Highlights of the call

The net sales up 4% to Rs 632 crore and net profit up 125% to Rs 60.11 crore.

April - June quarter is not good quarter for paper industry as April to June months are vacation months.

Volume for Q1 FY18 is lower vs Q1 FY17 due to change on product mix which give higher NSR (net sales realization).

GST impacted sales in June and channel inventory were down drastically.

July sales were good and demand was picking up. Q2 would be better quarter from demand point of view and expects channel inventory to go up.

Also in Q2, School and institutions open up, so it's a good quarter.

Operating profit up in Q1 because – increase in NSR, operation efficiency and raw material (RM) cost came down future. QoQ RM cost coming down due to local procurement of wood.

Odisa plant has local procurement of RM upto 60% while Gujarat plant RM procurement for paper is 100%. Local procurement helping in bringing down logistic cost.

The paperboard packing unit in Gujarat requires imported pulp, In that also there are 2 varieties of pulps. Out of which 1 pulp is BCCMP pulp which is no produced in India, so imported and some quantity of bleach pulp is imported. In last 4-5 moths there was good rise in global pulp price which impact the profitability of the company.

Power cost has gone up. The company has to buy coal from open market which is costly and import costly coal as Coal India was unable to supply required amount of coal. But in Q2, the company hopes to get coal from Coal India.

Finance cost came down because working capital is lower, outsanding came down, and inventory came down. Also rate of interest is lower.  Rating upgradation help in getting lower rate. Net debt came down. Surplus cash is helping in reducing debt.

Paper industry outlook – India is fastest growing paper market. Increase literacy level, lifestyle changes has resulted in growing demand. Kraft, packaging and writing paper will see good growth. 6-7% growth there will be in coming year depending on type of paper. As per some consultant, in 15 years, Indian paper industry will grow by 4 -4.5%.

Indian paper industry need to be more competitive and required some differentiation so that Asean import doesn't grow. Also industry has taken cheap import issue with Govt. of India, so that industry can have right kind of playing field and it can grow.

Best paper mills like JK Paper are more or less have same conversion cost with any good plant in the world.

Even though if BILT come with its 100% capacity, the demand for paper is more than supply. Industry worry is from surge in import and for that it has engage with Govt. to take action.

Blended NSR is Rs 55 plus per kg.

Expansion of JK paper – The Company is sourcing substantial part of coating paper and selling it as its own brand. As such, not necessary it will put manufacturing unit and without new capex also it can grow.  If the company grows on sourcing then ROCE will be better as asset light will help ROCE growth.  The company will invest in manufacturing facility provide it make sense in term of value creation.

The company has Rs 1400 crore of long term debt and it is repaying around Rs 250- 300 crore every year

Total Long term and short term loan is Rs 1500 crore. In 5 years time it will be zero but the mgmt said that it don't want to be zero debt level.

FCCB – 8.2 mn eruo still remain to get covert into equity.

Volume for Q1 is 190k MT including sourcing.  Otherwise its 120K MT.

For 100k MT cost for integrated writing and printing paper will required investment of Rs 1000 crore and for non-integrated plant investment will be around Rs 250-300 crore.

The company target is 70% local procurement in Odisa plant.

De-bottling and cost efficiency improvement will help capacity utilization to grow. The company can increase capacity by 5-10% in next 2 yrs through this way.

The company's market share is 24% in copier paper, which has come down from 26% as market has grown while the company's capacity has not grown. In maplitho paper, the market share has moved up from 3% to 4-5%.

BILT shutting its plant is not favorable for Indian players as the gap created by it will be closed by imported paper.

Branded sales are copier paper sales.

Avg. current cost of borrowing – 8.9% Long term and working capital is 6%. Gng fwd – 8-8.5% it will be as foreign currency loan which was earlier more than Indian loan is getting repaid. Next rating upgrade will help cost of borrowing to come down.

The company will outperform industry growth rate.

The company would be doing 8-10% sales of value added products and target is to go to 15% over a period of 2 years.  Margin in value added products is 30-35% vs normal product of 20%.

The company's plant is operating at 100% plus capacity.

Sourcing model should have ROCE of 15% to make sense.

In certain category of paper NSR will improve in certain it will not improve

If rupees strengthen, then imported cost of paper will comes down. Then domestic paper industry faces tough situation.

IPMA member production is 30-35% of total paper demand. Another 40% comes from unorganized players.

Post GST - unorganized players will remain. Change will be in trade channel from tax evasion to paying tax.

Globally ROCE of Paper Company is 7-8%. As per the mgmt, even if the company did ROCE of 13%, then its very good for the company.

280k MT is the company's own pulp capacity. The company needs market pulp of around 60k MT.

For core paper making the company used its own pulp but for board packaging it has to depend on import pulp.

The company's own manufactured pulp cost is Rs 35000 per MT at zero moisture and for imported pulp it will cost around Rs 46000 per MT at zero moisture.