Andhra Paper Reports 205 Tonnes Daily Production Loss as Kadiam Workers Fail to Return Post-Lockout

Market snapshot: Andhra Paper Limited is grappling with a severe operational bottleneck at its Kadiam manufacturing facility in Andhra Pradesh. Despite the formal revocation of the lockout on May 29, 2026, the company has reported that workers have failed to resume duties, leading to a sustained production loss of approximately 205 tonnes per day. This development signals a deepening labor crisis that threatens to impact the company's Q1 FY27 financial performance.

Data Snapshot

• Daily Production Loss: 205 Tonnes at Kadiam facility
• Facility Capacity: Approx. 73,150 MTPA
• Lockout Duration: Started May 1, 2026; Revoked May 29, 2026
• Market Cap: ₹1,239 crore (as of June 2026)

What's Changed

• Shift from a legal lockout to a de-facto operational halt due to labor absenteeism.
• Production loss magnitude confirmed at 205 tonnes per day, nearly 100% of the facility's daily output.
• The stalemate persists despite management's attempts to normalize operations following shift schedules.

Key Takeaways

• The Kadiam facility is essentially at a standstill, creating a significant revenue gap.
• Labor relations remain the primary bottleneck for Andhra Paper, superseding legal/regulatory hurdles.
• Extended downtime could lead to higher fixed cost absorption and deterioration of inventory quality.

SAHI Perspective

The inability of Andhra Paper to resume production post-lockout indicates a major breakdown in communication between the management and the labor unions. While the Rajahmundry facility continues to support the baseline, the Kadiam unit's contribution—nearly 30% of total capacity—is currently zero. Investors should prepare for margin compression as the company incurs overhead costs without corresponding output. The persistent nature of this dispute, following similar strikes in 2024 and 2025, suggests a systemic risk in the company's labor management strategy.

Market Implications

The continued disruption at Andhra Paper is likely to create a localized supply shortage in specialty and printing paper grades, potentially benefiting regional competitors. From a capital allocation standpoint, the risk premium on the stock may increase due to operational unpredictability. If the stalemate continues beyond June, a significant downward revision in earnings estimates for the current fiscal year is inevitable.

Trading Signals

Market Bias: Bearish

Continued 205-tonne daily production loss and labor absenteeism post-lockout revocation point to operational paralysis, likely impacting Q1 revenue by over 5-7%.

Overweight: Regional Competitors (West Coast Paper, Seshasayee Paper)

Underweight: Paper & Forest Products, Andhra Paper (Direct Impact)

Trigger Factors:

• Announcement of labor agreement or return-to-work
• Q1 FY27 quarterly earnings disclosure
• Status of the 35,000 TPA Tissue expansion at Kadiam

Time Horizon: Near-term (0-3 months)

Industry Context

The Indian paper industry has been navigating a period of high raw material costs and fluctuating demand in the writing and printing segments. Large players like Andhra Paper, which are integrated in pulp production, usually have a cost advantage. However, labor disputes in the Andhra Pradesh region have historically hampered operational consistency. The industry is currently shifting focus towards specialty grades and tissue paper, where Andhra Paper had planned significant capital expenditure (₹270 crore for a tissue machine at Kadiam).

Key Risks to Watch

• Permanent loss of market share in specialty segments during the shutdown.
• Escalation of labor disputes to the Rajahmundry unit.
• Inventory obsolescence and equipment maintenance risks due to prolonged idling.

Recent Developments

On May 29, 2026, Andhra Paper announced the revocation of the lockout at the Kadiam unit, which originally began on May 1, 2026, following a strike by contract workers that started on April 27, 2026. Prior to this, the company reported a capacity upgrade plan to enhance pulp production to 630 TPD. However, the current labor impasse has stalled these operational advancements.

Closing Insight

While the lockout has legally ended, the operational reality for Andhra Paper is one of continued disruption. Until a formal reconciliation with the workforce is achieved, the Kadiam facility's 205-tonne daily capacity remains a stranded asset.

FAQs

What is the total production loss incurred by Andhra Paper so far?

Since the lockout began on May 1, and including the post-lockout absenteeism, the company has faced over 30 days of disruption. At 205 tonnes per day, the cumulative loss exceeds 6,000 metric tonnes, impacting the current quarter's top line significantly.

How does the Kadiam shutdown affect the company's overall capacity?

The Kadiam unit has an annual capacity of approximately 73,150 MT, representing nearly 30% of Andhra Paper's total annual capacity of 2.4-2.5 lakh MT. Its closure forces the company to rely entirely on its Rajahmundry mill.

What does this labor dispute mean for the planned Tissue Paper expansion?

The persistent labor instability at Kadiam could delay the installation and commissioning of the new 35,000 TPA tissue paper machine, which was expected to be a major growth driver for the company in 2026-27.

High Performance Trading with SAHI.