Nikita Papers Ltd. IPO: Key Details

Nikita Papers

• Nikita Papers is coming out with an initial public offering (IPO) of 64,94,400 equity shares in a price band Rs 95-104 per equity share.
• The issue will open on May 27, 2025 and will close on May 29, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 9.50 times of its face value on the lower side and 10.40 times on the higher side.
• Book running lead manager to the issue is Fast Track Finsec.
• Compliance Officer for the issue is Shefali Gupta.

Profile of the company

Nikita Papers was originally incorporated as a Private Limited Company on August 18, 1989. In 1991, a Unit in the name of Nikita Papers was established per Day Capacity. Since then, the company has undergone through many expansion & modernizations from time to time as per the demand of the market to maintain its quality and now the paper quality of the company is well established in the paper market. At present, the installed capacity of the company is around 1,33,000 M.T. per annum. The company in manufacturing Kraft paper ranging from 80 to 200 GSM in various Burst Factor (B.F.) ranges. This diverse product offering allows the company to cater to a wide range of customer needs within the paper industry.

At Nikita Papers, reusable/waste paper serves as a raw material in the production of Kraft paper. Waste paper, sourced from post-consumer and industrial sources which is gathered at dump grounds which is segregated, collected and stored. After the cleaning process, the waste paper is pulped, breaking down the fibres into a slurry consistency. This pulp is then blended with additives and chemicals to achieve the characteristics and properties required for Kraft paper production.

Proceed is being used for:

• Meeting capital expenditure towards setting up a Power Plant
• Meeting working capital requirements of the company
• Meeting general corporate purposes
• Meeting issue expenses

Industry Overview

India ranks among the top 15 major paper producers globally and accounts for about 5% of the world’s paper production. The estimated turnover of the industry is Rs 80,000 crore and its contribution to the exchequer is around Rs 5,000 crore. Paper is a labour-intensive industry in India. The industry provides direct employment to 0.5 million persons, and indirectly to around 1.5 million. In FY 2023, boasting an annual capacity of 30.73 million Tonnes Per Annum (TTPA), India manufactured 23.67 million tonnes of paper and paperboard in FY 2023. This translates to approximately 88% of the capacity utilisation by the industry. Today, a significant 75% of the total production of paper and paperboard is derived from wastepaper or recycled paper sources. Wood and bamboo collectively account for approximately 18% of the share, emphasizing their continued contribution. Additionally, agro-based raw materials, including bagasse, wheat, and straw, contribute to 7% of the overall volume in the production of paper and paperboard.

On demand side, the country has emerged as the fastest growing market when it comes to consumption. The per capita paper consumption in India at around 19 kg. India’s total consumption of paper, paperboard, and Newsprint stood at 23.96 million tonnes in 2023 with Packaging Paper/Board segment alone accounting for nearly 59% share followed by writing, printing paper and specialty paper accounting for 35% share and newsprint alone accounting for remaining share of 6%.

Meanwhile, Kraft paper is a type of paperboard / industrial paper which has high elasticity and high tear resistance properties, making it ideal for packaging applications. The name kraft refers to the pulping process used to manufacture the paperboard. ‘BF’ stands for Burst Factor which is extensively used to measure the bursting strength of kraft paper. It implicates to be indicative of the resistance of paper of Bursting Forces found in transit or in storage. Burst Factor equals Bursting Strength divided by grammage. Kraft Paper uses span from packaging materials like corrugated boxes, bags, and wrapping paper to industrial products such as envelopes, cement sacks, and sandpaper. Additionally, Kraft paper is utilized in the creation of stationery items like notebooks, folders, and file covers. Its eco-friendly nature and robustness make it a preferred choice for packaging and manufacturing a wide range of products. Some common varieties of kraft paper include white, printed, coloured, black, etc. They can be easily recycled, reused, and decomposed completely. As a result, kraft paper is widely utilized in numerous packaging applications, including envelopes, bags, sacks, composite cans, pouches, cartons, etc. 

Pros and strengths

Expansion into Fluting Media: The company has undertaken an initiative by adding a Fluting Media Multi-liner Kraft paper project to its existing manufacturing unit and in line installed & commissioned Paper Machine (PM) -2. Further, the company has increased its strength by installing the newly commissioned paper machine -2 by adding volume of production (Capacity 250 Tons Per Day) and also by Making Better/Higher Grades of Paper. This move introduces a value-added product catering to the paper packaging segment. Fluting media, being a component in corrugated packaging, enjoys market demand. By diversifying its product portfolio to include this item, the company expands its revenue streams and strengthens its foothold in the packaging industry.

Innovative equipment: By leveraging advanced technology, the company can enhance efficiency, productivity, and product quality. The implementation of latest equipment also provides a competitive edge over rivals by enabling cost optimization and faster production cycles. This modernization initiative not only ensures the company's ability to meet evolving customer demands but also strengthens its position in the industry, driving growth and sustainability in the long run.

Market potential: The shift away from plastic packaging presents a market opportunity for the company's products. With increasing environmental concerns and regulations against plastic usage, there is a growing demand for eco-friendly alternatives such as paper packaging. Additionally, the recyclability of waste paper further enhances the market potential for the company's products.

Risks and concerns  

Maximum revenue comes from few customers: The company’s top ten customers contributed 84.15%, 71.26%, 65.31%, and 71.87% of its total revenue from operations on restated standalone basis for the period ended on December 31, 2024 and for the financial year ended on March 31, 2024, 2023 and 2022, respectively. At present, the company does not have any long-term or exclusive arrangements with any of its customers and it cannot assure that it will be able to sell the quantities it has historically supplied to such customers. Further, its customers may source products from its competitors who may offer products similar to itself at a lower price, leading to reduced prices and hence lowering its margins.

Geographical constrain: The company presently has a concentration of customer base and revenue in the state of Uttar Pradesh. The revenue earned in the state in December 2024 is, Rs 24,721.25 lakh (93.23%) and in March 2024, is Rs 28,677.56 lakh (84.69%). Additionally, previously the concentration of customer base and revenue was collectively in the states of Uttar Pradesh and Delhi, the collective revenue earned in March 2023, and March 2022 was Rs 32,274.49 lakh (81.02%) and Rs 35,641.08 lakh (74.19%) respectively. The company is aware that if its customer base is heavily concentrated in a specific region, it becomes more vulnerable to economic changes, local market conditions, or geopolitical events that may affect that particular area. Further, economic downturns could disproportionately impact the purchasing power of customers in that region.

Dependent upon few key suppliers for procurement of raw materials: The company relies on suppliers for raw materials and traded goods like paper rolls, printing chemicals, scanners etc., with whom it generally does not enter into any long-term supply contact or agreements. The order for the materials is placed on a requirement basis. If, there are any delays or disruptions in the supply of these materials from its suppliers, its ability to deliver the products may be affected. Any of its supplier’s failure to adhere to agreed timelines, whether due to their inability to comply with, or obtain, regulatory approvals, or otherwise, may result in delays and disruptions to its sales, increased costs, delayed payments for its products and damage to its reputation leading to an adverse effect on its results of operations.

Outlook

Nikita Papers is engaged in the manufacturing of paper and paper products. The company specializes in producing a range of paper grades suitable for industrial, commercial, and printing applications. The company typically focuses on environmentally sustainable production processes, often incorporating recycled materials in its manufacturing. With a strong distribution network, the company serves both domestic and international markets, striving to maintain quality, consistency. On the concern side, the company is dependent on few numbers of customers for sales. Loss of any of this large customer may affect its revenues and profitability. Moreover, the geographical concentration of its customer base may restrict its operations and adversely affect its business, results of operations and financial conditions in the future.

The company is coming out with a maiden IPO of 64,94,400 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 95-104 per equity share. The aggregate size of the offer is around Rs 61.70 crore to Rs 67.54 crore based on lower and upper price band respectively. On performance front, net revenue from operations for the Financial Year 2023-24, stood at Rs 33,860.08 lakh whereas in Financial Year 2022-23 it stood at Rs 39,833.21 lakh, representing a decrease of 15%. Moreover, the restated profit after tax for the Financial Year 2023-24, stood at Rs 1659.53 lakh whereas in Financial Year 2022-23 it stood at Rs 864.52 lakh which represents increase of 91.96%.

As consumer preferences shift towards eco-friendly and sustainable packaging solutions, the demand for paper-based packaging materials continues to grow steadily. The company, with its focus on manufacturing Kraft paper, is well-positioned to capitalize on this trend. The company can leverage its expertise and production capabilities to meet the rising demand for packaging paper in various industries such as food and beverage, pharmaceuticals, e-commerce, and more. By catering to the domestic market's needs effectively, it can expand its customers’ base, enhance market share, and drive revenue growth.