Kuantum Papers Navigates Headwinds with Strategic Shifts and Operational Excellence in Q2/H1 FY26

Kuantum Papers Ltd., a prominent player in the Indian paper manufacturing sector, has reported its financial and operational performance for the second quarter and first half of the financial year 2026. The company operates in a challenging industry environment marked by elevated input costs, subdued realizations due to low-priced imports, and an inverted GST duty structure. Despite these headwinds, Kuantum Papers demonstrated operational resilience and strategic agility, with Q2 FY26 operational income standing at INR 279.7 crore, reflecting a sequential growth of 25.5%. The EBITDA for the quarter was INR 34.4 crore, with a margin of 12.30%, while Profit After Tax (PAT) was INR 5.8 crore, translating to a PAT margin of 2.07%. For the first half of FY26, operational income reached INR 502.6 crore, with EBITDA at INR 74.8 crore (14.88% margin) and PAT at INR 17.8 crore (3.54% margin).

The sequential growth in Q2 FY26 operational income was primarily driven by higher paper production and sales following the successful upgradation of Paper Machine 4 (PM4). The company achieved its highest-ever monthly production of 8,303 metric tons on PM4 in September and a daily production of 360 tons in July 2025, showcasing enhanced efficiency and reliability. However, EBITDA margins for the quarter saw a decline of 582 basis points quarter-on-quarter, mainly due to a reduction in net sales realization by INR 3,200 per ton, influenced by cheaper imports, and an increase in production costs by INR 1,300 per ton, largely due to higher raw material prices caused by floods in Punjab.

Strategic Initiatives and Operational Excellence

Kuantum Papers is actively pursuing several strategic initiatives to drive future growth and enhance its competitive position. The company is undertaking a significant debottlenecking and plant upgrade project, aiming to increase its paper production capacity by approximately 50%, from the current 450 TPD to 650 TPD. This expansion is expected to boost both top-line revenue and bottom-line profitability. The upgrades are being implemented across all paper machines, with PM4 already completed, PM1 and PM2 slated for December and January, and PM3 by the end of the next financial year. These enhancements are projected to reduce production costs by 7-8% through improved pulp quality and the integration of AI-based initiatives under 'Project Nirmaan', their Industry 4.0 transformation program.

In response to market dynamics and regulatory changes, Kuantum Papers is strategically shifting its product portfolio. The company is leveraging the single-use plastic ban by developing a range of specialty products for sustainable applications, such as base papers for liquid straws and cup stocks. This move is supported by plans to install an offline coating plant, enabling the company to supply directly to converters and enter higher value-added segments. This strategic pivot also involves moving away from the less profitable notebook paper segment towards Maplitho grades and other specialty papers, which offer better realizations and market opportunities.

Sustainability and Market Outlook

Sustainability remains a core focus for Kuantum Papers, evident in its robust Social Farm Forestry Program. The company achieved its highest-ever quarterly distribution of 18.21 lakh clonal saplings in Q2 FY26, expanding its network of beneficiary farmers to 17,343. This initiative is crucial for ensuring a sustainable source of wood material, with an ambitious target to expand plantations to 75,000 acres by 2030. Furthermore, Kuantum Papers successfully executed European Union Deforestation Regulation (EUDR) and Forest Stewardship Council (FSC®) compliant orders, reinforcing its commitment to responsible sourcing and environmental stewardship.

Looking ahead, management is optimistic about improving market conditions in the latter half of the financial year, anticipating a pricing increase in Q3 and Q4 based on historical trends. The company expects approximately 10% increased volumes for FY26 and projects a substantial 40-50% volume growth for the full financial year 2026-27. EBITDA margins are targeted to remain above 15% for FY26 and are expected to reach 18-20% in FY27 as the plant upgrades stabilize and operational efficiencies are fully realized. Kuantum Papers' proactive strategies, including capacity expansion, product diversification, and a strong emphasis on sustainability, position it to navigate industry challenges and capitalize on emerging opportunities.

Financial Summary

Kuantum Papers is demonstrating a clear strategic direction, focusing on operational excellence and product innovation to mitigate industry headwinds. The successful upgradation of PM4 and ongoing capacity expansion projects, coupled with a strong commitment to sustainable practices, underscore the company's disciplined execution. As Kuantum Papers continues to adapt its product mix and enhance efficiencies, it aims to restore profitability and achieve sustained growth in the evolving paper market.