| Nikita Papers Limited | ||||||
| Rating outlook revised to 'Positive'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 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 revised its outlook on the long-term bank facilities of Nikita Papers Limited (NPL) to ‘Positive’ from ‘Stable’, while reaffirming the ratings at ‘CRISIL BBB-/CRISIL A3’.
The revision in outlook reflects an improvement in the business risk profile, driven by healthy demand and growth in sales volume and realisations on kraft paper. Revenue rose by 200% to around Rs 356 crore in fiscal 2022, from Rs 118 crore in fiscal 2021, supported by timely stabilisation of capacity enhancement, undertaken a year before. Operating income is likely to grow by around 15% in fiscal 2023,, supported by improved capacity utilisation, flow of repeated orders and continuous addition of new customers. Despite the rise in wastepaper prices, operating margin was steady around 7.50% in fiscal 2022, as the company has the ability to partially pass on price hikes to end-customers and has a captive power plant. Sustenance of operating profit and growth in volume sales are key rating sensitivity factors.
The ratings also factor in the adequate liquidity, driven by healthy cash accrual and moderate debt protection metrics of the company.
The ratings continue to reflect the extensive experience of the promoters in the industrial paper industry, and the diversified product profile and geographic reach of NPL. These strengths are partially offset by the modest scale of operations, average financial risk profile, and large working capital requirement |
Analytical Approach For arriving at its ratings, CRISIL Ratings has treated unsecured loans from the promoters as 75% equity and 25% debt as the loans are interest-free and subordinated to bank debt (Rs 9.18 crore as on March 31, 2022). |
Key Rating Drivers & Detailed Description Strengths:
The promoters have been in the industrial paper industry for more than three decades, and have developed an understanding of the industry and local market dynamics, which has helped expand the product portfolio.
The revenue of the company has been grown by around 200% in FY2022 on account of commencement of operations in the new unit wherein the capacity of the company has been doubled from its existing capacities. The revenue of the company has been growth from Rs. 118 crore in FY2021 to Rs. 354 crore in FY2022.
Presence of more than three decades in the kraft paper segment has enabled the company to establish healthy relationships with customers. The key clients have been associated with PPL for more than two decades. Further, Company caters to various industries, meeting their requirement for packaging material such as corrugated boxes, paper tubes, and paper cones. It has a diversified geographic reach, covering Uttar Pradesh, Punjab, Himachal Pradesh, Uttarakhand, Rajasthan and Madhya Pradesh.
Weaknesses:
Gross current assets are estimated to be at 137 days as on March 31, 2022. The company maintains inventory of 40-60 days and extend credit of 80-90 days to customers because of intense competition, leading to receivables of 89 days as on March 31, 2022. Working capital management is supported by credit of 30-45 days from suppliers. Commensurate with increase in scale of operations, working capital cycle would remain capital intensive over medium term.
Financial risk profile remains constrained by modest networth of Rs 45 crore and high gearing of 3.30 times as on March 31, 2022, given the moderate dependency on external debt. Further, conversion of unsecured loans worth Rs 21 crore into share capital in fiscal 2022, has strengthened the overall financial risk profile. However, debt protection metrics were moderate, as reflected in interest coverage of 2.6 times and net cash accrual to adjusted debt ratio of 0.11 time in fiscal 2022. Continuous accretion to reserves and repayment of debt should help the financial risk profile improve steadily over the medium term.
Price of paper, which is a commoditized product, tends to fluctuate sharply, thus affecting profitability of paper manufacturers. Demand for paper is also linked to the level of economic activity. Intense competition in the industrial paper segment (which accounts for the bulk of the paper industry) persists due to low entry barriers and unfavourable government policies. Competition from large and established players is intense in the fragmented packaging industry. Hence, cyclical downturns or adverse change in the demand-supply balance may result in lower realisations. |
Liquidity: Adequate Liquidity is marked by sufficient cash accrual and moderate bank limit utilisation. Cash accrual is estimated at Rs 14.78 crore against debt of Rs 8.63 crore in fiscal 2022. Expected accrual of over Rs 18.50 crore should comfortably cover the maturing debt of Rs 9.5-12.0 crore over the medium term. Bank limit utilisation averaged 80% over the 12 months ended March 31, 2022. Current ratio is also likely to be moderate between 1.44 and 1.60 times over the medium term. The promoters are likely to extend support via equity and unsecured loans to cover the working capital and debt obligation if required |
Outlook: Positive CRISIL Ratings believes NPL will continue to maintain its strong business risk profile, supported by the extensive experience of its promoters in the industrial paper industry. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1989, NPL is promoted by Mr Naresh Chandra Bansal, Mr Sudhir Kumar Bansal and Mr Ayush Kumar Bansal. The company manufactures multilayer kraft paper with 18-28 burst factor. Its manufacturing unit in New Delhi has capacity of 48,000 tonne per annum (TPA) and a newly installed fluting media multi-liner kraft paper plant in Shamli, Uttar Pradesh, with installed capacity of 72,000 MTPA. Now the total installed capacity is 120,000 MTPA. |
Key Financial Indicators
*Provisional |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 12.5 | Axis Bank Limited | CRISIL BBB-/Positive |
| Cash Credit | 38 | Punjab National Bank | CRISIL BBB-/Positive |
| Letter of Credit | 20 | Punjab National Bank | CRISIL A3 |
| Long Term Loan | 42 | Punjab National Bank | CRISIL BBB-/Positive |
| Rupee Term Loan | 6 | Axis Bank Limited | CRISIL BBB-/Positive |
This Annexure has been updated on 08-Mar-23 in line with the lender-wise facility details as on 16-Feb-23 received from the rated entity.
Criteria Details
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