong growth driven by increasing demand for all types of paper products across conjunction centers like education, FMCG, packaging, pharma and e-commerce. This momentum is expected to continue in the coming year as well.

We expect a boosted demand for the FMCG segment this segment this year on account of impending changes in the new education policy and curriculum, along with the introduction of textbooks in 22 languages in alliance NCERT and Ministry of Education. Paper has also found its use in many applications as a replacement to single-use plastic and this has further aided to demand. I’m happy to announce that we closed the financial year 2023 on a strong note with highest-ever annual revenue of INR1,310 crores with EBITDA 28.9% or say 29%.

We also reported our highest-ever EBITDA margins at 33.2% for the fourth quarter on the wake of course optimization in operation especially in co-gen power plant and chemical recovery boilers. During the quarter we successfully launched straw base paper 60, 90 and 120 GSM as a sustainable replacement to single use plastic straw. Additionally, in order to replace coal with biomass and reduce our carbon footprint we have initiated techno-commercial discussions for rice straw boiler as well.

The upgradation of PM 1 and PM 2, is on-track and is expected to be completed by end of September 2023 leading to an increase of production by about 15,000 tons per annum. Lastly I’m happy to inform you that the company’s further repaid INR102 crores of its term loan in March 23 taking the total prepayment in FY 2023 to INR243 crores on the wake of healthy cash-flow.

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

Roshan Garg — Chief Financial Officer

Thank you Sushil ji and good afternoon everyone. I would like to brief you on the financial performance of the fourth quarter and also the full financial year ended March 23. Our fourth quarter revenues stood at INR344 crores, representing a growth of about 36% year-on year basis, the EBITDA for the quarter was INR114 crores, which grew by 245% year-on year. The EBITDA margin is reported at 33.2%, which is our highest-ever quarterly EBITDA margin. Net profit for the year stood at INR65 crores representing a significant growth year-on year and quarter-on-quarter with PAT margins reported at 18.9%.

For the full-year ended financial year 2023, we reported highest-ever yearly revenue of INR1,310 crores, representing a growth of around 58% year-on year, [Indecipherable] stood at INR379 crores, which grew by 219% year-on year with EBITDA margin of about 29% for the full-year. The net profit for the year stood at INR200 crores before exceptional items, which were on account of tax adjustments relating to the previous years. Post these adjustments, net profit is about INR136 crores with a growth of over 900% from the previous year with PAT margin reported at 10.4%.

As Sushil ji mentioned, the robust cash flows, allowed the company to further prepay loan of INR102 crores for the restructured term loan in March 23, taking the total prepayment in FY23 to INR243 crores. I’m also happy to announce that the Board has recommended a dividend of 300% that is INR3 per share on the face value, INR1 per share for the financial year ended 2023.

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

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Araaj [Phonetic] from Arjav Partners, please go ahead.

Unidentified Participant — — Analyst

Am I audible?

Operator

Yes, you are.

Unidentified Participant — — Analyst

So in FY24, do you think, will you be able to replicate this kind of EBITDA?

Sushil Khetan — Chief Executive Officer

Mr. Araj, we have achieved 33% EBITDA in fourth quarter.

Unidentified Participant — — Analyst

Understood.

Sushil Khetan — Chief Executive Officer

And this EBITDA is on the back of strong performance of our company back-end integration done by the company in the year 2021, around INR450 crores investment. Basically, in the pulp mill and in the power boiler and little bit upgraded in the paper machines. So this is in-line with the indices and this is going to sustain. We have no doubt about achieving these results in the coming years together. Thank you.

Unidentified Participant — — Analyst

All right. And how much is the current ROCE of the company, if you can just give me an estimate of it?

Sushil Khetan — Chief Executive Officer

ROCE is around 22%.

Unidentified Participant — — Analyst

22% is the current ROCE, alright. And about how much is the utilization of the plan currently?

Roshan Garg — Chief Financial Officer

Is 100%, sir.

Unidentified Participant — — Analyst

100% so if you want to expand the sales from here, you need investment, right?

Prachi Sharma — Financial Strategist

That is correct, in fact, we have announced an investment of INR285 crores and in that we will be taking up the capacity of our machine, as was mentioned earlier, some of that will be commissioned in the coming financial year and we expect from our smaller machines PM 1 and 2 the capacity to increase by 15,000 tons per annum just on account of those. Further, we are exploring our larger machines PM 3 and 4 where we’re going to debottleneck and add-on capacities to the operation.

Unidentified Participant — — Analyst

How much of incremental sale we can expect from this?

Prachi Sharma — Financial Strategist

We are looking at add about 22% to 25% additional capacity on our current base, so that means that we will be looking at about 1,84,500 in the coming 1.5 to 2 years.

Unidentified Participant — — Analyst

How much, sorry?

Prachi Sharma — Financial Strategist

1,84,500 tons in the coming 1.5 to 2 years.

Unidentified Participant — — Analyst

All right. Thanks, 1.5 to 2 years. All right ma’am, thanks. All the best.

Operator

Thank you. [Operator Instructions[ The next question is from the line of Vishal Prasad from VP Capital [Phonetic], please go ahead.

Unidentified Participant — — Analyst

Hi, good morning. Sorry. We have co-gen power plant but we are not getting any benefits under Section 80-IA of Income Tax. A company based out of Punjab, they are claiming huge benefit of 80-IA. So could you please let me know why we are not getting that benefit?

Sushil Khetan — Chief Executive Officer

Sir, we have got this — the benefit is available for a period of 10 years and a block of 15 years. So we setup this plant in 2010, so we have availed this benefit from 2012 to 2022.

Unidentified Participant — — Analyst

So if we put up additional capacity of co-gen then we will get the benefits or?

Sushil Khetan — Chief Executive Officer

Right now this benefit is not available, for the new capacities.

Unidentified Participant — — Analyst

Okay, got it. Second question, I joined a bit late and while I joined I heard that we were mentioning something on rice straw for boilers. So are we putting up a new boiler?

Sushil Khetan — Chief Executive Officer

Yes, yes, we are putting up a new boiler for rice straw. Rice straw is available in Punjab in huge quantity and the cost of rice straw is just half of the coal or maybe 25% 50% of coal and [Indecipherable] so it is a very, very good proposal for the cost saving.

Unidentified Participant — — Analyst

Right. So we — I mean I live in Chandigarh and I see the rice straw availability. So when we decided to put up the boiler earlier this case was already always there, so why didn’t we put the rice straw boiler then we chose the other one?

Sushil Khetan — Chief Executive Officer

Actually coal was available in abundance quality till 2021. However, in last one year, we saw the coal prices going high, but technology of the rice straw boiler is not that proven and we were having some issues in that so we consulted the technical experts, and now we are in the stage of deciding for the rice straw boiler and pertaining to the supplier for a most suitable technology and the continuous renewable operations without any failure, that we have to achieve.

Unidentified Participant — — Analyst

Okay, sir, last question, sir — if we look at the raw-material price which is imported from outside India it’s coming down very, very — and there’s a lot of price correction happening there. And there was a call with JK Paper last quarter and they mentioned that if the raw-material price goes down international, as well as the local raw-material, then they will not shy away from reducing the final product price, but then I see that we already mentioned that we will be able to maintain the margins next year. So, I mean, given the raw-material changes in price and raw-material, do we see, we will be able to maintain 30% 33% or correction is possible after the peak season of June?

Sushil Khetan — Chief Executive Officer

Sir, first of all, let me tell you JK Paper production paper product and the Kuantum is totally different. JK Paper is also having a lot of board category product, packaging board and all that and they are totally depending on the board, but whereas in Punjab we are having 50% wheat straw pulp and 50% wood pulp and we don’t have much of imported stuff in raw-material in the raw material also and in the fuel also. So, we are not very much affecting with the downward pressures of the raw-material.

Now, so far as our presence is concerned, different industry will have a different operations center like craft, board, but writers and printing it not impacted demand there. India is a growth story, education sector is growing. National education policy is also you know, increasing the demand in the coming quarters, maybe up till September or October. So we will see a good demand, even though after ensuring all these things even something will come down in the NSR.

Correspondingly, the input cost will also go down. You must-have noticed that coal prices have come down, almost some INR15,000 per tonne to almost INR8000 per ton right now and I am hopeful that it will come to INR6,000 in next quarter or maybe two quarters, so with a small 2% plus-minus by and large, you will be able to maintain our EBITDA margin. And apart from that, we are also adding dozens of core selling initiatives, working out in the plant and we will achieve a lot of V&C improvement and we have showed that we will achieve our projected EBITDA margin.

Unidentified Participant — — Analyst

You have mentioned NEP sir, so NEP I have been hearing for longer probably for last 18 months, lot of companies are talking about the opportunities that will come out of NEP but nothing has happened on-the-ground till now so, do we see that happening before the election or it could get postponed?

Prachi Sharma — Financial Strategist

Hi Vishal. So as regards to the NEP yes, there have been talks of the NEP for the 2.5 to 3 years. I think there was a slowdown in the execution of the policy, also due to COVID because education was primarily shut during that time, but if you see in the last few months, especially in the month of March, there have been several declarations by the government clearly stating that now NCERT, which is the main authority, which is linked with the production of books or the publication of books for the students on-ground they have taken a call that the textbooks will be printed in 22 languages and this is in alliance with the Ministry of Education.

So, I think there is definitely a lot of positives and movement towards now finally executing this policy on-ground and we are hopeful that the new curriculum will be announced by September and October, which is also the peak season for publication. That is when all this positivity will move into the marketing further give us an upswing in terms of demand.

Unidentified Participant — — Analyst

Okay. This is one part of the question, can we shift to the sales side — on the sales side where does this paper go. Is it going straight into writing paper or textbooks etc.

Prachi Sharma — Financial Strategist

Yes, primarily about 80% to 82% of our production goes to the writing and printing sector and to answer your question, about 18% is on specialty, out of which currently about 3% to 5% is going towards replacement of single-use plastics, which is also as you are aware, there is a plastic ban, with effect from October 1 of last year, and we at Quantum have created several grades of paper, which are allowing us to replace single-use plastic with paper options and that is also our vision of being more sustainable. Okay. Thank you.

Operator

Thank you ladies and gentlemen. Next question is from the line of Imran from Longbow India. Please go-ahead.

Imran Khan — Longbow India — Analyst

Thanks for the follow-up. Sir, can you please help us understand in your freight cost for, let’s say, bringing a ton of rice starch from nearby to your location compared to coal.

Sushil Khetan — Chief Executive Officer

No, no, coal is costly affair. Coal freight is almost INR3,500 per ton from coal mines to our plant whereas rice is hardly INR700 per ton, so the maximum prices are being paid to the farmers.

Imran Khan — Longbow India — Analyst

Right. And when you say INR8,000 per ton for coal and very similar for rice starch, does this include the freight cost or freight cost is separate? Am I audible?

Sushil Khetan — Chief Executive Officer

Landed cost. INR8000 is the landed cost at plant.

Imran Khan — Longbow India — Analyst

For both, right? Okay, so that means it includes freight, all right, thank you.

Operator

Thank you very much. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Pavan Khaitan from Kuantum Papers Limited for closing comments.

Prachi Sharma — Financial Strategist

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

Operator

[Operator Closing Remarks]