| Nikita Papers Limited | ||||||
| Rating outlook revised to 'Stable'; 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 Ltd (NPL) to ‘Stable’ from ‘Positive’ while reaffirming the rating at ‘CRISIL BBB-‘. The short term rating has been reaffirmed at ‘CRISIL A3’.
The revision in outlook reflects the stable business risk profile supported by revenue growth of 12% to around Rs 398 crore in fiscal 2023, from Rs 356 crore in fiscal 2022, aided by volumetric growth. The company has achieved revenue of around Rs 150 crore till August 2023 (year-to-date) and is likely to post Rs 350-360 crore for the full fiscal due to moderation in realisation. However, revenue would be supported by volumetric growth. Operating margin declined in fiscal 2023 to 6.9% from 7.79% in fiscal 2022 due to increase in power and fuel cost. The margin is expected to improve in the near term to 7.0-7.5% driven by capital expenditure (capex) undertaken for the installation of the boiler leading to lower power cost. Sustenance of operating profit and growth in volume sales are key rating sensitivity factors.
The ratings also factor in 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 of NPL in the industrial paper industry, and its diversified product profile and geographic reach. These strengths are partially offset by the exposure to cyclicality in the paper industry, average financial risk profile, and large working capital requirement. |
Analytical Approach 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 9.04 crore as on March 31, 2023). |
Key Rating Drivers & Detailed Description Strengths: Extensive industry experience of the promoters: The promoters have been in the industrial paper segment for more than three decades and have developed an understanding of the industry and local market dynamics, which has helped expand the product portfolio.
Revenue has expanded by around 12% in fiscal 2023 on account of volumetric growth in sales. The topline augmented from Rs 118 crore in fiscal 2021 to Rs 398 crore in fiscal 2023.
The 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 NPL for more than two decades. Further, the 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.
Weakness: Large working capital requirement Gross current assets (GCAs) are estimated at a sizeable 138 days as on March 31, 2023, driven by receivables of 88 days. The company maintains an inventory of 40-50 days and extends credit of 80-90 days to customers because of intense competition. Payables of 30-45 days support working capital. Commensurate with an increase in scale, operations are expected to remain working capital intensive with GCAs of 140-150 days over the medium term.
Average financial risk profile The financial risk profile remains constrained by modest networth of Rs 55 crore and high gearing of 2.65 times as on March 31, 2023, given the moderate dependence on external debt. Networth is expected to increase slightly to Rs 58-60 crore as on March 31, 2024, driven by sustained accretion to reserve. Debt protection metrics are moderate, as reflected in interest coverage of 2.53 times and net cash accrual to adjusted debt ratio of 0.1 time in fiscal 2023. Continuous accretion to reserve and repayment of debt should help the financial risk profile improve steadily over the medium term.
Exposure to cyclicality in the paper industry The price of paper, which is a commoditised product, tends to fluctuate sharply, thus affecting the 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 stiff in the fragmented packaging industry. Hence, cyclical downturns or adverse change in the demand-supply balance may result in lower realisations. |
Liquidity: Adequate Expected cash accrual of Rs 14-17 crore should comfortably cover debt obligation of Rs 8-9 crore over the medium term and support liquidity. Bank limit utilisation averaged 83% over the 12 months through May 2023. The current ratio was 1.1 times as on March 31, 2023. Need-based funding support from the promoters is expected to continue. |
Outlook: Stable CRISIL Ratings believes NPL will 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 unit in New Delhi has capacity of 48,000 tonne per annum (TPA) while the newly installed fluting media multi-liner kraft paper plant in Shamli, Uttar Pradesh has 93,000 MTPA. The total installed capacity currently stands at 135,000 MTPA. |
Key Financial Indicators
*Provisional |
Status of noncooperation with previous CRA NPL has not cooperated with Acuite Ratings and Research Limited, which has classified it as issuer not cooperative through release dated January 25, 2019. The reason provided by Acuite Ratings is non-furnishing of information for rating. |
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 | ||||||||||||||||||||||||
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Criteria Details
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