| Nath Industries Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of Nath Industries Ltd (Nath, formerly, Rama Pulp and Papers Ltd) at 'CRISIL BBB+/Stable/CRISIL A2'.
The business performance have improved since the second half of fiscal 2021 following the easing of pandemic related restrictions and revival in demand. While there was a sharp decrease in revenue to Rs 105 crore the first half of fiscal 2021(H1FY2020: Rs.152 crore), subsequent revival in the second half with revenue of Rs 186 crore (H2FY2020: Rs. 147 crore) restricted the overall decline in revenue for the full year to around 3% over fiscal 2020 (fiscal 2021: Rs. 292 crore; fiscal 2020: Rs. 299 crore). The paper segment contributed 73% (FY20: 70%) while the balance 27% (FY20: 30%) came from the chemical segment. Operating margin marginally improved to 10.4% in fiscal 2021 (fiscal 2020: 9.8%) through its upgradation and modernisation programs which lead to moderation in power costs, and reduction in employee costs. With increase in contribution from higher margin export segment in the specialty paper division and increasing scale of operations leading to better absorption of fixed costs, operating margin is expected to be maintained around 9-11%.
The revival in business performance has carried on into the current fiscal with Nath recording its highest ever quarterly revenue of Rs 105 crore in Q1 fiscal 2021 despite temporary slow-down in business activity in April and May 2021 owing to the onset of the second wave of the pandemic and higher freight rates. Revenues for the full year is expected to be more than Rs. 400 crore aided by deeper penetration into export markets for the specialty paper segment. For Q1 fiscal 2021, operating margins moderated marginally to 10.1% owing to increase in raw material prices. However, the company’s ability to take calculated price hikes without adversely impacting demand and better operating leverage is expected to partially offset the fluctuations in raw material prices and margins for the full year are expected to be maintained around 9-11%. Nath is planning a capex of Rs 19 crore for setting up a co-generation power plant which would reduce power costs once it starts running, supporting the operating margins.
Financial risk profile expected to improve with higher scale of operations leading to higher cash accruals. Debt protection metrics like Interest Coverage to improve to 12.5 times (9.4 times in fiscal 2020) in fiscal 2021. NCATD to be maintained around 0.3-0.5 times over the medium term. Networth was adequate at Rs 230 crore as on March 31, 2021. Gearing of 0.25 times in fiscal 2021 expected to remain around 0.2-0.3 times over the medium term. Nath’s unutilised bank lines of Rs 20 crore and expected accruals of around Rs 25-30 crore is expected to cover repayment obligations, capex requirements and incremental working capital requirements. Of the Rs 19 crore of the capex to set up the cogeneration power plant, Rs 13 crore would be funded from bank borrowings and the balance would be funded from accruals.
The ratings continue to reflect Nath’s diversified revenue profile, longstanding market presence and adequate financial risk profile. These strengths are partially offset by exposure to volatility in input prices, demand cyclicality and moderate scale of operations. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has considered the standalone business and financial risk profile of Nath Industries Limited.
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Key Rating Drivers & Detailed Description Strengths Diversified revenue profile Nath derives about 73% of the revenue from the paper division and the balance from the chemical division. Within the paper business, the company has diverse product offerings namely laminates and absorbent paper, speciality paper and core board paper. In the chemicals segment, products include sulphuric acid, sulphur dioxide, oleum and chlorosulphuric acid. The company also caters to diverse end users such as textiles, banking (ATM rolls) and pharmaceuticals. Besides, increasing focus on exports to improve geographical diversification going forward.
Longstanding market presence The company has a leading position in certain niche segments and longstanding client relationship. 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 chemical business, it has an established market position in sulphur dioxide, sulphuric acid and oleum; besides customer relationships of over two decades.
Adequate financial risk profile The financial risk profile should remain adequate over the medium term. Networth increased to Rs 230 crore as on March 31, 2021, from Rs 213 crore as on March 31, 2020. Out of total debt of Rs. 57 crore, interest free sales tax loans from government amount to Rs. 36 crore. Balance debt is primarily in form of working capital. Company is planning to set up a co-generation plant at an estimated cost of Rs. 19 crore to be funded through debt of Rs. 13 crore and balance through cash accruals. Expected annual accruals of Rs. 25-30 crore shall be sufficient for meeting the aforementioned capex together with meeting repayment obligations of Rs. 7 crore and increased working capital requirements
Weaknesses Exposure to volatility in input prices Nath uses waste paper as an input for the production of laminate paper and special grade paper. Waste paper prices are highly volatile as they are driven by global demand-supply scenario. As the company imports a large part of its requirement, operating margin is exposed to any fluctuation in waste paper prices and foreign exchange rates. However, Nath largely able to maintain operating margin by passing on the increase in waste paper prices to customers. Sulphur and chlorine are key inputs for the chemical business, prices of which are also volatile.
Part vulnerability to demand cyclicality In the paper segment, the company derives sizeable sales from laminate grade papers used in the real estate industry. Cyclicality in the end-user industry will impact the demand potential during downturns. This is mitigated by diversity in revenue. Profitability remains exposed to commoditised nature of paper and linear alkyl benzene sulfonic acid (LABSA). While Nath does partly pass on price variation, any steep cyclical downturn or adverse change in demand-supply balance may result in lower realisations, thereby constraining operating margin. |
Liquidity Adequate Cash accrual is expected to be around Rs 25-30 crore each in fiscals 2022 and 2023 against yearly debt obligation around Rs 6 crore and capex of Rs 19 crore in fiscal 2022. Capex would be funded through debt of Rs. 13 crore and balance through internal accruals. Average utilisation of fund-based limit during the 12 months through August 2021 was 50%. Internal accrual and unutilised bank limit would be largely sufficient to meet debt obligation as well as incremental working capital requirement. |
Outlook Stable CRISIL Ratings believes Nath will continue to benefit from a diversified product profile, established market position, increasing scale of operations and operational synergies derived from merged entities. Financial risk profile is expected to remain comfortable, supported by steady cash accrual, moderate capex, and prudent working capital management. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Nath 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 Nath’s equity. The company manufactures writing and printing paper (WPP), absorbent paper, and special-grade paper, with WPP and absorbent paper capacity of 21,600 MTPA; and speciality paper capacity of 8000 MTPA in Vapi, Gujarat. In fiscal 2017, the company started its LABSA manufacturing plant in Vapi.
On October 30, 2017, Nath announced scheme of arrangement and amalgamation between Nath Pulp and Paper Mills Ltd (NPPL), Nath Industrial Chemicals Ltd (NICL) and Nath along with their respective shareholders. The National Company Law Tribunal’s approval for the same was received on August 22, 2019. |
About the Group About NPPL NPPL, incorporated in April 1975 and promoted by Mr Nandkishor Kagliwal, manufactures high-strength core board and thermal grade paper and caters to a pan-India clientele. The Aurangabad (Maharashtra)-based company has capacity to manufacture 68,400 MTPA of Core board paper and 6,000 MTPA of Thermal Paper.
About NICL NICL, was incorporated as a private limited company and reconstituted as public limited company in 1983. In 1993, Mr Nandkishor Kagliwal bought entire stake of NICL from its existing shareholders. NICL manufactures and trades in industrial chemicals. The key product, sulphuric acid, is used in pharmaceuticals, dyes, and textiles. It has a 2-megawatt captive thermal power plant.
During the three months ended June 30, 2021, Nath reported a net profit of Rs 6.1 crore on operating income of Rs 105 crore, against a net loss of Rs 29 lakh on operating income of Rs 38.3 crore in the corresponding period of the previous fiscal. |
Key Financial Indicators
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Letter of credit sublimit of Rs 5.00 crore *Bank guarantee sublimit of Rs 3.50 crore *Export packaging credit sublimit of Rs 10.00 crore *Foreign bill discounting sublimit of Rs 5.00 crore *Letter of undertaking for bank guarantee sublimit of Rs 3.00 crore *Full interchangeability within the overall CC Limit |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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Criteria Details
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