PACRA Maintains Entity Ratings of Pakistan Synthetics Limited

Pakistan Synthetics Limited ("PSL" or the "Company") rating reflects the strong sponsor profile, satisfactory market position, and adequate financial profile of the Company. The principal activity of the Company is the manufacturing and sale of Plastic and Crown Caps, PET resin, and PET Preform. As per management representation, Pakistan Synthetics holds a moderate market share of ~15% in the PET Resin segment. Whereas, in the Plastic Caps and Metal Crowns, the Company is a market leader with an estimated share of ~60% and ~15% in PET performance. The demand for Pakistan’s PET packaging industry is seasonal as it mostly drives its demand from the country’s beverage sector. During FY23, the utilization level remained on the higher side for Plastic and Crown Caps at ~111%, PET Resin at ~80%, and PET preform at ~ 73%. In order to cater to growing demand and capture market share of PET preform PSL has performed BMR to enhance the capacity utilization further. The assigned rating takes into account the good governance framework, strong control environment, and qualified and experienced management team. The internal audit department is operating under the direct supervision of directors. The Company has developed an effective mechanism for the identification, assessment, and reporting of all types of risk arising out of the business operations. The PET preform segment stood out as the top earner by contributing ~39% to the overall revenue in FY23. Whereas, Metal crowns and plastic caps have contributed ~30% and ~31% respectively. On the financial profile side, the company experienced a positive trend in its top line, primarily due to increased sales volume. In FY23, the company achieved a total revenue of ~PKR 14,425mln (FY22: ~PKR 12,311mln), marking an increase of ~ 17%. However, despite this revenue growth, the company faced challenges arising from i) higher raw material costs driven by inflation ii) exchange rate fluctuations, and iii) elevated finance costs have resulted in a decline in profit margins. Consequently, the bottom line of the Company clocked in at ~PKR 798mln in FY23 decreased from ~PKR 986mln in FY22. The Company is strengthening its revenue base by investing in its associated Company, Petpak Films (Private) Limited, by holding its ~23.4% equity. Petpak Films (Private) Limited commenced operations in Feb-24, focusing on the production and supply of BoPET films. The Company has a moderately leveraged capital structure. Long-term debt is related to expansion activities, whereas short-term debt has increased substantially to cater to the increasing needs of working capital management.
The financial profile in the reported period is visibly under stress, owing to higher level of deployment into stocks, as acquired through availing short term borrowings. This is exercebated by squeezed operating cashflows. The management has represented that it is an outcome of the seasonality effect and would get diluted into next six to eight months. This is crucial to ratings.

About the Entity
Pakistan Synthetics Limited was incorporated as a private limited company in 1984. In 1987, the Company was converted into a public limited company and was listed on the Pakistan Stock Exchange. The Company provides complete packaging solution through the production and sale of PET Resin at an installed capacity of 28,000MT per annum, PET Preform at an installed capacity of 52,000 Octabins per annum and Plastic Closures and Metal Crowns at an installed capacity of 558,570 cartons per annum. PSL's manufacturing facilities are located in Hub, Balochistan and Port Qasim, Karachi. The Company's registered office is located in Clifton, Karachi. PSL is primarily owned by the Yaqoob Karim family (~73%) through individual family members. Mr. Yaqoob Haji Karim (~20%) and Mr. Noman Yaqoob (~21%) arethe two largest stakeholders of the Company. Approximately 15% of the stake resides with the general public.