Nikita Papers NSE SME IPO review (Apply)

•    The company is having a niche place in kraft and packaging papers from reusable/waste papers.
•    It has emerged as the most preferred supplier of brown packaging papers.
•    It marked growth in its bottom lines with effective cost management.
•    It recently expanded its capacities which will contribute in its top and bottom lines in coming years.
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Nikita Papers Ltd. (NPL) was established in the year 1991 to manufacture Kraft paper with 30 Tons 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. Currently the paper quality of the company is well established in the paper market. At present the installed capacity of the company is approx. 1,33,000 M.T. per annum. The company is manufacturing Kraft paper ranging from 80 to 200 GSM in various Burst Factor (B.F.) ranges. This diverse product offering allows it to cater to a wide range of customer needs within the paper industry. 

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. The opportunity is enhanced for this company following shift from plastic to paper packaging and thus, the demand for kraft paper is on the rise.

The company uses reusable/waste paper as a raw material that results in a low-cost final product of quality/standard finished products that finds rising demand in the user industry. With the expanded power generation capacities, NPL has achieved maximum savings in its power cost that has resulted in higher margins from FY23 onwards. As of May 09, 2025, it had 208 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6494400 equity shares of Rs. 10 each to mobilize Rs. 67.54 cr. at the upper cap. It has announced a price band of Rs. 95 – Rs. 104 per share. The issue opens for subscription on May 27, 2025, and will close on May 29, 2025. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.33% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 50.00 cr. for capex on setting up of a power plant, Rs. 5.00 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Fast Track Finsec Pvt. Ltd., and Skyline Financial Services Pvt. Ltd., is the registrar to the issue. Rikhav Securities Ltd. is a market maker. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 20 – Rs. 63.43 per share between May 2007, and December 2023. It has also issued bonus shares in the ratio of 1 for 2 in July 2007, and 9 for 10 in December 2023. The average cost of acquisition of shares by the promoters is Rs. 9.07, Rs. 11.89, Rs. 11.98, Rs. 13.98, Rs. 16.44, Rs. 17.70, Rs. 21.86, Rs. 23.23, Rs. 24.56, Rs. 28.31, and Rs. 31.58 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 18.17 cr. will stand enhanced to Rs. 24.67 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 256.55 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 358.49 cr. / Rs. 6.95 cr. (FY22), Rs. 401.31 cr. / Rs. 8.65 cr. (FY23), and Rs. 346.78 cr. / Rs. 16.60 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 15.68 cr. on a total income of Rs. 272.38 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 7.84 and an average RoNW of 18.50%. The issue is priced at a P/BV of 2.03 based on its NAV of Rs. 51.20 as of December 31, 2024, but the offer document is missing its post-IPO NAV data. 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 12.26. Based on FY24 earnings, the P/E stands at 15.45. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 1.94% (FY22), 2.15% (FY23), 4.79%, (FY24), 5.76% (9M-FY25), and RoCE margins of 14.32%, 15.55%, 28.71%, 22.28%, respectively for the referred periods.  

According to the management, its timely diversifying into power generation has yielded desired results of higher margins and with additional power capacity, it is set for better prospects ahead.

DIVIDEND POLICY:
The company has not declared any dividends for any financial year. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Magnum Ventures, T N Newsprint, Ruchira Papers, and Pakka Ltd., as their listed peers. They are trading at a P/E of 16.0, 311, 6.58, and 15.0 (as of May 23, 2025). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER’S TRACK RECORD:
This is the 14th mandate from Fast Track in the last eight fiscals including the ongoing one.  From the last 13 listings, 1 opened at par, 2 at discount, and the rest listed with a premium ranging from 2.86% to 201.20% on the listing date.