South India Paper Mills FY26: A ₹10.7 Cr Profit Arrives, and So Does an ICRA Downgrade — in the Same Quarter

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1. At a Glance

For three straight years, South India Paper Mills booked losses — ₹16.7 Cr, ₹13.4 Cr, ₹9.6 Cr. In FY26 the ledger finally flipped: net profit of ₹10.74 Cr on sales of ₹433.81 Cr, with the March quarter alone delivering ₹4.57 Cr against a ₹2.26 Cr loss a year earlier. Operating profit for the year reached ₹51 Cr, lifting the operating margin to 12% from the previous year’s 6%. The turnaround is real and it sits on the data sheet.

And yet, four months before the board signed off on those numbers, ICRA downgraded the company’s long-term rating to B+ from BB+ and parked it in the “Issuer Not Cooperating” category — the rating agency’s polite phrasing for a company that stopped answering the phone and stopped paying the surveillance fee. So the record for FY26 holds two facts side by side: a business that turned profitable and a credit file that got worse. Both are true. Neither cancels the other.

Borrowings still stand at ₹155.9 Cr. Interest coverage sits at 1.71 — the year’s ₹20.27 Cr interest bill eats most of what the operation earns before financing.

Does a first profit in four years reset the story, or just start the conversation the rating agency wanted to have?

2. Introduction

Incorporated in 1959, South India Paper Mills runs a kraft-paper unit, a packaging division, and an 11-MW captive cogeneration plant at Nanjangud in Karnataka. It has been listed on the BSE for decades and remains, at a ₹199 Cr market cap, firmly in smallcap territory — the kind of company that files diligently and gets read by almost no one.

The recent history is a capex story that went sideways. The paper division’s installed capacity was expanded to 115,500 MT/year, and the delayed commissioning and stabilisation of that new kraft-paper line, coupled with falling paper realisations, produced the operating loss recorded in FY23. To fund the capex repayment schedule beginning FY24 and to cover operating losses, the company raised ₹45.37 Cr in Q4 FY23 through a preferential allotment of 37.5 lakh shares to Harshad Natvarlal Modi and Rajul Harshad Modi.

Then, in November 2023, a fire at the PM5 stocks warehouse damaged roughly 690 MT of finished and unfinished paper. The insurance claim of ₹87.89 lakh surfaced as an exceptional item in the FY25 results.

FY26 is the year the capacity finally started paying rent.

3. Business Model: WTF Do They Even Do?

They make the brown stuff your online orders arrive in, and then they make the box too.

The paper division produces corrugating case raw materials — kraft liner substitutes, test liners, white kraft liners, and fluting grades — across a substance range of 70 to 400 GSM. The printing and packaging division converts that into plain brown boxes, shelf-ready packaging, multi-colour micro-fluted boxes, and wraparound cartons. About 40–45% of the paper the mill makes is consumed captively by its own packaging arm, which is a tidy arrangement: the company is partly its own customer.

The end clients are the reassuring names of the FMCG shelf — Nestlé, Reckitt Benckiser, Britannia, Parle Agro. This is a business whose fortunes rise and fall with how many biscuits and detergent bottles the country ships, and with the spread between waste-paper input costs and finished-board realisations. Neither of those is something a Nanjangud mill controls; it takes the spread the market hands it.

Revenue is almost entirely domestic — exports ran near 1% in the FY23 split. There is no export cushion, no premium-grade escape hatch. It is a single-segment paper-and-paperboard operation, and the FY26 filing confirms the whole business reports as one operating segment. What you see is what they make.

4. Financials Overview

Figures are consolidated, in ₹ crore. (The company reports on a standalone basis as a single segment.)

The March quarter’s operating margin hit 13.23%, the highest in the visible quarterly run and a long way from the −10.45% posted in March 2023. The quarterly march upward is unbroken from mid-FY25: 9.74%, 11.58%, 12.02%, 13.23%. Something in the cost-to-realisation spread turned, and it stayed turned for four quarters.

From the filing: the board approved the audited FY26