PACRA maintains the entity ratings of Nishat Paper Products Company Limited

Nishat Paper Products Co Ltd.'s ("NPPCL" or the "Company") ratings reflect the strong sponsor profile, satisfactory market position, and adequate financial profile of the Company. The demand for the cement packaging segment is directly linked with cement dispatches. The latest period reported a reduction in cement production reflecting an economic downturn. The increase in prices of all the construction materials has impacted demand for cement as well. Industry-wide volumetric decrease in sales has been reported but the selling prices have absorbed the impact to much extent. Total cement dispatches in Pakistan, including exports and local dispatches, fell by ~15% from around ~52mln metric tons in FY22 to about ~44mln metric tons in FY23. The reduced demand for cement bags has led to a decline in actual plant production. The plant has the capacity to produce 220mln bags annually, but its utilization capacity dropped to ~23% in FY23, from ~39% in FY22 (FY21: ~60%). As a result, the company's revenue hasn't experienced substantial growth. In FY23, NPPCL achieved a topline of PKR 3,092mln, marking a modest increase of about ~1% compared to PKR 3,070mln in FY22 (FY21: PKR 3,980mln). Furthermore, the Company faced challenges with rising raw material costs due to inflation and exchange rate fluctuations, impacting its gross profit margin declined from ~21.8% in FY22 to about ~15.5% in FY23. Additionally, increased finance costs led to a reduction in the net profit margin, dropping from around ~9.5% to ~(-5.7%) during FY23. The Company posted a net loss of ~PKR (177)mln in FY23 (FY22: ~PKR 292mln, FY21: ~PKR 525mln). The cement’s demand is expected to come full circle once the macro-level fundamentals improve. Furthermore, the industry is also diverging more towards PP bags as these are less costly compared to KP bags. However, being the subsidiary of D.G. Khan Cement Company Limited, NPPCL derives strength and economies of scale from the parent company, which bodes well for the ratings. The Company has leveraged capital structure. Long-term debt is related to expansion activities, whereas short-term debt has increased substantially pursuant to slow movement in receivables. However, the majority of receivables are from the related party which gives comfort to the credit risk. Going forward, the Company is planning to diversify its revenue stream by introducing a new product line that would support the Company in stable profitability.
The ratings would remain dependent upon the company’s ability to sustain its healthy business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remain important. Moreover, upholding of governance framework is vital.

About the Entity
Nishat Paper Products Co Ltd was incorporated as a Public Limited Company in 2004. NPPCL wasa Joint venture project of Nishat with Shuaiba Paper Products Company Ltd. Kuwait (Shuaiba).The Primary purpose of the project was the vertical integration in Cement business for supply of paper sacks for cement packaging. D G Khan Cement Company Ltd. (DGKCC) and Shuaiba entered into an agreement on 12th June 2004 for setting up a paper sack plant in Pakistan, but later in June 2008, Nishat acquired the stake from Shuaiba Paper. Now NPPCL is subsidiary of D.G.Khan Cement Company Ltd. DG Khan cement is the major shareholder with 55% holding, Nishat Mills Ltd holds 25% shares, while the remaining 20% shareholding lies with Mansha Family. Mr.Mian Raza Mansha is the CEO and chairman of the Company. He has more than 23 years diversified professional experience in various business sectors. He is associated by an able team.