Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil BBB/Stable/Crisil A3+’ ratings on the bank facilities of Nath Industries Limited (Nath Industries; formerly, Rama Pulp and Papers Ltd).

 

The ratings reflect sustenance of the business risk profile, driven by an expected revival in operating income and margin. Revenue is estimated to be nearly 30% higher, at around Rs 420 crore in fiscal 2025, up from Rs 323 crore in the previous fiscal, led by increased capacity utilisation and sufficient demand in the chemical and paper segments. Revenue is expected to grow further by 9-10% in fiscal 2026, aided by better demand prospects. Operating margin is estimated to improve to 6.5% in fiscal 2025, up from 4.9% in the previous fiscal, driven by anticipated savings in power cost, following commencement of the co-generation plant, utilisation of solar power in the paper division, and the chemical division attaining self-sufficiency in power generation. Benefits from better fixed cost absorption should also aid profitability. These benefits were partly offset by rise in material cost due to volatility in wastepaper prices, which could only be passed on to consumers partially. 

 

With improving operating performance, the financial risk profile is likely to remain adequate, marked by healthy networth of Rs 250-255 crore estimated as on March 31, 2025, and over Rs 280 crore in the medium term, supported by steady accretion to profit. Gearing is likely to remain below 0.5 time as on March 31, 2025, and over the medium term, with reduction in debt and accretion to profit. Interest coverage ratio is estimated at 2.56 times in fiscal 2025, and likely to be over 5.25 times in the medium term.

 

Liquidity will be supported by bank limit of Rs 6-7 crore (unutilised during the 12 months ending March 31, 2025) and expected annual cash accrual of Rs 17-20 crore, against yearly debt obligation of Rs 11-12 crore in the medium term.
 

The ratings continue to reflect the diversified revenue profile of the company, its longstanding market presence and adequate financial risk profile. These strengths are partially offset by susceptibility to volatility in input prices and cyclicality in demand.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of Nath Industries.

Key Rating Drivers & Detailed Description

Strengths: 

Diversified revenue profile: Nath Industries derive about 70% of its revenue from the paper division and the balance from the chemicals division. Within the paper segment, the company has diverse product offerings, which include laminates and absorbent paper, speciality paper and core board paper. In the chemicals segment, products include sulphuric acid, sulphur dioxide, oleum and chloro-sulphuric acid. The company caters to diverse industries such as textiles, banking (automated teller machine (ATM) rolls) and pharmaceuticals, and is focusing on exports to improve its geographical reach.

 

Expected growth in demand for chemicals and expansion in capacity to 220 tonne per day (total capacity reaching 500 tpd) over fiscals 2023 and 2024, should help increase the revenue contribution of the chemicals division. The division has also become self-reliant in terms of power supply, post the capacity addition. In the paper division, the online coating machine installed in the thermal paper unit shall be utilised to cater to the rising demand.

 

Longstanding market presence: The company has a leading position in certain niche segments and has maintained longstanding relationships with its clients. It is a leader in tube grade paper and thermal paper used in ATM slips and is one of the few players in the absorbent paper segment. In the chemicals business, it has an established market position in sulphur dioxide, sulphuric acid, and oleum segments, backed by two-decade-long relationships with customers.

 

Adequate financial risk profile: The financial risk profile should remain adequate over the medium term. Networth is estimated to increase to Rs 250-255 crore as on March 31, 2025, up from around Rs 243 crore in fiscal 2024. Total debt of Rs 127 crore comprises long-term debt of Rs 63 crore, including interest-free sales tax loans of Rs 31 crore from the government and short-term debt of Rs 64 crore, approximately.

 

Debt protection metrics saw a temporary moderation in fiscal 2024, due to lower scale of operations and higher debt raised to fund capex. Interest coverage ratio and net cash accrual/adjusted debt ratios are expected to improve to 2.56 times and 13-15%, respectively, in fiscal 2025 and at over 5.25 times and 36%, respectively, in the medium term.

Weaknesses:

Susceptibility to volatility in input prices: Nath Industries uses wastepaper to produce laminate paper and special grade paper. Wastepaper prices are highly volatile as they are driven by the global demand-supply scenario. As the company imports a large part of its requirement, the operating margin is also vulnerable to fluctuations in foreign exchange rates. However, the company maintains its operating margin by partially passing on the hike in wastepaper prices to customers, along with savings in cost of power and other inputs. Prices of key inputs such as sulphur and chlorine also tend to fluctuate.

 

Vulnerability to demand cyclicality: In the paper segment, the company derives sizeable revenue from laminate grade paper used in the real estate industry. Cyclicality in the end-user industry impacts demand, though this is mitigated by diversity in product profile. Profitability remains constrained by the commoditised nature of the paper and chemicals industries. While price variations are partially passed on to end-users, any steep downturn or adverse change in the demand-supply balance could adversely impact realisations and profitability.

 

The company has seen the margin fluctuate in both the divisions due to volatility in demand and prices. Any sharp fluctuations in segmental margins remains a key monitorable. 

Liquidity: Adequate

Cash accrual is estimated to be over Rs 16 crore in fiscal 2025 and above Rs 19 crore in fiscal 2026, against the yearly debt obligation of Rs 10-12 crore. Utilisation of the working capital limit of Rs 60 crore averaged around 90% during the 12 months through March 2025. Internal accrual and the available cushion in bank limit should suffice to cover the debt obligation and incremental working capital expenses.

Outlook: Stable

Nath Industries will continue to benefit from its diversified product profile in the paper and chemical industries, established market position, increasing scale of operations and operational synergies. The financial risk profile should remain comfortable, supported by steady cash accrual, moderate capex and prudent working capital management.

Rating sensitivity factors

Upward factors

• Substantial growth in revenue and improvement in operating margin to over 10%, leading to higher cash accrual
• Sustained improvement in the financial risk profile with healthy debt protection metrics 

 

Downward factors

• Fall in operating margin below 4%, leading to lower net cash accrual on a sustained basis
• Any large, debt-funded capex or significant stretch in working capital cycle, weakening the debt protection metrics, with interest cover sustaining below 2.25 times

About the Company

Nath Industries (formerly known as Rama Pulp and Papers Limited) was incorporated as a private limited company in 1980 and reconstituted as a public limited company in 1983. In 1993, Mr Nandkishor Kagliwal and entities in which he held stakes, bought 51.41% of equity of Nath Industries.

 

On October 30, 2017, Nath Industries announced a scheme of arrangement and amalgamation between Nath Pulp and Paper Mills Ltd (NPPL), Nath Industrial Chemicals Ltd (NICL) with Rama Pulp and Papers Limited, along with their respective shareholders. The scheme of amalgamation was approved by Hon’ble NCLT vide order dated 22.08.2019. Thereafter, the name of Rama Pulp and Papers Limited was changed to Nath Industries Limited.

 

Post amalgamation, Nath Industries Limited has 2 paper manufacturing units and 1 chemical manufacturing unit details of which are as under: -

 

Nath Industries Limited -Unit Rama Paper, Vapi

Unit Rama Paper operates in manufacturing specialty grades of papers having ranges from 18 GSM to 200 GSM. The product range includes various types of papers viz Absorbent Kraft, Mac D, Writing and printing paper, One Time Carbon Paper, Poster Paper, Tissue papers of various colors, padding papers etc. The papers manufactured are used across various applications such as Laminate Manufacturing, paper bag manufacturing, gifting and wrapping purpose and stationery uses. The installed capacity for manufacturing high GSM paper ranging from 120 GSM to 200 GSM is 28,800 MTPA and capacity for low GSM papers from 18 GSM to 100 GSM is 8,000 MTPA. With the installation of co-generation power plant of 16.5 TPH Boiler and 2 MW turbine, the unit has reduced its energy cost significantly.

 

Nath Industries Limited -Unit Nath Paper, Aurangabad

Unit Nath Paper is engaged in manufacturing high strength tube grade and thermal papers. The tube grade paper manufactured is used in textiles, films, metal and carpet industries. Thermal papers are used in POS machines, restaurants, regional transportation, theaters etc. The thermal paper manufactured is at par in quality with Hansol, the leading global thermal paper manufacturer. The installed capacity for tube grade paper is 68,400 MTPA and thermal paper is 9,000 MTPA.

 

Nath Industries Limited -Unit Nath Chemicals, Vapi

Unit Nath Chemicals is engaged in the manufacturing of sulphur-based value-added chemicals viz Sulphuric Acid, Oleums, Sulphur Dioxide, Sulphur Tri-oxide, Chloro Sulphonic Acid and Thionyl Chloride. The installed capacity of sulphuric acid manufacturing is 500 MTPD along with the capacity of 60 MTPD for Sulphur Di-oxide, 40 MTPD for Chloro Sulphonic acid and 50 MTPD for Thionyl Chloride. The plant is designed in such a way that it has flexibility in manufacturing different grades of chemicals as per the market demand. With the installation of 3.3 MW turbine, Unit Nath Chemical has become self sufficient as far as the power is concerned.

Any other information: Not Applicable