Key rating drivers and detailed description

Strengths:

• Extensive experience of the promoters: Presence of over 30 years in the industrial paper industry has enabled the promoters to understand market dynamics and establish healthy relationships with suppliers and customers.

• Efficient working capital management: Gross current assets were 100-130 days over the three fiscals through 2021, and 103 days as on March 31, 2021, as against over 170 days of its peers. Receivables and inventory stood at 46 and 64 days, respectively, as on March 31, 2021.

Weaknesses:

• Declining profitability: Profitability has been declining, as reflected in fall in earnings before interest, tax, depreciation and amortisation (Ebitda) margin to 5.5% in fiscal 2021 from 6.3% in fiscal 2020. The ability to improve operating profitability will be a key monitorable.

• Susceptibility to intense competition and cyclicality in the industrial paper industry: The company faces competition from several players owing to low entry barriers and excise concessions and other benefits that the government provides to small paper mills. Competition, especially in the kraft paper segment, is intense. Consequently, players have limited pricing flexibility. Moreover, end users of packaging paper are price-sensitive. The industry is cyclical, with small players shutting down capacities during downturns and recommencing operations when the economy revives. This prevents established players from generating sizeable profit even during strong economic growth.

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