Rating Rationale
April 26, 2025 | Mumbai
Khanna Paper Mills Limited
Ratings removed from 'Watch Negative'; Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.982 Crore
Long Term RatingCrisil BBB+/Stable (Removed from 'Rating Watch with Negative Implications'; Rating Reaffirmed)
Short Term RatingCrisil A2 (Removed from 'Rating Watch with Negative Implications'; Rating Reaffirmed)
Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

Crisil Ratings has removed its ratings on the bank facilities of Khanna Paper Mills Limited (KPML) from ‘Rating Watch with Negative Implications’ and has reaffirmed the ratings at ‘Crisil BBB+/Crisil A2’ while assigning a ‘Stable’ outlook to the long-term rating.

 

The ratings were placed on ‘Watch with Negative Implications’ owing to the developments regarding legal proceedings related to a change in the key managerial personnel of the company. There had been a change in the key managerial personnel in January 2025 and legal proceedings were initiated within the promoter family. Mr. Rahul Khanna, the key managerial personnel has been reinstated in February 2025. Also, as per the Board resolution shared with Crisil Ratings, the voting rights on the equity shares held by Mr. Saurabh Khanna and Mrs Renu Khanna have been frozen. However, any adverse impact on the business performance due to outcomes of legal proceeding will be an event which will remain a key monitorable,

 

The company has achieved revenue of around Rs 1915 crores in fiscal 2025 (Rs 2180 crore in fiscal 2024) which is in line with Crisil’s expectations and is expected to achieve health revenue growth of 12-13% in fiscal 2026 driven by volumetric growth supported through debottlenecking of manufacturing process undertaken by the company. The operating margins have remained around 2.8% in fiscal 2025 (12.2% in fiscal 2024) owing to decline in realization and increase in raw material prices. However, operating margins are expected to improve to around 5-6% in the near term. An improvement in revenue and operating margin of around 5-6% in the near term will remain a rating sensitivity.

 

The ratings continue to reflect the established track record of the company, diversified product portfolio, strong clientele, and moderate financial risk profile. These strengths are partially offset by volatility in operating margin and exposure to cyclicity in the paper industry.

Analytical Approach

Crisil Ratings has taken a standalone approach for assessing the business and financial risk profiles of KPML and has not consolidated the company with its wholly owned subsidiary Khanna Paper Inc (KPI) because KPI will get de-subsidiarised in the near to medium term, and all future transactions between KPML and KPI will take place at arm’s length.

Key Rating Drivers & Detailed Description

Strengths:

  • Established track record of the company: The company has been engaged in the paper manufacturing business since 1985. Operating income has augmented steadily, supported by successful capacity enhancements and the growing distribution network. Operating income has expanded at a compound annual growth rate (CAGR) of around 30% over the three years ended March 2024; operating income was around Rs 2180 crore in fiscal 2024. Operating income has decline to Rs 1915 crore in fiscal 2025 owing to decline in volume and realization.

 

  • Diversified product portfolio catering to multiple end-user industries and reputed clientele: KPML has a diversified product portfolio and is engaged in three product segments, namely writing and printing paper (WPP), newsprint and board. In fiscal 2024, the company derived 31% of its revenue through board paper, 22% through WPP and the remaining 47% through newsprint. Presence across multiple product segments acts as a mitigant in case of downturn in any one segment. KPML caters to multiple end-user industries, such as fast-moving consumer goods, footwear cartons, notebook covers, garments and apparels and liquor cartons, and supplies their products to reputed customers. The diversified product portfolio and strong clientele will continue to support the business.

 

  • Moderate financial risk profile: The company has a healthy capital structure as reflected in expected gearing of less than 0.8 time as on March 31, 2025 (0.49 time a year earlier). Networth of the company is expected around Rs 715-720 crore as on March 31, 2025 (Rs 767 crore) due to net losses incurred in fiscal 2025. However, due to weak operating profitability in fiscal 2025, interest coverage ratio is expected to deteriorate significantly to around 1.4-1.5 times (9.5 times in fiscal 2024) and expected to remain moderate in the medium term. Improvement in the financial risk profile, particularly interest coverage ratio, will remain a key monitorable.

 

Weaknesses:

  • Volatility in operating margin: Operating margin has remained volatile in the range of 3-12% over the five fiscals ending March 2025 driven by changes in input prices. Operating margin has declined to 2.8% in the fiscal 2025 from 12% in fiscal 2024 due to limited pricing power. It is expected to improve to around 5% for full fiscal 2026. Operating margin is expected to gradually improve in fiscal 2026 supported by machinery upgradation and bottlenecking undertaken by the company in the last two years leading to improved operating efficiency and will remain a key monitorable.

 

  • Exposure to cyclicality in the paper industry: Long gestation period in capacity addition and lead time in raw material procurement, among other factors, make the paper industry inherently cyclical. The price of paper, which is a commoditised product, tends to fluctuate sharply and adversely affects the profitability of paper manufacturers. Demand for paper is also linked to the level of economic activity. Hence, cyclical downturns or adverse variability in the demand-supply balance may result in volatility in realisations. Furthermore, the risk of passing on an increase in raw materials prices to end customers amid demand-supply dynamics will remain key monitorable.

Liquidity: Adequate

With expected gradual enhancement in operating margin, net cash accrual is likely to improve to around Rs 70-80 crore per annum and will adequately cover the yearly debt repayment obligations of Rs 45-60 crore over the medium term. Bank limit utilisation averaged 58% for fund-based limits and 69% for non-fund-based limits for the 12 months ended March-2025.

Outlook: Stable

The business risk profile of KPML will continue to benefit from its established market position, while the financial risk profile will remain strong.

Rating sensitivity factors

Upward factors

  • Sustained increase in revenue to over Rs 1900 crores along with an operating margin of more than 9% on a sustained basis leading to higher cash accrual.
  • Prudent working capital management, leading to improvement in the financial risk profile.

 

Downward factors

  • Impact of any unforeseen legal proceedings within the family impacting the business and liquidity of the company
  • Sustained decline in operating margin or substantial fall in revenue leading to net cash accrual to repayment obligations of less than 1.3 times.
  • Large debt-funded capital expenditure (capex) or substantial increase in the working capital requirement weakening the financial risk profile.

About the Company

KPML, incorporated in 1985 by Mr Brij Mohan Khanna, manufactures quality WPP, newsprint and duplex-triplex board by recycling wastepaper. The company has four manufacturing units in Amritsar, Punjab, and a distribution network of over 150 dealers across India.

Key Financial Indicators

As on/for the period ended March 31

Unit

2024

2023

Operating income

Rs crore

2180

2830

Reported profit after tax (PAT)

Rs crore

115

102

PAT margin

%

5.3

3.6

Adjusted debt/adjusted networth

Times

0.49

0.55

Interest coverage

Times

9.49

8.13

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
Crisil Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

Crisil Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the Crisil Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Bank Guarantee NA NA NA 19.00 NA Crisil A2
NA Cash Credit NA NA NA 350.00 NA Crisil BBB+/Stable
NA Letter of Credit NA NA NA 378.15 NA Crisil A2
NA Non-Fund Based Limit NA NA NA 2.85 NA Crisil A2
NA Proposed Fund-Based Bank Limits NA NA NA 0.13 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Mar-27 12.00 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Mar-27 17.13 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Mar-27 40.00 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Mar-27 7.87 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Mar-27 25.00 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Mar-27 25.00 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Mar-27 29.86 NA Crisil BBB+/Stable
NA Term Loan NA NA 31-Mar-27 75.01 NA Crisil BBB+/Stable

 

Annexure - Rating History for last 3 Years
  Current 2025 (History) 2024  2023  2022  Start of 2022
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 582.0 Crisil BBB+/Stable 27-01-25 Crisil BBB+/Watch Negative 02-04-24 Crisil A1 / Crisil A/Stable 01-03-23 Crisil A1 / Crisil A/Stable 14-12-22 Crisil A1 / Crisil A/Stable --
      --   -- 05-03-24 Crisil A1 / Crisil A/Stable   -- 23-11-22 Crisil A1 / Crisil A/Stable --
      --   --   --   -- 16-11-22 Crisil A1 / Crisil A/Stable --
Non-Fund Based Facilities ST 400.0 Crisil A2 27-01-25 Crisil A2/Watch Negative 02-04-24 Crisil A1 01-03-23 Crisil A1 14-12-22 Crisil A1 --
      --   -- 05-03-24 Crisil A1   -- 23-11-22 Crisil A1 --
      --   --   --   -- 16-11-22 Crisil A1 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 3 Union Bank of India Crisil A2
Bank Guarantee 13 Canara Bank Crisil A2
Bank Guarantee 3 Punjab National Bank Crisil A2
Cash Credit 25 Indian Bank Crisil BBB+/Stable
Cash Credit 50 ICICI Bank Limited Crisil BBB+/Stable
Cash Credit 95 HDFC Bank Limited Crisil BBB+/Stable
Cash Credit 51.5 Canara Bank Crisil BBB+/Stable
Cash Credit 45.5 Union Bank of India Crisil BBB+/Stable
Cash Credit 30 Kotak Mahindra Bank Limited Crisil BBB+/Stable
Cash Credit 28 Punjab National Bank Crisil BBB+/Stable
Cash Credit 25 IndusInd Bank Limited Crisil BBB+/Stable
Letter of Credit 25.5 Indian Bank Crisil A2
Letter of Credit 87.5 Canara Bank Crisil A2
Letter of Credit 25 Kotak Mahindra Bank Limited Crisil A2
Letter of Credit 12 Punjab National Bank Crisil A2
Letter of Credit 47.5 Union Bank of India Crisil A2
Letter of Credit 40 IndusInd Bank Limited Crisil A2
Letter of Credit 30.65 ICICI Bank Limited Crisil A2
Letter of Credit 35 Kotak Mahindra Bank Limited Crisil A2
Letter of Credit 25 IndusInd Bank Limited Crisil A2
Letter of Credit 50 HDFC Bank Limited Crisil A2
Non-Fund Based Limit 1.85 Union Bank of India Crisil A2
Non-Fund Based Limit 1 Canara Bank Crisil A2
Proposed Fund-Based Bank Limits 0.13 Not Applicable Crisil BBB+/Stable
Term Loan 12 Indian Bank Crisil BBB+/Stable
Term Loan 17.13 IndusInd Bank Limited Crisil BBB+/Stable
Term Loan 40 Indian Bank Crisil BBB+/Stable
Term Loan 7.87 IndusInd Bank Limited Crisil BBB+/Stable
Term Loan 25 ICICI Bank Limited Crisil BBB+/Stable
Term Loan 25 Kotak Mahindra Bank Limited Crisil BBB+/Stable
Term Loan 29.86 Kotak Mahindra Bank Limited Crisil BBB+/Stable
Term Loan 75.01 HDFC Bank Limited Crisil BBB+/Stable
Criteria Details
Links to related criteria
Basics of Ratings (including default recognition, assessing information adequacy)
Criteria for manufacturing, trading and corporate services sector (including approach for financial ratios)

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