Pakka targets December 2027 refinancing before Neo principal

Pakka said in its investor call that Neo loan principal repayment begins only after June 2028, while management is internally targeting refinancing by December 2027 at an annual EBITDA run-rate of nearly Rs 100 crore to Rs 110 crore. Before then, Pakka expects deferred-interest payments of about Rs 3 crore a quarter from October 2027.

When does Pakka start repaying Neo loan principal?

Pakka said there is no principal repayment for 24 months under the special-situations loan from Neo, which it said was taken in June 2026. Management stated that there would be no repayment until May 2028 and that term-loan principal repayment would start only after June 2028.

The first cash obligation discussed on the call is therefore not principal. Pakka said it is aiming for commercial production from Paper Machine 4, or PM4, in January, while the principal holiday extends beyond that target. Management had expected PM4 start-up and testing in October, before Diwali, but moved testing to December to check each component before commissioning.

Management said the shift in PM4 start-up from October to December was intended to avoid later disruption during commissioning. It cited the recovery boiler, power plant and 15 megawatt turbine, which it said had been commissioned smoothly after detailed checks, as the basis for applying the same process to PM4.

What payments does Pakka owe before principal begins?

Pakka said it is paying 12% interest on the Neo borrowing, instead of an approximately 16.9% to 17% rate, with the difference initially deferred. This means interest remains payable during the 24-month principal holiday even though scheduled principal repayment does not begin until after June 2028.

Management said the deferred differential would be close to Rs 25 crore and would be paid in eight instalments starting in the 17th month. It put the resulting payment at about Rs 3 crore a quarter from October 2027. The call did not disclose a complete repayment schedule for the eight instalments or the precise outstanding borrowing at each payment date.

The two financing dates before principal starts are October 2027, when deferred-interest instalments are due to begin, and December 2027, management's internal refinancing target. Pakka did not disclose a signed replacement facility, a prospective lender, or proposed terms for refinancing the special-situations loan.

Management said the existing plant could comfortably service the special-situations fund at the stated EBITDA threshold because there is no principal obligation at that stage. That was management's assessment of debt service, while the 12% interest rate and the deferred-interest instalments remain part of the disclosed funding structure.

What EBITDA does Pakka need to refinance Neo?

Pakka management said the existing plant needs an EBITDA run-rate of nearly Rs 100 crore to Rs 110 crore for refinancing. EBITDA means earnings before interest, tax, depreciation and amortisation. Management said it was internally targeting refinancing within 18 months, or around December 2027.

The company linked that threshold to operating execution, not to an announced refinancing commitment. Management said the Rs 100 crore to Rs 110 crore run-rate would also allow the Neo fund to be serviced while principal is deferred. The transcript did not identify the interest rate, maturity, lender or security terms of any potential replacement debt.

Pakka reported a consolidated EBITDA margin of 14.2% for the quarter discussed on the call, compared with 13.7% for the first half on revenue of Rs 241 crore. The quarterly margin was therefore 0.5 percentage points higher than the first-half margin. Management also said EBITDA for the two completed quarters was above projections shared with Neo, without providing the actual or projected quarterly EBITDA figures.

In another operating illustration, management said revenue of about Rs 500 crore and an EBITDA margin of 19% to 20% would put Pakka on track for about Rs 100 crore of EBITDA. That was a management illustration rather than reported guidance, and its margin range is above the 13.7% first-half consolidated EBITDA margin disclosed on the call.

How does PM4 affect Pakka's refinancing plan?

Pakka said PM4 is central to its operating plan because it is targeting January commercial production and intends to establish FlexC Base as a key product. Project Jagriti includes PM4, a recovery boiler, a 15 megawatt power plant and a pulp-mill upgrade; management said the pulp-mill upgrade was complete and the boiler and turbine were under stabilisation.

Management said PM4 would not start at full capacity but would ramp through 30% to 40% and then 50% to 60% utilisation. It said more than 500 tonnes of FlexC Base made through outsourcing had already been sold, representing roughly one-sixth of the paper expected to be produced on PM4. Pakka cited those sales and partner feedback when addressing demand concerns.

Management separately referred to nearly Rs 150 crore of EBITDA at 60% to 70% capacity, without specifying when that level could be reached. This is different from the nearer-term Rs 100 crore to Rs 110 crore refinancing threshold and reflects a higher operating scenario associated with PM4 ramp-up.

The debt discussion also addressed Neo's security. Management said an independent valuer had assessed the Ayodhya plant excluding the PM4 expansion at Rs 710 crore, while Neo was expected to lend about Rs 500 crore at peak and about Rs 400 crore to Rs 420 crore had been borrowed to date. Management said an event of default, including cash flows not being met, rather than a specified share-price level, would be the relevant concern.

Conclusion

Pakka's disclosed timetable places the December 2027 refinancing target before principal repayment begins after June 2028. The company must nevertheless meet its 12% interest obligation and begin paying about Rs 3 crore a quarter in deferred interest from October 2027. Management has tied refinancing to an EBITDA run-rate of nearly Rs 100 crore to Rs 110 crore.

The next disclosed operational marker is PM4's planned January commercial production after December start-up testing. Investors can watch PM4's progression through the stated 30% to 40% and 50% to 60% ramp stages, the existing plant's movement toward the EBITDA threshold, and whether Pakka announces refinancing before the October 2027 deferred-interest instalments begin.