Nikita Greentech Recycling Ltd Management Discussions

Increasing environmental awareness, regulatory initiatives aimed at reducing the use of single-use plastics and the growing preference for recyclable and paper-based packaging continue to create significant opportunities for the recycled Kraft Paper industry. The increasing demand from FMCG, food & beverages, pharmaceuticals, e-commerce and industrial packaging sectors is expected to support long-term industry growth.

Continued policy focus on manufacturing, infrastructure development, circular economy, waste management and environmentally sustainable industrial practices provides a favourable business environment for the paper and packaging industry.

Such initiatives are expected to support long-term industrial growth and encourage investments in sustainable manufacturing.

The rapid expansion of organised retail, e-commerce and consumer goods industries continues to drive demand for corrugated boxes and paper-based packaging products, thereby creating growth opportunities for manufacturers of recycled Kraft Paper.

The Companys ongoing expansion initiatives and continuous focus on strengthening its manufacturing capabilities are expected to enhance operational efficiency, improve production capabilities and support future business growth.

Increasing awareness regarding sustainability and circular economy practices is encouraging greater adoption of recycled paper products, creating long-term opportunities for manufacturers committed to environmentally responsible manufacturing practices.

The Companys proposed expansion projects, strategic initiatives undertaken during the year and continued focus on sustainable manufacturing are expected to strengthen its long-term competitive position and support future business growth.

Threats:

Fluctuations in the availability and prices of waste paper, chemicals, fuel and other raw materials may impact production costs and operating margins.

Volatility in energy prices, freight costs and transportation expenses may adversely affect manufacturing costs and overall profitability.

The paper industry remains highly competitive with the presence of organised as well as regional manufacturers, resulting in pricing pressure and increasing customer expectations with respect to quality, delivery and service.

The Company operates in a regulated industry where evolving environmental laws, pollution control requirements and statutory compliances may require continuous investments in sustainable manufacturing practices.

Global economic slowdown, geopolitical developments, supply chain disruptions, inflationary pressures and fluctuations in foreign exchange rates may indirectly impact raw material availability, input costs and overall business sentiment.

(E) SEGMENT-WISE OR PRODUCT WISE PERFORMANCE:

The Company operates in a single business segment, namely the manufacturing and sale of Recycled Kraft Paper, and accordingly, there are no separate reportable business segments.

The Companys product portfolio comprises various grades of Recycled Kraft Paper manufactured in different GSM (Grams per Square Metre) and Burst Factor (BF) specifications to cater to the diverse requirements of industries such as corrugated packaging, FMCG, food & beverages, pharmaceuticals, e-commerce and industrial packaging.

During the financial year under review, the Company continued to focus on maintaining consistent product quality, strengthening customer relationships and improving manufacturing efficiencies. The Company also continued to manufacture a diversified range of Kraft Paper products to meet varying customer specifications and changing market requirements.

The continued emphasis on sustainable manufacturing practices, efficient utilisation of recycled fibre, quality assurance and customer-centric operations enabled the Company to effectively serve its existing customer base while strengthening its competitive position in the recycled Kraft Paper industry.

(F) OUTLOOK:

The long-term outlook for the Indian paper and packaging industry continues to remain encouraging, supported by increasing environmental awareness, favourable regulatory initiatives, growing industrial activity and the rising preference for sustainable and recyclable packaging solutions. The continued shift towards paper-based alternatives and the growing adoption of circular economy principles are expected to create favourable growth opportunities for manufacturers of recycled Kraft Paper.

The Company remains well-positioned to capitalise on these opportunities through its established manufacturing capabilities, experienced management team and continued focus on sustainable manufacturing practices. The Companys strategic initiatives undertaken during the year, together with its ongoing manufacturing expansion plans, are expected to strengthen its operational capabilities and support long-term business growth.

Going forward, the Company shall continue to focus on enhancing operational efficiency, improving product quality, strengthening customer relationships, optimising resource utilisation and maintaining prudent financial discipline.

The continued emphasis on the use of recycled fibre, cleaner fuel alternatives, environmentally responsible manufacturing practices and sustainable resource management shall remain integral to the Companys long-term business strategy.

While the Company remains conscious of challenges arising from fluctuations in raw material prices, energy costs, regulatory requirements and changing market conditions, it believes that its strong operational foundation, prudent management practices and customer-centric approach will enable it to effectively respond to these challenges.

The Company remains committed to creating sustainable long-term value for its shareholders through responsible corporate governance, operational excellence, sustainable manufacturing practices and continuous focus on business growth and environmental stewardship.

(G) RISKS AND CONCERNS:

The Company operates in a competitive and dynamic business environment and is exposed to various business risks that could impact its operations and financial performance. The management continuously identifies, evaluates and monitors these risks and adopts appropriate mitigation measures to minimise their impact while ensuring sustainable business growth.

One of the key risks faced by the Company relates to the availability and price volatility of waste paper, recycled fibre, chemicals, fuel and other raw materials, which may have an impact on manufacturing costs and operating margins. Fluctuations in energy prices, logistics costs and transportation expenses also continue to influence the overall cost structure of the business.

The Company also operates in a highly regulated industry where compliance with environmental laws, pollution control norms and other statutory requirements is of significant importance.

The management remains committed to ensuring compliance with all applicable legal and regulatory requirements and continues to strengthen environmentally responsible manufacturing practices across its operations.

The paper industry continues to witness intense competition from organised as well as regional manufacturers, requiring continuous focus on product quality, operational efficiency, customer satisfaction and cost optimisation. In addition, changes in macroeconomic conditions, inflationary pressures, supply chain disruptions and evolving regulatory policies may also influence the Companys business environment.

The Company has established adequate internal control systems and risk management processes to identify, assess and mitigate business risks on a continuous basis.

The management remains committed to prudent financial management, operational excellence, responsible corporate governance and sustainable manufacturing practices, which collectively strengthen the Companys ability to effectively manage risks and achieve its long-term business objectives.

(H) INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

The Company has established an adequate system of Internal Financial Controls and internal control mechanisms commensurate with the size, nature and complexity of its business operations. The internal control framework is designed to ensure the orderly and efficient conduct of business, safeguarding of assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, and timely preparation of reliable financial information.

The Company has well-defined policies, standard operating procedures and appropriate approval mechanisms covering various business processes. These controls are periodically reviewed to ensure their continued effectiveness and alignment with the Companys operational and regulatory requirements.

The Internal Auditors conduct periodic audits based on an approved internal audit plan covering operational, financial and compliance areas. The observations and recommendations of the Internal Auditors are placed before the Audit Committee of the Board for its review.

The management takes appropriate corrective actions, wherever considered necessary, to strengthen the internal control environment.

The Audit Committee periodically reviews the adequacy and effectiveness of the Companys Internal Financial Controls, internal audit findings and compliance framework.

The Statutory Auditors have also considered the Internal Financial Controls over Financial Reporting while conducting their audit of the Financial Statements.

Based on the evaluation carried out during the financial year under review, the Board is of the opinion that the Company has adequate Internal Financial Controls, commensurate with the size and nature of its business, and that such controls were operating effectively during the financial year ended March 31, 2026.

(I) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL

PERFORMANCE:

The financial performance of the Company during the financial year ended March 31, 2026 reflects its continued focus on operational stability, prudent financial management and sustainable manufacturing practices amidst a challenging business environment characterised by volatility in raw material prices, higher energy costs and changing market dynamics.

During the year under review, the Company recorded Revenue from Operations of 35,007.17 Lakhs as compared to 36,442.43 Lakhs in the previous financial year. The decline in revenue was primarily attributable to prevailing market conditions, pricing pressures and other business factors affecting the paper industry during the year.

Nevertheless, the Company continued to maintain stable manufacturing operations and focused on serving its customers through consistent product quality, timely deliveries and efficient production planning.

The Companys Other Income increased to 1,572.36 Lakhs during the financial year as against 1,476.18 Lakhs in the previous year. Consequently, the Total Income stood at 36,579.93 Lakhs as compared to 37,918.62 Lakhs in the previous financial year.

The Total Expenses for the financial year amounted to 34,940.07 Lakhs, as against 34,653.92 Lakhs during the previous year. The increase in operating expenditure was primarily on account of fluctuations in the prices of waste paper, recycled fibre, chemicals, fuel, power, freight and other manufacturing inputs, which continued to exert pressure on operating margins throughout the year.

As a result of the above factors, the Profit Before Tax (PBT) stood at 1,639.86 Lakhs as compared to 3,264.70 Lakhs during the previous financial year.

The Profit After Tax (PAT) for the financial year was 1,113.90 Lakhs, as against 2,301.88 Lakhs in the previous year. Consequently, the Basic and Diluted Earnings Per Share (EPS) stood at 4.52 per equity share, compared with 12.67 per equity share in the previous financial year.

Despite moderation in profitability, the Company continued to maintain operational continuity through efficient production planning, optimum utilisation of manufacturing facilities, disciplined cost management and prudent financial control measures.

Continuous emphasis was placed on improving manufacturing efficiencies, effective utilisation of recycled fibre, optimisation of energy consumption and strengthening quality standards to enhance operational performance.

The Company also continued to pursue various strategic initiatives aimed at strengthening its long-term business fundamentals. During the year and subsequent period, the Company undertook significant initiatives towards expansion of its manufacturing capabilities and strengthening its sustainability-driven business model.

These initiatives are expected to improve operational efficiency, enhance manufacturing capacity and support future business growth.

The Management remains committed to maintaining financial discipline, optimising operating efficiencies and strengthening the Companys competitive position through sustainable manufacturing practices, efficient resource utilisation and responsible cost management.

While short-term business conditions continue to remain challenging, the Company believes that its strong operational foundation, prudent management approach and long-term strategic initiatives will support sustainable growth and create enduring value for its shareholders and other stakeholders.

(J) MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS

FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED:

The Company firmly believes that its human resources constitute one of its most valuable assets and play a pivotal role in achieving sustainable business growth. The Company continues to focus on developing a competent, motivated and performance-driven workforce by fostering a culture of integrity, teamwork, continuous learning and operational excellence.

During the financial year under review, the Company continued to invest in employee development through various training and skill enhancement programmes aimed at improving technical competencies, operational efficiency, workplace safety and overall productivity.

The Company also continued to strengthen its human resource practices by promoting employee engagement, performance management and capability development across various functional areas.

The Company maintained cordial and harmonious industrial relations throughout the financial year. The management continues to maintain open communication with employees at all levels and remains committed to providing a safe, healthy and conducive working environment.

Employee welfare, occupational health and safety continue to receive high priority, supported by appropriate policies, systems and statutory compliances.

As on March 31, 2026, the Company had 198 permanent employees on its rolls engaged across its manufacturing facility, corporate office and other operational functions.

The Company remains committed to nurturing talent, encouraging merit-based growth, promoting equal opportunity and maintaining a collaborative work culture that supports innovation, operational excellence and long-term organisational development.

(K) KEY FINANCIAL RATIOS:

The significant changes in the key financial ratios of the Company during the financial year ended March 31, 2026, as compared to the immediately preceding financial year, were primarily influenced by the prevailing conditions in the paper industry, including pricing pressure, increased competition from low-cost imports, volatility in raw material and other manufacturing input costs, higher energy and freight costs and changing market dynamics.

During the year under review, the domestic paper industry continued to face pressure from increased imports, particularly from China and ASEAN countries, which contributed to heightened competition and pricing pressure in the domestic market. Industry reports during FY 2025-26 also highlighted softer paper realisations and margin pressure arising from increased low-cost imports and elevated input costs.

These industry-wide factors, together with the Companys financial and operating performance during the year, impacted profitability and consequently resulted in significant movements in certain key financial ratios. The detailed explanations for changes exceeding 25% are set out below:

1. Interest Coverage Ratio Decrease of 36.24%

The Interest Coverage Ratio decreased from 2.98 times in FY 2024-25 to 1.90 times in FY 2025-26.

The decline was primarily attributable to the reduction in the Companys profitability during the year. The Profit Before Tax decreased from 3,264.70 Lakhs to 1,639.86 Lakhs, while finance costs increased from 1,652.18 Lakhs to 1,812.31 Lakhs.

The reduction in operating profitability was influenced by the challenging market environment in the paper industry, including pricing pressure, increased competition and volatility in the prices of waste paper, recycled fibre, chemicals, fuel, power, freight and other manufacturing inputs. The combination of lower earnings and higher finance costs consequently reduced the Companys interest servicing capacity during the year.

2. Debt Equity Ratio Decrease of 35.07%

The Debt Equity Ratio decreased from 2.68 times in FY 2024-25 to 1.74 times in FY 2025-26.

The decrease in the ratio was primarily attributable to the substantial increase in the Companys shareholders funds during the year. Shareholders funds increased from 10,411.87 Lakhs as at March 31, 2025 to 17,873.82 Lakhs as at March 31, 2026, representing an increase of approximately 71.67%, mainly pursuant to the Companys Initial Public Offer and the consequent increase in share capital and securities premium.

The strengthening of the equity base resulted in a significant improvement in the Companys capital structure and reduced the relative proportion of debt to shareholders funds. Accordingly, notwithstanding the increase in finance costs during the year, the Companys Debt Equity Ratio improved from the previous financial year.

3. Operating Profit Margin Decrease of 26.91%

The Operating Profit Margin decreased from 13.49% in FY 2024-25 to 9.86% in FY 2025-26.

The decline was primarily due to pressure on operating profitability arising from a combination of lower revenue and higher manufacturing and operating costs. Revenue from Operations decreased from 36,971.32 Lakhs in FY 2024-25 to 35,007.17 Lakhs in FY 2025-26, representing a decline of approximately 5.31%, while Total Expenses increased marginally from 34,653.92 Lakhs to 34,940.07 Lakhs.

During FY 2025-26, the paper industry witnessed heightened competitive pressure, including increased availability of lower-priced imported paper and paperboard, particularly from China and ASEAN countries. Such import competition exerted pressure on domestic pricing and realisations. At the same time, volatility in waste paper, recycled fibre, chemicals, fuel, power, freight and other manufacturing inputs continued to affect the cost structure of paper manufacturers.

The combined impact of pricing pressure on the revenue side and volatility in key input costs on the cost side resulted in moderation of the Companys operating profitability and consequently reduced the Operating Profit Margin.

4. Net Profit Margin Decrease of 49.68%

The Net Profit Margin decreased from 6.32% in FY 2024-25 to 3.18% in FY 2025-26.

The decline was primarily attributable to the significant reduction in Profit After Tax from 2,301.88 Lakhs in FY 2024-25 to 1,113.90 Lakhs in FY 2025-26, representing a decline of approximately 51.61%, while Revenue from Operations declined by approximately 5.31%, from 36,971.32 Lakhs to 35,007.17 Lakhs.

The reduction in profitability reflects the combined impact of the challenging operating environment in the paper industry, including pricing pressure and increased competition from imports, coupled with volatility in raw material, energy, freight and other manufacturing costs. In addition, higher finance costs during the year further impacted the Companys profit before tax and consequently its net profitability.

Accordingly, the combined impact of lower operating profitability and higher finance costs resulted in a significant decline in the Companys Net Profit Margin.

(L) RETURN ON NET WORTH

The Return on Net Worth (RoNW) of the Company for the financial year ended March 31, 2026 stood at 6.23 %, as compared to 22.11% for the financial year ended March 31, 2025, representing a decrease of approximately 71.82%.

The significant decline in RoNW was primarily attributable to the combined effect of a substantial reduction in profitability and a significant increase in the Companys shareholders funds during the year.

The Companys Profit After Tax decreased from 2,301.88 Lakhs in FY 2024-25 to 1,113.90 Lakhs in FY 2025-26, representing a decline of approximately 51.61%. The decline in profitability was primarily attributable to lower operating profitability, competitive pricing pressure, changing market conditions, volatility in key manufacturing and operating costs and higher finance costs during the year.

At the same time, the Companys total shareholders funds increased substantially from 10,411.87 Lakhs as at March 31, 2025 to 17,873.82 Lakhs as at March 31, 2026, representing an increase of approximately 71.67%. The increase was principally attributable to the Companys Initial Public Offer and the consequent increase in share capital and securities premium. The FY26 audited filing reports total shareholders funds of 17,873.82 Lakhs as at March 31, 2026.

Thus, the RoNW was impacted from both sides the numerator, i.e. Profit After Tax, declined substantially, while the shareholders funds forming the equity base increased significantly. Consequently, the Return on Net Worth declined from 22.11% to 6.23%.

The decline in profitability should also be viewed in the context of the operating environment in the paper industry during the year, including competitive market conditions, pressure on pricing and realisations, and continued volatility in key manufacturing inputs. The broader Indian paper and packaging sector continues to experience significant import activity alongside increasing demand for sustainable and recycled paper-based products.

Going forward, the Company remains focused on improving operating efficiencies, strengthening cost management, optimising product mix and capacity utilisation, enhancing energy efficiency and maintaining disciplined financial management. The Company continues to leverage its recycled-paper based manufacturing capabilities and focus on sustainable and value-added paper products to strengthen its competitive position and improve profitability over the medium to long term.