PACRA Maintains the Rating of Cherat Packaging Limited

The ratings reflect Cherat Packaging Limited’s ("CPPL" or the "Company") established position as one of the leading players in packaging sector (kraft paper sacks, polypropylene bags and flexible packaging). The diversified revenue stream of the Company bodes well to the assigned rating. The Company is majorly generating revenue from Bag manufacturing 68% and flexible packaging 32%. Along side the Company is also focusing on strengthening its position in the export segment (PP Bags). Considering the challenges on the raw material availability (Pulp) the industry is gradually shifting from KP bag to the PP bag manufacturing while the contribution margins of PP bags are also higher comparatively. Keeping in view the higher tilt of the industry towards PP bags, after selling the paper sack line I and II, the Company is selling the paper sack line V. The Company will be able to meet the demand for paper sacks with its lines III and IV having a combined capacity of 160mln paper sacks, in case there is demand for it. The long-term prospects of the Company are linked with demand in local and foreign cement industries and flexible packaging businesses. As per management representation, the Company is having an adequate market share in bag manufacturing and flexible packaging. While gradually increasing the revenue contribution from the FMCG segment in flexible packaging. The strong customer base in both business segments is adding comfort to the rating. Considering the customer demand, the capacity utilization in bag manufacturing and flexible packaging remained at 36% and 54% respectively.
On financial profile side, the Company has managed to make a growth of 22.6% with a recorded topline of PKR 16.6bln for FY23 (FY:22 PKR13.5bln, 3MFY24: PKR 3.8bln). While the PAT grew by 2.6% and reported at PKR 908mln (FY22: PKR 886mln, 3MFY24: PKR 138mln). The high finance cost contributed as a limiting factor in the profitability growth. Financial leveraging was decreased at the end of FY'23 and 1QFY24. The leveraging of the Company is standing at 45% for the period ending on 30 Jun'23 (FY22: 49% ). The strong liquidity position of the Company is evident from its current ratio of 5.3 times at end Sep'23 (FY23: 4.2 times; FY:22: 4.6 times). The Company’s association with Ghulam Faruque Group bodes well for the ratings.
The ratings are dependent upon the management’s ability to improve margins while sustaining its market share. Prudent management of the working capital, maintaining sufficient cash flows and coverages is imperative for the ratings. Materialization of management’s strategy of diversification through flexible packaging into better margins and profitability is important. Any significant decrease in margins and/or coverages will impact the ratings.

About the Entity
CPPL, incorporated in 1989, is a Ghulam Faruque Group Company, listed on the Pakistan Stock Exchange. Faruque Private Limited – holding company for the group – owns (10.25%), followed by Cherat Cement Company Limited (7.35%), Greaves Pakistan Private Limited (5.02%) and Mirpurkhas Sugar Mills Limited (4.97%) and the Directors/other family members holds around 15% stake of the company. The remaining stake is held by the general public, public sector companies, financial and non-financial institutions. The Company is engaged in the manufacturing, marketing and sale of paper sacks, polypropylene bags and flexible packaging material. The plant has production capacity of 660mln bags/annum (Kraft paper & PP bags) and 16.2mln Kgs (Flexible packaging material). The company has a long history of expansion and diversification. In 1992, the company started its production of paper sacks and diversified its business with manufacturing of polypropylene bags in 2012. In 2018, company entered in the field of flexible packaging.