Hi, good afternoon, everyone. On behalf of the entire Pakka team, I would like to extend a very warm welcome to our quarter two investor call. Sachin, if you can start the recording. Thank you, everyone, for joining us today. We will start with our presentation. I am just sharing my screen. Before we move on to the presentation by the leadership, I would like to welcome the leadership on the call and introduce them. Mr. Ved Krishna, Group Lead. Mr. Himanshu Kapoor, Non-Independent Non-Executive Director. Mr. Gautam Ghosh, Executive Director. Mr. Mayank Jindal, Wrap and Carry Business Head. Mr. Shubham Tibrewal, Food Service Business Head. Mr. Manoj Maurya, Finance Head. And Mr. Sachin Srivastava, Company Secretary. My name is Pranay, and I lead the Brand and Marketing at Pakka, and I will be sharing the presentation.
We will start with a short video, just a brief overview of the last year and the vision for the ongoing year, just as a refresher for all the investors who are joining us today. Just give me a moment. Yeah, the video is on the screen now. I think there is some issue with the audio. I will just replay, reshare with the audio on. Just give me a moment.
As you have been-
I hope the audio is there now. Yeah.
Yes, perfect.
Yes.
As you have been on this journey with Pakka, you know that grit is more than moving through difficult times. It is about continuing to move forward and building for the long term. Financial year 2025/2026 tested our grit. Financial performance was impacted by operational and execution challenges. As you have been on this journey with us, we tossed it routine. We understand the concern, we know the expectations, and we value the trust that has kept us moving forward together. Look beyond the numbers, and you will see a year spent strengthening the foundations for what lies ahead. Grit is not measured by the setback. It is measured by what you build through it. That meant strengthening the core. PM3 emerged stronger after its technology upgrade, while Project Jagriti continued to lay the foundation for greater manufacturing capacity. While the foundation grew, another part of Pakka accelerated.
CHUK reached INR 63.23 crores in revenue, with volumes crossing 3,100 tons while expanding its products and reach. The opportunity goes beyond replacing plastic, it begins with rethinking what we use, how we make it, and where it goes when its job is done. That thinking showed up beyond the product. 100% renewable raw material utilization, 82.91% renewable energy, 57.37% water recycled and reused. Some commitments remain unchanged, even in a challenging year, we continue to show up for our communities, investing INR 2.35 crores through Pakka Foundation across education, employment, and ecology. Behind every machine, every innovation, and every milestone were over 500 people learning, adapting, and owning the journey. That is grit at Pakka. Purpose when the path is uncertain. Resilience when operations are tested. Innovation when the old way is not enough, and ambition that keeps looking beyond today.
What can you look forward to? A stronger, more stable business, new innovations coming to market, CHUK reaching more customers, and the next phase of Project Jagriti taking shape. Thank you for staying the course with us. We know your trust comes with expectations, and now it is about turning that trust into action, building stronger, moving forward, and creating lasting value with grit.
Great. With that, I know some of you already have your hands up. We will take the question and answers after the presentation. Till then, over to you, Ved, for the second- quarter highlights.
Super. [Non-English content], all of you. We are very excited to see you this time. There is lots and lots of movement and action happening at our end and excited to share, and of course, as always, get more thoughts and guidance from you. Let us move forward, Pranay. So of course, as you have seen, the financial performance is pretty much stronger and back on track. The margins are rising, as well as the revenue. We are pretty much on track to the commitments that we had made earlier in the year.
The Wrap & Carry division has done significant innovations, and again, the idea is that how we can build better and better products, which has also led to almost 30% of our sales becoming specialized interleaving grades as well as exports. Food Service is performing strongly. It is at its profitability level now, and it is going to grow significantly.
We remain very buoyant for the division, and we are excited about the future that is to come. flexC base remains under development. We are, of course, going to talk a lot more about the Jagriti Project and make sure that there is an interesting product that emerges. We have just had a lot of trials that happened in Europe, and of course, we have also started selling over 500 tons of the base paper that is going to be eventually produced in PM4 through outsourcing. We are going to talk a lot more about this, so I am going to leave it for the presentation as we move forward. The idea behind building a stronger Pakka is, one, is of course, strengthening the core, which is the project, the operational efficiency, and those are already showing their impact on our results, financial performance, as well as the project progress.
We are continuing to commercialize higher- value products. We had a great pre-launch with certain distributors in the country, and the establishing of flexC base is happening as we speak. CHUK is expanding. There is a much wider partnership base. Shubham is going to talk a lot more about it, and the market reach has become deeper, and it is bound to grow in the coming months. And of course, as you are seeing, the financial results are back to very, very strong performance. Cash generation is on, and the return on capital is becoming stronger. So let us go to the business performance.
I will quickly cover the quarter as well as the half- year for consolidated businesses, and then, of course, we will go into specific Wrap & Carry and Food Service businesses. Revenue is up from the same quarter last year to this year significantly. Let us move ahead.
So is the EBITDA margin. It is at 14.2% overall, but as you will see, Wrap & Carry is even higher. Same thing with the profit margins, and after adjustment as well. We had to do a little adjustment for certain sale that we had done of older machinery. That came in as an exceptional item, and I am sure you guys have noticed that, and we are happy to answer questions at the end for that. Half- year as well, we are pretty much on track to cross a significant milestone this year. The revenue has already grown to INR 241 crores. The EBITDA margins are at 13.7% now, and the profit margins, let us do the next one, Pranay, after is at about 7.3%.
As you are seeing, we had clocked at one point a margin of almost 25%, and that is our aim, that how does our 17.5% margin keeps moving towards that goal and higher than those goals as we go along. I will hand over to Mayank.
Good afternoon, everyone. Mayank, you can go next. As you can see, in the Wrap & Carry also, the revenue has improved in the Q2, INR 205 crores from the previous INR 60 crores. The PBT also jumped to 9.6% compared to 2.4% earlier. The volumes also increased to 10,700 tons as against 7,600 tons in the same quarter last year. If you see, as Ved also mentioned, this is the new segment that we are entering and growing very fast in this interleaving. We recently have bagged a deal with the Reliance, which is the biggest facility for solar glasses, and we are supplying good volumes to them. Otherwise also, the interleaving the glass, we have a very significant segment. Almost 50% market is shared by the Pakka products.
Export, in spite of so many challenges and geopolitical disturbances, still we continue to maintain a 30% share in the export market. That was a really very good thing. Realization, there is a price corrections has been done, and the increased NSR that we have done in the Q2 versus last year Q2, there is a good increase there also. Market is favoring. When we talk to the pulp, even we are able to sell, and we are selling the pulp. There is one good thing that earlier we were selling simply the wet pulp. Now, we thought of very innovatively, and we are able to produce the dry pulp, which is both way helpful, increasing our NSR as well as benefiting the customers because of the lower logistics cost to them. Thank you. Over to you, Shubham.
Good afternoon, everybody. I am Shubham Tibrewal. I am leading Food Service, and I will be presenting the H1 and Q2 performance for the business. Please send me up the numbers. Our revenue has increased quarter-on-quarter by 19%. However, the PBT has slightly dipped compared to the previous year, although there are some exceptional items which were there in the last year's PBT and in this quarter's PBT, which is impacting it. Like- for- like, our losses have more than halved, and we are actually EBITDA positive for the first time. I think the important message that I would like to pass on through this presentation is that Food Service has had its strongest H1 in the history of the business. Our H1 revenues actually increased by 38%, and we posted our highest- ever monthly sales in the month of August.
We actually exceeded our record sales in every single sales channel of ours, so B2B, B2C, and export, while reducing our losses. The segment has finally turned EBITDA positive, and we are growing asset- light. We have added and are in the process of actually adding 350 tons of additional capacity monthly capacity through outsourcing partners, so on a completely asset-light, CapEx-free model. Some of the key changes that we have brought into the business, which is helping drive this growth, is effectively expanding our distribution. We are now Q-com, e-com, or big- box retail. Additionally, we are focusing on working with key accounts and have, in the process, added a significant number of accounts which were either completely new customers or win-backs such as TFS or LBF.
We continue to invest significantly in marketing to build the brand, to build our presence, which allows us to see the success we are seeing in the B2C channel. Additionally, we are adding a significant number of products. Actually, 10 new products have been added to our product portfolio, which allows us to serve our customers with a one-stop shop solution. Some of the other metrics you can see below. I will pass on the presentation to Mayank sir for Project Jagriti.
Thank you, Shubham. Can we move to the next? Good afternoon once again, everyone. Everybody will be excited to really hear about the Project Jagriti. This is a small video which shows the current situation of the expansions. This expansion majorly includes the installation of a PM4 and one recovery boiler, and the power plant, 15 MW power plant. Of course, the capacity upgrade of the pulp mill. If you can see, the pulp mill upgradation has already been completed, and the recovery boiler and the 15 MW turbine these are also started and already under stabilization now. PM4 is very much ready now. We are doing the trials, and we expect the startup in the month of December, next month.
Regarding the products that we are going to make in the PM4, we are majorly focusing on developing the flexC base in the PM4. We have completed the pilot trial in Europe. Our senior member, Mr. Sudhir, he was there for a month and developed and did this complete trial, lab trial, the pilot trial, and run on this machine, and very successful. We got a very good insight and a good learning on this pilot trial. Immediately after that, yesterday, in fact, we had our soft launch with the partners at site. They all visited on the site and have look on the new facility that we are developing, and it was very, very exciting and very interesting. Visit was there. The people were very, very happy and satisfied and very confident to see the facilities, the kind of machine that we developed.
As Pranay also said, regarding this product, the kind of product we are already launched in the market and already selling almost 500+ tons . We are already selling the market, so the market is already establishing for these flexC base products. That will really going to help us. This you can see, this is the complete photograph in the background of the paper machine. You can imagine, almost one-sixth of the paper is already in the market, which is going to produce from this PM4.
Okay, so time for commitments to review what we had made in the quarter two, so we can bring them all up, Pranay. We had done these five commitments to our investors, and as you can see, significant progress on Jagriti. The flexC base trials are completed. The delivery container plant is in the process of being set up. The profitability is up, and innovation is being strengthened as we speak. What are the further commitments now? We will bring them all up. We will commission the paper machine four and start establishing flexC base, and the bigger launch will happen in January. But at least the soft launch, as Mayank said, has already happened. We will reach profitability on Food Service. It will grow in terms of top line as well as bottom line.
There will be significant advances on the flexC structure that we are now, again, very, very close to being able to strongly commercialize. We will continue to strengthen the innovations through material sciences, and we are building a much stronger team.
Thank you. Thank you, everyone, for the presentation. We will now move on to questions and answers. Just some ground rules. You can raise your hands, as many of you have on the Teams, by pressing the raise hand button. You can post the questions on the chat as well, and we will be sequentially going on as per the order for questions. Request you to please restrict your questions to a maximum of two, and if there are more, we will circle back. You can join the queue again, and we can circle back so that every investor gets a chance of interaction. The first question is from Manali. Ms. Manali, you can go ahead with the question. Manali, you can unmute and then ask your question.
Oh, yeah. Hi. Congratulations on a good set of numbers. The first question is, what are the consequences if there are going to be any delays in either commissioning the project or finding it difficult to sell our capacities from demand perspective, and if the NSRs fall lower? Just trying to understand the worst case here for us. Our earlier plan was that we would probably get the paper reel out in Diwali and January for proper commissioning. Now I can see delays here, so that now we are going to do the first reel in December. Could you please explain our date of commencement of operations, and when does our first principal repayment fall due, assuming four- month moratorium? I guess that was mentioned earlier. That was the first question.
Thank you, do you want to handle the first part?
Yeah. Yeah, Manali, thank you for the questions. Yes, that is a very, very valid question that this question should be there. I mean, the delay in commissioning and the second part that you asked was not having enough orders. Yes, we are addressing on this, and these delay which you are seeing, yes, there were because of several small things that we were thinking the startup, the testing will start in the month of October before Diwali, and now it is moving to December. We are making sure that each and every component in this trial is properly tested so that we do not make any mistakes when we have a startup.
This confidence has built in us because when we have seen our two or other projects, like the recovery boiler and the power plant and the turbine that we started, it was a very, very smooth commissioning. I can tell you, it was both boiler, turbine, we could run in a first single go because of this very, very thorough testing and checking on this. That kind of effort we are trying to make in our machine also, so that we do not delay on that part.
Regarding your second question was not enough order in hand, that is the reason we had this soft launch and the kind of confidence that we got from our partners who are together with us has given a very good confidence on this that as far as the machine is concerned, that was the reason we said that already 500+ tons production we are already selling in the market. So the market is already there, and our partners are also very confident that there is no issue. Let me produce, and they can sell it out. So there is a good confidence after meeting them. I am not really too much worried that we will not have enough order. Yes, when the machine is started, it takes a startup curve. It will not reach to the 100% capacity from the beginning.
We will be starting up gradually 30%, 40%, 50%, 60%, that way it will go. So I am pretty sure that should not be an issue. Yes, regarding this delay, there will be some impact which comes. So these are in such a big projects, I mean, a month or two months delay, these are not very, very significant on this kind of thing. Most important will be that we have a very vertical start. So that is what we are aiming for.
Just if you could give a rough idea of when would your date of commencement of operations be, and also when your first principal repayment falls due?
See, as for the production, the commercial production, we are aiming in the month of January that we will get—
Okay.
—the commercial production from January. That is what we are aiming for.
Your first principal repayment falls due when?
Manali, the first principal, there is no principal repayment for 24 months when we took—
Okay.
—the special situation loan from Neo. I think we took the loan in June 26. There is no repayment till May 28. Although what we will have to do is there is some delta which we are paying. Instead of 17%, roughly 16.9%, we are paying only 12% interest. The differential of 4.9% interest on the total borrowing which is taken, which will be close to about INR 25 crores, will get paid over eight installments starting from the 17th month. That means from October 27, we pay INR 3 crores a quarter, and the principal repayment only starts of the term loan post June 28.
Okay. Also, Himanshu.
May 28.
Oh, okay. Also, Himanshu, could you please also explain in detail about how refinancing will take place? What kind of EBITDA run rate do we need to reach to get a refinancing done, and in which quarter, and when do we plan to go for refinancing?
See, it's a very simple thing. I think if you understand the entire dynamics, I think the existing plant needs to run at a run rate of nearly INR 100 crore- INR 110 crore of EBITDA. If we run at a run rate of INR 100 crore- INR 110 crore of EBITDA, it's very imperative that even the special situation fund will be catered to, because there's no repayment obligation at the end of the day. So, what we are targeting internally is that within 18 months, the team should actually get this refinanced, which is somewhere close to December next year. That is December 2027, basically.
Perfect. Thanks. Thanks, Himanshu.
Thank you. Mr. Kaustubh, you can go ahead and ask your question.
Yeah. Hi. Thanks. So, Mr. Krishna, the shares are pledged to Neo, right? So, I wanted to understand at what price is the shares pledged and what is the cover that Neo has? How much X cover do they have? What I'm trying to understand is at what price levels of the stock is that concern for them to sell?
Himanshu, do you want to tackle more technically? I can add.
No, no. I'll tackle technically. Kaustubh, that's a great question, but I think there's no question for Neo to sell the shares as long as the performance is met, because the security which they got valued, the Ayodhya plant minus the PM4 extension, the independent valuer has valued the entire plant at INR 710 crores. They are only lending us about INR 500 crores at peak. Till date, I think, I'm not sure, maybe Manoj can supplement, it's about INR 420 or INR 400-odd crores that have been borrowed. So they have sufficient cover in terms of everything. I think if there's an event of default in terms of cash flows not being met, that is the only trigger which will come into place.
But as of now, the two- quarters numbers which were shared with Neo as a part of the percentage, our EBITDA is in fact more than that what was shared. Now we would depend. Secondly, I think if we come back to the rack rate of what was shown in the presentation, we go back to a INR 100, INR 110 crore EBITDA level, even Neo doesn't have a problem because there's hardly any repayment for the next 28 months in terms of the cash flow. So I don't think that's really an issue in terms of Neo selling off the stake, unless and until there is something like, PM4 just does not give the result for 9- 12 months, which is a very remote possibility. But yes, said that, it's only on the operational performance.
If that operational performance doesn't get mitigated or covered by the existing plant, which is actually happening. So if, like we said in the last quarter itself, that if the top line is say about INR 500-odd crores and we are expecting that we should reach back to the EBITDA of 19%-20%, we are already on track with that INR 100 crore number.
Okay. What I wanted to understand is, usually when this pledge mechanism happens, irrespective, a lot of times is associated with panic selling if the cover goes out of range. That is why I was just wondering if the stock comes to, hypothetically, if the stock comes to 35, 45 level, is that a concern in terms of the additional cover that goes to-
Not required. I said they already have INR 710 crores of assets with them.
Okay.
Why would they even do that, basically? That is minus PM4. If you add PM4, which is another capitalization of INR 750 crores, as latest as new in terms of machinery, the minimum valuation they will have charge over the plant would be close to about INR 1,100- INR 1,200 crores at any point of time. Why would somebody want to sell a INR 1,200 crore asset straight away at a discounted value?
Okay. Great. That was my only question. Thank you.
Thank you. Mr. Sayam, you can go ahead and ask your question.
Yeah. First of all, congratulations for the good set of numbers. My question is regarding this new deal which you guys have told about. Wanted to understand, what is the whole opportunity, the quantum of this Reliance solar glass facility interleaving paper. Are we the only one supplier or there are multiple suppliers? What is the realization per kg? Have we started supplying, or are we still only into the trial phase? Wanted to understand just to keep this opportunity into my model, what is the quantum and what is the scale which we can achieve in the coming quarters with this Reliance deal?
See, with the Reliance, recently we got around 200 tons order, and this is likely to grow because they are also building out the big facility, and this can even enter up to the 500- 800 tons as well. The NSR, the realization is really attractive with respect to all other products that we are making on this machine.
Like, can we get some specific, what premium we are able to charge, and what is the potential of the opportunity?
See, in this interleaving market, there are various players and different quality requirements. Quite a few products that they were importing, and there are some domestic player. But against them, against those all domestic player, Pakka product is getting an edge. I personally also met these interleaving users, and they are very, very confident that the kind of quality, they are ready to pay any premium on this paper, interleaving paper in particular, over any of the other manufacturer domestically in India. That's a very, very confidence-giving that they have tried. I met various users. They said they're very, very confident using the Pakka paper. So they're ready to pay even INR 5- INR 10 extra premium also. They said they don't mind.
What is the quantum of this 200 tons in terms of amount? How much revenue it is adding on to our This 200 tons order which we have received?
See, this is roughly INR 80 a kg, so say INR 1.6 CR.
Okay. Thank you.
Thank you, Sayam. Mr. Shreyane, you can go ahead with your question.
Yeah. So congratulations on a good set of numbers. Yeah, no worries. Congratulations on a good set of numbers. My first question is regarding what is the pending write-off on CHUK and other machineries?
Himanshu, is there a specific number that we can provide? Because it depends on what we-
I do not know as of now. I mean, when the other machines goes, what is the value of scrap? But roughly two machines have been discarded, and this is the number that is coming on as per whatever has happened right now, because the prices of even aluminum, steel are changing, and the volatility is too much. I really cannot provide a number, but you can roughly say that maybe INR 2 crores a machine more, that at max. Minimum would be that. That is what I would say, roughly.
Secondly, why have you not written off Guatemala yet? Will this write-off be taken up in upcoming quarters once we have good profits to absorb? Can we not finish off once and for all and move on? What are the global plans today which make you say that Guatemala is still a hold and not a write-off?
In terms of the Guatemalan plant, I think the way the project has been structured that about $3 million- $3.5 million has gone towards the engineering designing of a plant, which is an intangible asset which can be taken and used at any of the plants in future. So that's technically not a write-off. It is still work in progress. We've just paused that project for the time being. The second thing is regarding the market development in America, which has taken place therein North American market, and that place already certain exports have started from the Indian entity for the molded products. So, at the due point of time, reports from merchant bankers have been seeked, and at this point of time, they don't feel that any impairment is warranted.
Whenever an impairment is warranted based on the accounting standards, that will be taken by the team.
Yeah, that's all from my side. Thank you.
Thank you. Mr. Ravi, you can go ahead and ask your question.
Yeah, thank you. My first question is on Pakka's international operations. I think it is slightly different from the earlier question. I read a few articles, a few news items on senior leadership's visit to some of the South American countries, other than Guatemala, of course. Just wanted to know if there are any updates on Pakka starting some international operations. I mean, whether it is an asset-light model or whatever it is, I am not sure. Specifically with regard to Guatemala and the U.S. as well, when do you think this will really take off?
Thanks so much, Ravi. We built deep relationships in that region, so we keep getting opportunities. Gautam, maybe Gautam, you can elaborate after me. Basically, there was a huge opportunity that we were invited for in Peru. Of course, there are very deep relationships that we built in Colombia and Mexico. Those are two places we had also explored before. Of course, Guatemala as well. Gautam has done a preliminary visit to explore opportunities. There is a lot of possibilities. We are not going to take up anything till we stabilize Project Jagriti. Of course, our intention is to scale what we know, and we have commitments to you as well for 2030, 2031. The only way we can, or not the only way, but the way we want to reach it is to at least keep expanding capacity.
We will keep looking for cane-rich locations while we expand our portfolio of products beyond cane-based products. That is the idea. Maybe, Gautam, you can give a very short two-minute gist of exploration and just excitement eventually. Of course, we are not going to take up anything for the next six months at least.
Yeah. Thank you, sir. I am sure you must have seen the LinkedIn posts that were there, and I am quite amazed to understand that you follow us for whatever good things that we keep doing across the globe. Yes, we have very deep relationships in Latin America, and we keep getting invitations from there. In our endeavor of doing 500,000 metric tons of materials by 2030, it was important for us to prepare ourselves, I mean, not now, but then for the future, so that once we are ready, we can go on full throttle. It was basically an exploratory and a preparatory kind of a visit, wherein we visited three countries: Mexico, Peru, and Colombia. These are basically cane-rich locations, and the availability of raw material is across the year.
For us to be able to prepare to produce such kind of materials, it became necessary to explore these regions, develop the relationships, so that once we are ready, we can go ahead and do things right and expand the organization on the vision that we have till 2030.
Right. Thank you for the details, and good luck on that, because I really hope, because with the international operations, I think you can scale even bigger. Yeah. My second question is on, this is more from a retail investor perspective. Recently, at least as per the circular, we got to know that SBI has offloaded quite a bit of stake. They had bought it at around INR 272, I believe, a couple of years back, and now they have taken a huge loss, and they have sold it for, I believe, around INR 70 or INR 75. Did you have any conversations with any of these big investors like SBI or Carnelian? Basically, at least as a retail investor, my worry is that a couple of years back or 18 months back, we were at around INR 2,000 crore valuation.
Currently, as of today's market rate, it is around INR 350 crores. Pakka basically has, I do not know if this is a fair valuation or not. Maybe market is not seeing anything. All the promises that we made for the last three years, from an execution standpoint, I think, or rather from a results standpoint, there is nothing to be shown, right? Maybe, market is right? As they say, market is always right. My question is, when do you think, I know now that the Jagriti will ramp up. My question is, when do you think we will start recovering from a stock- price point of view or from a market cap point of view? Because every day, it is like a tricky scenario. Whether the market is up 500 points or down 200 points, Pakka has this one direction to go. What do you think?
Your honest assessment on the market cap of Pakka.
Ved, can I go?
Please speak.
Yes, can I answer? SBI Mutual Fund, yes, they were in active talks till about March of this particular year, but last six months we have not heard much from them. It may be their internal decision to do. As far as Carnelian goes, we are very sure Carnelian has bought, had taken the shares in the PMS account. Carnelian has not sold any shares as per our confirmation, but we will still have to check and go back. As far as the numbers go, market dynamics are very different. We raised money at INR 272, but at that point of time, the pre-money valuation which was done was roughly about INR 1,100 crores, and it was not INR 2,000 crores. The post-money valuation after money coming into place was about INR 1,400 crores, but there was zero debt into the system at that point of time.
Practically, the enterprise value was INR 1,100 or INR 1,400 pre-money and post-money. Now you already have a debt of INR 500-INR 600 crores coming into the system, plus the working capital increase from a INR 90 crore limit, we may be targeting INR 170, INR 175. Totally what we are talking about of an increase in debt of INR 600 crores. Even if on typical maths basis and typically how the market functions, if you say, the valuation anyway should have got adjusted to about INR 500 crores. But yes, that is on an EBITDA level. The performance has been very dismal in the last about six quarters, minus this quarter where there is some signs of improvement basically, and that is also a feeder towards the market price which is there.
We hope as fast as the team can deliver the results, the management team, I think, we should be back in good shape because if PM4 starts firing on all cylinders, then as I think, in the last call also this question had come up, investors calls, and we had said that we are looking for an EBITDA at about 60%-70% capacity of nearly about INR 150 odd crores. You can calculate from that level itself that what would be the valuation like. The timing, nobody can time the market, neither we understand those aspects of it. What the company understands is doing its performance on and giving its best efforts towards the investors, and that is what the company is committed to do at every point of time.
Thank you. Mr. Kendall, you can go ahead and ask your question.
Hello? Am I audible?
Yes, you're audible.
Yeah, yeah. I have got two questions. One is regarding the preferential warrants. As far as I understand, I think considerable amount has been given to the company. Can you expedite that, and can Mr. Ved give it as soon as possible so that that builds the confidence in the investor community? The second question is, can we do an investor meet like how we did it in Mumbai years ago? Because that also helps get in more fund managers or more HNI clients or more investors at large, and that will help the company to maximize their potential because we did have good results, but that was not again reflected in the stock pricing. Yeah.
Can you just repeat the first part? I just got Sorry, I just got lost.
The preferential warrant, the convertible preferential warrant.
I think, yeah, Sachin, can you just update? I think some have already been converted, preferential warrants in the month of October, Sachin.
Sir, on 17th October, we have converted about 30 lakh warrants into equity shares. We have applied to the Stock Exchange, BSE Limited, and National Stock Exchange of India Limited also over the same. You can find the details over the same also. We are in the process of listing of the same.
My question is, can we do everything, all of it, in whatever the next one quarter or something to—
That's not possible, actually.
—you know, imbibe the confidence.
Actually, there is a threshold limit of the SEBI that we cannot infuse, we cannot raise the funds more than 5% in a financial year. That is because of that things. We are raising only 5% financial year in this quarter, and rest 5% will be raised in the coming next financial year.
Okay. The next question.
Kendall , what he says is, total promoter holding was supposed to be increased by 8.5%, so maybe that will get split into both the years, basically. Something will happen, has already happened, as he is saying, and the next tranche may happen somewhere in April, May. We stay committed towards that. That is not a challenge at the end of the day.
Yeah, and the second question, please, for the investor meet.
Yeah, this has basically been on our mind, but we want to ideally host investors in Ayodhya in January, and it is a good idea to explore Mumbai as well. Of course, just now we have our heads down and focused on starting up the project. I think give us time till maybe January for the investors meet. Sachin, I know you had thought about something. Maybe you can update on what your plan is for investor meets. You are also thinking about something in Mumbai, right?
Yes, sir. We have planned out it. For Feb, our result is probably coming in January end, and February, we are planning for investor meet at the plant site at Ayodhya. Day after, again, for the next quarter, we will plan at investor meet through VC, and next quarter, again, for the June result, we will plan at Mumbai.
Okay, good to hear that.
Thank you. Mr. Jeet, please, your question.
Yeah, thanks for the opportunity. My first question is, we have done with the trials for the new grade of paper that we are going to launch. I just wanted some color on what the application really looks like, and what kind of NSRs can we expect from there? Because right now, I think you all said, right, we are doing some 500 tons per month already from a similar grade. So you all know what the market is pricing your kind of grade. Just a rough overview of what kind of NSR we can expect from PM4 output. Just continuation to that, I mean, what are the internal assumptions for utilizations in Q4, Q1, and Q2 for the next three quarters after January? Q4, Q1, and Q2. So that is my first question.
Mayank, should I take up the trials, and then you can take up the current status? Is that okay? Okay. Jeet, the basic idea was how do we find a very similar pilot machine before running it on the machine, because, of course, running products on a larger machine means way more complications. The team has worked for the last little over a month with the Research Institute in Slovenia, and the structure, the ratios, the chemistry has all been finalized. We have produced some paper on that machine, which kind of gives us an indicative results, which have been, like Mayank said, extremely positive. The team is planning actually another pilot even before we start the machine next month. The effort is to now produce something with the final structure in order to be able to get to even the look and feel of the product.
That is the second one that we are doing. Like you said, the idea, of course, for us is singular, to produce a base for coating. Eventually, the singular focus is how do we transform the flexible packaging domain. That will be the product. It is singular, but of course, it can be used for any coating substrate. Right now, what we are doing is to produce a structure that is selling for about INR 110, and we will work towards a higher realization than that when we get to a more sophisticated PM4. But maybe Mayank can add some color to that.
Yeah, of course. I mean, that is what the base price, and this machine we can make, because the kind of product that we are already delivering in the market, we are very much confident. At least that is the bare minimum quality we can produce from this, and it will be a much sophisticated machine. So our kind of product that will come out from the machine will be much, much superior. But yes, of course, to start with, we will be still selling about at this rate, which will be considered as a discounted price, and then we will be developing this product. And the kind of product that we developed in our pilot trial, at least we got confidence of the right recipe for that, so we are very close to that.
When we run on this machine, the live machine, the kind of product quality which will come as the release base will be much better. The market is pretty open, so we are very confident that there should not be any issue as far the market is concerned, both in India as well as in export. We will be leading the market with the price as well.
Just in continuation for this, I mean, how do we then transition towards INR 130, INR 150 a kilo? I mean, how is that journey going to look like? How much time will it take for us to reach there? I mean, this is all just base paper I am talking about, not coated products. Just base paper, how do we transition toward INR 130, INR 150, or that is not going to happen?
See, the high-end product, even with the uncoated paper, are available in the market even at INR 170, INR 180, and INR 200 also. It is not that these are only sold at INR 110 or INR 100. This all depends on what kind of quality and the customer confidence we give. I mean, aiming for INR 140, INR 150, that is why this is still in between only. The kind of raw material that we have, it has an edge over anybody else who is producing globally. The bagasse pulp that we are using, it has a very, very high, I mean, technically we see it has a very high transparency and the porosity as a quality which is very much required for this kind of paper, which others don't have. So it is only possible with this kind of pulp.
That is the reason it gives us an advantage . That is the reason, I mean, why we are feeling so confident that it should not be an issue. Yes, as to the price is concerned, definitely it needs to be established and the market has to accept when the real quality comes. It may take three months' time, four months' time, six months' time. That only when the real product will come into the market and will be served, we will know. But it is not a blind check. That is what I can say.
All right. My second question is just a follow-up to previous participant's question, and this is, I think, to Himanshu. Himanshu, you said refinancing probably can take in 16 months from now. I think you mentioned, I mean, the question that was asked was what kind of EBITDA run rate we need to reach so that we are capable or worthy enough for a credit rating upgrade firstly, and then go to a bank refinancing debt. That number, I think you mentioned was on existing setup, INR 100 crore, INR 110 crore you mentioned. But including PM4, what kind of quarterly run rate do we need? Do we need a INR 50 crore, INR 60 crore run rate to be able to be a refinancing candidate or even a INR 40 crore quarterly can do things for us?
Secondly, on the pending write-off, I think you mentioned one machine, INR 2 crore of write-off can be taken off, but how many machines are left? I mean, just wanted a total number of—
I said that, Jeet, two machines have been written off. Seven LD machines were there, five machines are left. I think somewhere down the line, maybe that skipped. So minimum would be INR 2 crore. As far as refinancing goes, I said December 2027, not 16 months. 16 months was basically where we do not do any principal repayments and some delta of interest, INR 2 crore or INR 3 crore, which is the differential of what is agreed and what we are paying, goes for the next eight months. But till May 2028, there is no practical repayment on the term loan. In terms of mathematics, if I go, I think INR 500 crore should be the debt on the books.
For INR 500 crores of debt on the books, if we even do a run rate of INR 130 odd crores in terms of EBITDA, that will be a good number to go in for replacement because the sanction in terms of repayments will be at least for about six to seven years in terms of principal repayment. If I see at 10%, even if I take a rate of interest at INR 500 crores, that goes to about INR 50 crores a year, which will be going on diminishing as we keep on paying the installments. Anyway, the total principal and interest outflow at any point of time will not increase INR 110 crores. I think INR 130, INR 150 crores should be a good EBITDA. The EBITDA run rate will be close to be about between INR 35 and INR 40 crores, where the banks would be comfortable.
But since the terms are the same, I think 35, even at INR 30 crores EBITDA, we can start taking that plunge because INR 110 crores will be the peak, and then as per the installments gets repaid, the interest component will keep on reducing thereafter.
Understood. Just one last thing on utilization. I mean, that was one question that was unanswered. I mean, what are the assumptions for utilizations for Q4, Q1, and Q2? I mean, after January, three quarters on PM4.
Mayank ?
Yeah. On PM4, Q4, we are aiming, because in January it will be starting, so on an average, Q4 maybe somewhere around 45%-50%. Then, gradually, and in 2027, 2028, that we are aiming around should be around 75%.
Okay. Thank you so much.
Thank you.
Yeah.
Thank you.
Perfect.
Mr. Manan, you can go ahead with your question.
Hi. Thanks for the opportunity. My question is related to what is going to be the maintenance CapEx on the Project Jagriti as a part of the gross block?
Normally in Indian, sorry, in paper industry globally, we take 2% of the asset value as maintenance cost. Maybe, Mayank, if you have a different number. So yeah, depends on the asset block and then 2%.
No, that's right. See, initially first year, not much of the CapEx come because the entire machinery is new and hardly any replacements are required except the commissioning spares, which are normally consumed. Then later, yes, it comes around 2%. That's the right number.
Okay. The second question is the flexC pilot run, 500 ton pilot run that we are doing, is it non-metallized paper or the metallized variety?
So flexC is different from flexC base. What we are selling right now in the market is basically the flexC base, which is right now focused on a certain grease-resistant grade that we are outsourcing. That is 500 tons. The flexC itself, the development continues. The structure is continuing to evolve. Now we are kind of in the final stages again of the coating system, and then we will start the process of launching. We are keeping it a little bit at the back burner as we are starting the base first. We want to. All the trials, all the market trials of the flexC will now take place only based on our flexC base. So right now, we are doing trials.
We are continuing to evolve the chemistry, but the effort is to hold it till the machine starts producing because you don't want to suddenly switch the look, feel, performance of the grade till your product is in the market. I think the real development or launch of flexC starts post-January once the machine is stable.
Okay. So, what I understand is we are going to coat the paper in-house once we stabilize the PM4 machine. Is that correct?
Not right now. No, no. We haven't ordered the coater yet. We will stabilize the chemistry. Right now, the way we do it is we use a small kind of continuous, what we call continuous lab machines. Most of our coating is done in England. We do all our testing there. Then we move to a pilot machine, which is also usually in Europe. Then once we are confident on the pilot machine is when we actually place the order for our own coater. But in the meanwhile, like we do right now with metallized structures, we will continue to use outsourced facilities for the metallized structure as well, which also we have tie-ups within the country also.
Okay. Lastly, how is the cane crop coming up? There has been rain deficits in certain parts of the country. Just wanted to ask how do we manage supply chains in the upcoming year?
It's the opposite in this area. Very, very heavy rain.
Okay.
That's the other danger, because obviously if you have too heavy a rain and unseasonal rain, then that creates a challenge. But thankfully, we have a five-year tie-up with Balrampur, which we've enjoyed for the last 15- 20 years, and we will continue to roll that. If they're not able to provide us the bagasse from one mill, they provide us from another mill. Typically, almost 80% of our supply comes from a single organization. We have five-year rolling tie-ups for raw material, and that is the process that will happen this year as well. The prices are fixed, and the quantities are fixed.
Okay. There are certain 2G plants coming up, which claim that they can even process bagasse into ethanol. At least they are trying to do that. Have we seen any impact on the ground, or do we anticipate any negative impacts of that?
When we look at technologies, Manan, we look at it from first principles. When you look at ethanol, or you look at lactic acid, it is all produced from sugars. It is the carbon- hydroxyl chain. But what happens is, sorry, a hydrocarbon chain. But what happens is that in order to break down a hydrocarbon like bagasse is way more difficult than breaking down an alcohol or a starch. Basically, you want to create a simpler sugar in order to be able to create a product. As far as my understanding goes, there is no way you can reach commercial viability with a husk, bagasse, or any other material that has already got much lower sugar levels than something like an alcohol molecule.
Okay. Thanks for the clarification. That is it from my side.
Thank you. Thank you. Mr. Harshit, you can go ahead with your question.
Hello. Thank you for the opportunity. My first question is, can we expect any percentage of volume mix from PM4 to be coated products? Have we clicked anything on flexC coated products that we plan to roll out?
Like I answered to Manan, very similar. What we are doing is we are evolving the chemistries as we speak, but we have put the coating itself at a little bit of a back burner because we don't want to introduce a different structure while the flexC base is being built. The idea is that let us first produce our paper, which is fundamentally designed for coating. The whole structure is designed so that the, like Mayank said, the paper is non-porous, the look and feel is translucent, et cetera, et cetera. There are many other products that we are focused on. Of course, this has been in the making for over three to four years now. Let us wait for the PM4 to produce. The ultimate aim is all of it has to go into coating.
The effort from Pakka will be that the singular idea for Pakka is to leave the earth cleaner, and the only way we can do it is to transform this base paper into the final flexC structure. The effort will be within the next few months, year, the entire structure, all of it gets coated. That is where the effort would be from our side.
Okay, understood. Additionally, in R&D, either in flexC coated or delivery containers, has there been any positive development which you can share with us? Where have we reached on the non-metallized structure? Any particular application-based rollout of products in the near future?
Again, connected to the last answer that I was giving. As far as the delivery structure goes, it is all about we've cracked the structure itself. We are just in the middle of finalizing the plant and setting it up for commercial production. We've started supplying very, very small quantities of the new product to certain customers, but ultimately, the scale will happen in the next two to three months when the machinery is in place. Maybe Shubham can throw some more light on that. It's moved. Basically, what I'm saying is that it has moved away from R&D to production stage. As far as the flexC goes, there is a lot of engagement that is happening with customers.
But, like I said, we will wait for our own base paper to come in to build the new structure, because what happens is that paper plays a huge influence on the final properties of the structure. So, till we don't have the paper, we don't want to create a new structure which is final with the customer. So yes, on the R&D side, lots of improvements, zeroing in on certain chemistries, et cetera, but holding it and keeping it at the pilot kind of state rather than commercial state. Shubham or Mayank, if you guys want to add anything else.
I can add something on the delivery. So, on the delivery, we are in the process of finalizing the technology and negotiating the commercial terms with the vendor. We are exploring two very innovative technologies actually, so that it's an important discussion that we need to conduct. But yeah, the product is final. We've even seeded the market. We've received a strong response. Now we just need to ensure efficient production, for which we are currently negotiating with the suppliers.
Okay. And my last question. Sorry?
No, no, please go ahead.
My last question is, we keep seeing lead scientist roles on LinkedIn for Bangalore location, which is very confusing because we plan to move out of Bangalore and go to Ayodhya altogether. Please tell us how we should look at the R&D strength of the company in this.
I am glad that you asked that. I saw that there was something from Manali also on the chat on the same thing, and I knew that I am the one who has to answer that. Yes, I apologize for the confusion. We have ourselves gone back and forth, and in the end, again, finalized that we will stay in Bangalore. That is why you are seeing a lot of posts on lead scientists, the innovation head, there is barrier coating. Basically, what made us again go back to the idea was the talent, singular aspect, because in terms of innovation, it is all about talent. What we are doing is we are kind of separating innovation and product development. It was in our organization, it was kind of clubbed. That is why, like Shubham answering your question on delivery, the businesses are owning more of the product development now.
Innovation fundamentally will work on breakthroughs, so breakthroughs will need a lot of talent acquisition. You will continue to see a lot of team building on the Bangalore side. Not only that, we have now taken a bigger space in Bangalore, and we are going to move our lab in the next two to three months as well, within the same kind of campus, but to a much bigger facility with a lot of other domains that we have looked at in terms of biology, fermentation, and things like that, where we want to collaborate and work, and also seed a lot of collaborations with startups where we have been working, but also incubate some. There is a significant effort that is being done in order to build it.
But the singular challenge that happened was in terms of team, and we lost a couple of scientists when we started moving to Ayodhya, and that made us jittery again, and we went back to the team, talked to them, and ultimately, we all felt that it's better to keep it away from the production because also it will become too cellulose-focused if it's very, very near the plant. So we will continue to build in Bangalore.
Okay. Thank you so much.
Thank you. Sayam, you have an additional question, I think.
Yes, yes. So, I have a question regarding this. In the presentation, we see that we'll be setting up a delivery container, machines we'll be bringing in. So what is the proposed CapEx for that, and what capacity will we add for the delivery containers in that proposed capacity, and what will be the amount of that CapEx, and how we are like, do we have the funds or arrangements for that setup? That one. First is that. Second is, my question is for Himanshu. It's more of a balance sheet question. Currently, as per the September balance sheet, we are showing capital work in progress as INR 734 odd crores, right? So, when in December we commission the plant, so will all this flow into the fixed, into the asset side?
If yes, then what will be, from the January month onward, what will be our per- month depreciation that we will be charging to the profit and loss statement?
That is it.
I will take the first part, maybe on the delivery container CapEx. We are looking at approximately INR 1 crore because there are two technologies involved that we would need to procure. One would be a coating machine, and one is a gluing machine for the leak-proof part of the container. That entire setup is approximately INR 1 crore. The way we are doing is the first setup would enable us to One set enables us to produce between 10-12 tons per month. Since these are novel technologies, we will be commencing with one, and once that is commissioned and successful, we will expand capacity.
On the second question, I think the entire CWIP consists of two parts, although there are some product development and delivery containers and flexible packaging also, R&Ds which are in the capital work in progress, but that amount is minuscule, maybe about INR 10-INR 15 odd crores. Minus that, yes, the capitalization will happen, but the capitalization as per Ind AS in India happens depending on when the machine starts producing the desired results. If I say, for example, the total project cost is about INR 750 odd crores, we also have a UP subsidy coming into place, which is a straight capital subsidy of 22% on the plant and machinery that is eligible towards that. If I subtract that, somewhere down the line, the depreciation should be, because this will all be depreciated over 15 years, it should be roughly around INR 3 crores a month, basically.
The total depreciation that will sit into the books additionally will be about, in the year, would be in this January, February, March would be less, but next year compounded should be an additional depreciation of INR 30, INR 32 odd crores, basically.
Okay. Works. Thank you.
Thank you. Manali, you have additional questions?
Yeah. It's again around more to Shubham. Shubham, now that we have come up where we are a bit of positive, I really want to understand now what is your vision for CHUK. While we have an in-house capacity, we are also doing something that is on the outsourced front. Now, what kind of buildup are you seeing there, and where do you want to reach in terms of volumes also, and how you want to reach in terms of which product? Like, say, for instance, now even you are coming up with your delivery containers, you are doing okay, guys. Are we going to do it both on a pilot mode plus a manufacturing mode? Also, you have come up with an innovation technology over there. Whereas if the entire product is built, now how does the technology come in?
I'm just trying to understand that perspective also. And yeah, mainly, where is CHUK going? I mean, what is your vision to that?
CHUK is going up, and up, but I cannot tell you. I don't think I'm allowed to give you number-specific guidance. But what I can say is that for the better part of this year, we sell more than what we make. So we've kind of inversed the situation from around 12 months ago, where we were holding significant inventory to selling out every month. We are in the process of building capacity of 550 tons by the end of the calendar year, and we are quite confident that that will move. In addition to that, we are also, of course, in discussions to add more capacity through outsourcing partners on an asset-light model.
In general, we are getting a very, very positive response from the market for our products based on all the different initiatives that we've rolled out and the changes that we've made to the business. In terms of product assortment, again, the idea is to. We look at it application backwards, so based on what the customer requires and where the gap is. So one big gap we see is, for example, delivery solutions. There aren't any compostable, feasible delivery solutions available in the market, and therefore, we're trying to develop one with bagasse. So the solution has been created, but its manufacturing is where the innovation is. So there is innovation in the product development as well, but also in the way it will get manufactured. So the product part is done. The manufacturing part is ongoing.
We have actually already tested it out on a pilot scale. So actually, the pilot testing is done. What we are now ordering is the commercial-scale machine, but it's just that we're ordering one set of machines to start with, to run them and then order the next lot of machines.
When you say that you all have a pilot, I mean, just to the first part, where you are saying that we have outsourcing, what is the mix that you are going to keep for manufacturing versus outsourcing?
At the end of the year, we will be at a 30/70 ratio.
Okay.
So 30 in-house, 70 outsourced.
Okay. And what kind of margin would this generate?
The in-house or the outsourced?
Just give me a blended number, if you could.
On the gross margin level, we are looking-
Yeah
If we look at it really like- for- like, right, without taking into account, without taking in any special Pakka benefits, really on an arm's- length market basis, we are looking at approximately a 25% gross margin.
Okay.
And just bear in mind that for the company, it is a better margin because we actually, Mayank sir mentioned that we sell dry pulp in the market.
Yeah.
Actually, a significant chunk of it goes to CHUK's outsourcing partners, around 300 tons a month. We actually even make a profit on that front, right? The 25% I am telling you is only what we make at the product level, but then there is also an advantage at the pulp sale level that we are capturing.
Oh, so the entire, your outsourced, all of them take the pulp from you only?
Yeah.
Is it what I am-
Yes, actually.
Oh, that's-
It's one of our requirements with them. They buy pulp from us.
Oh, okay.
We sell them and buy back the product.
Oh, fair. Great. Thanks.
All right. I think we will end with this now. Thank you so much for your questions, and a closing note from Ved.
Thank you all so much. I realize the challenges that you are facing when we are looking at the retail market, but I assure you, we have our heads down, and we are working very hard as a team to make sure that we honor the promises that we have made, both on the Food Service as well as on the side of flexible packaging, while growing the Wrap and Carry business also. So the effort will be to keep showing you better results in the next few quarters and try and gain back your confidence to be able to build towards the global regenerative solutions that we are working towards. So thank you all for your confidence. Thank you all for always turning up and guiding us and questioning us and keeping us true to what we are trying to do. Thank you so much.
Thank you.
Thank you.
Thank you.