Pakistan Synthetics Limited ("PSL" or "the Company") is a Pakistan Stock Exchange-listed manufacturer of PET Resin, PET Preform, Plastic Caps, and Metal Crowns, with manufacturing facilities located in Hub, Balochistan, and Port Qasim, Karachi. The Company maintains a strong position in the domestic plastic closures market, while holding a moderate competitive position in the PET Resin and Preform segments. PSL was incorporated on November 18, 1984, as a private company limited by shares, subsequently converted into a public limited company on December 30, 1987, and listed on the Pakistan Stock Exchange on June 27, 1995.

Established as part of the Al-Karam Group — historically one of Pakistan's leading industrial conglomerates with diversified interests spanning textile, financial institutions, and consumer products — PSL has undergone strategic portfolio rationalization over the past decade. The Company discontinued its Polymer Staple Fibre operations in 2015 and, by leveraging the existing plant infrastructure, pivoted toward PET Resin manufacturing, commencing commercial production in October 2016. This downstream migration into the beverage packaging value chain has proven strategically prescient, positioning PSL as a vertically integrated, one-window packaging solutions provider for multinational bottlers and domestic FMCG players.

PSL's operational footprint comprises two manufacturing sites: Hub Industrial Trading Estate in District Lasbella, Balochistan (where the majority of PET Resin, Preform, and Closures manufacturing is concentrated), and Plot A-5, NWIZ, Port Qasim, Karachi. Installed annual capacities stand at approximately 558,570 cartons for Plastic and Crown Caps, 28,000 metric tonnes for PET Resin, and 52,000 Octabins for PET Preform. During FY2025, the Company incurred capital expenditure of approximately PKR 964 million, a significant acceleration from PKR 132 million in FY2024, directed toward plant and machinery upgrades — including the installation of solar panels — and civil works, signaling management's commitment to BMR-led capacity optimization and energy cost mitigation. In addition, the Company is planning geographical expansion through the establishment of a new facility in Muridke, Punjab, focused on the production of Crown Caps, Plastic Caps, and PET Preforms. This expansion is aimed at strengthening market reach in the northern region, improving customer proximity, and contributing to potential logistics and cost efficiencies.

The Yaqoob Karim family retains concentrated control over PSL, with the founding family holding approximately 65.5% of total shares as of June 30, 2025, based on disclosed shareholding data in the Annual Report. The two dominant shareholders are Mr. Noman Yaqoob (~26.4%) and Mr. Yaqoob Haji Karim (~23.1%), with Mr. Anis Yaqoob holding approximately 15.9% — the latter representing shares held in the combined family block. The public float accounts for a moderate portion of the outstanding shares, while institutional holders — including insurance companies, mutual funds, and joint stock companies — represent a comparatively small minority. The National Investment Trust (NIT) and related entities hold a nominal stake.

The concentrated family ownership structure provides a high degree of ownership stability. While concentrated ownership is a governance consideration in certain analytical frameworks, in the context of PSL it is mitigated by the long-tenured, operationally experienced management team and the family's demonstrated commitment to sustained capital investment. We note no evidence of material ownership changes or extraordinary intra-family transactions that would introduce ownership risk to the rating.

The Yaqoob Karim family brings multi-decade industrial experience, with the CEO, Mr. Yaqoob Haji Karim, holding concurrent board-level roles at Al-Karam Textile Mills (Pvt.) Limited and Amna Industries (Pvt.) Limited, evidencing active cross-sector industrial engagement. The family's track record of adaptive strategy — notably the plant conversion from staple fibre to PET Resin — reflects an ability to reallocate capital decisively in response to structural market shifts. This constrains downside risks from strategic misalignment and is a credit-supportive factor.

Pakistan Synthetics is owned by a strong business family. The members of the sponsoring family hold shares and directorships of many companies.

The Company's board is comprised of eight members and is dominated by Haji Karim family. There are three Independent Directors, including one female Director,  three Non-Executive Directors, and two Executive Directors, including the CEO, on the board.

Chairman Mr. Khurshid Akhtar, an independent director, continues in his role, bringing over five years of board-level experience and providing effective leadership to the Board. Mr. Noman Yaqoob, an Executive Director, contributes actively to Board deliberations and plays a significant role across key committees, supporting informed decision-making. Among the remaining members, Mr. Abid Umer, a seasoned Non-Executive Director, offers valuable insight backed by his extensive experience and long-standing association with the Board. Mr. Mubbashr Amin strengthens governance through his active involvement in multiple committees, enhancing oversight functions. Mr. Tayab Rafiq Balagamwala, a Non-Executive Director, brings a fresh perspective and sound professional background to Board discussions. The independent directors, Mr. Faraz Younus Bandukda and Ms. Sadaf Shabbir, further reinforce Board independence and diversity, with Mr. Bandukda contributing through committee participation, including Audit and HR, while Ms. Shabbir supports balanced and inclusive governance practices. Overall, the Board reflects an adequate mix of experience and independence, supporting effective governance.

The Board convened five meetings during FY25 with full attendance by most directors. Four governance committees remain operative — Audit Committee (met four times), HR and Remuneration Committee (met once), Risk Management Committee (met four times), and Nomination Committee (met once) — each functioning in adherence to formally documented terms of reference.

BDO Ebrahim & Co., Chartered Accountants, continue as external auditors and have issued an unqualified opinion on the financial statements for the year ended June 30, 2025. The firm is QCR-rated by ICAP and classified in the 'A' Category of SBP's panel of auditors, ensuring audit quality commensurate with a listed manufacturing entity.

PSL operates through a structured organizational framework encompassing Procurement, Sales and Marketing, Finance and Accounting, Production, Technical, and Administration. The Company's SAP enterprise resource planning implementation, initiated in the prior year, is now operationally embedded, enabling management to access real-time operational and financial reporting. This transition from legacy systems to SAP is a credit-positive development that enhances management visibility and reduces information asymmetry risk — a concern historically associated with family-controlled, mid-sized manufacturers.

Mr. Yaqoob Haji Karim serves as Chief Executive Officer and reports to the Board of Directors. He brings 31 years of overall experience, all of which has been acquired within the group, including 7.5 years in his current leadership role. Mr. Noman Yaqoob is the Executive Director reporting to the CEO. He possesses 25 years of overall industry experience, including 9 years with the group and 9 years in his present position. Mr. Muhammad Imran holds the position of Company Secretary and reports to the CEO. With 33 years of overall experience, he has spent 32 years with the group and has been in the current role for 6 years. Mr. Syed Mazhar is Head of Plant (Port Qasim) and reports to the CEO. He carries 34 years of overall experience, out of which 27 years have been with the group and 13 years in the current position. Mr. Tanveer Mairaj serves as Head of Plant (Hub) and reports to the CEO. He has 37 years of overall experience, including 30 years with the group and 12 years in his present role. Mr. Shahid Yaqoob is the Chief Financial Officer reporting to the CEO. He brings 21 years of overall experience, including 6 years with the group and 5 years in the current position.

The working combination of an experienced sponsoring family and a professionally grounded management team continues to support PSL's operational resilience amid an evolving and uncertain operating environment. Ongoing geopolitical tensions, along with fluctuations in raw material prices and energy costs, continue to pose challenges, particularly given the Company’s reliance on petrochemical inputs. Despite this, management has demonstrated the ability to navigate volatility through disciplined operational and financial practices. However, management’s effectiveness and efficiency can be ensured through the management committees. At PSL, the absence of management committees indicates room for improvement.

The full-cycle implementation of SAP across key functional modules represents a material improvement in information infrastructure. Enhanced data-driven decision-making capacity, reduced reporting lags, and standardized financial controls are expected to incrementally improve operational efficiency and financial discipline — outcomes that support sustainable credit quality over the medium term.

PSL maintains an active internal audit function tasked with proactive risk identification and reporting. The Company holds ISO 9001 quality certification and Halal certification, consistent with its mandate to supply multinational beverage and FMCG clients with high-specification, regulatory-compliant packaging materials. Compliance with the Code of Corporate Governance Regulations 2019 is confirmed, with non-mandatory provisions in respect of Director Training Program completion (6 of 8 directors certified) being addressed in the near term.

The demand for Pakistan’s PET packaging industry remains largely driven by the beverage sector, making it inherently seasonal in nature. PET resin, the primary raw material used in packaging, is a petrochemical derivative and remains closely linked to global crude oil prices and PTA/MEG feedstock movements. Consequently, fluctuations in international oil prices and exchange rates continue to be a key source of cost and margin volatility for the industry. In addition to commodity-linked risks, the operating environment is currently influenced by ongoing geopolitical tensions and regional instability, which have heightened uncertainty in energy markets and global supply chains. These factors can lead to sudden shifts in freight costs, feedstock availability, and import pricing, given Pakistan’s reliance on imported derivatives of PET resin. Despite these challenges, PET remains a widely used packaging material due to its recyclability, lightweight nature, and strong demand across beverages, food, and household segments, supporting medium-term volume stability.

Pakistan Synthetics holds a modest market share in the PET Resin segment. Whereas, in the Plastic Caps and Metal Crowns, the Company is a market leader with an estimated share of ~40% during 6MFY26, respectively.

The PET preform segment remained the largest revenue contributor, accounting for ~34% of total revenue in FY25 (FY24: ~42%), albeit with a reduced share compared to the prior year. Metal crowns and plastic caps maintained a stable contribution of ~29% (FY24: ~29%), reflecting consistent demand from the packaging segment. Meanwhile, PET resin gained prominence during the year, increasing its share to ~37% in FY25 from ~29% in FY24, indicating a shift in the revenue mix towards upstream PET trading/production activity. In FY25, the Company's revenue increased by 22.2% and stood at ~PKR 16,872mln (FY23: ~PKR 13,800mln). During 6MFY26, the revenue of the Company declined by 8.9% and was reported at PKR 5,988mln (6MFY25: ~PKR 6,575mln).

During FY25, the Company’s profitability profile reflected a moderation in margins compared to the prior year. The gross margin stood at ~11.7% (FY24: ~15%), while the operating profit margin was recorded at ~9.4% (FY24: ~11.8%). Consequently, the net profit margin slightly adjusted to ~2.2% (FY24: ~2.5%). The Company reported a PAT of ~PKR 367mln in FY25 compared to ~PKR 348mln in FY24, indicating a marginal improvement in absolute profitability. During 6MFY26, the gross margin declined to ~13.1% (6MFY25: ~14.8%), while the operating profit margin stood at ~11.3% (6MFY25: ~12.4%). The net profit margin increased to ~3.7% (6MFY25: ~2.6%), reflecting improved profitability during the period. The Company posted a PAT of PKR 219mln in 6MFY26 compared to PKR 169mln in 6MFY25.

In recent years, the Company has undergone significant expansion. Going forward, the Company plans to invest in BMR activities to improve operational efficiency and maintain market position. Additionally, the management is focused on consolidating its position in the industry and increasing the capacity utilization of the PET Preform segment

At end-Jun25, Pakistan Synthetics Limited (PSL) reported improved inventory efficiency, with inventory days declining to ~68 days (end-Jun24: ~86 days), reflecting better stock management and normalization from previously elevated inventory levels. Trade payable days also declined to ~38 days (end-Jun24: ~44 days), indicating relatively faster supplier settlements. As a result, net working capital days improved to ~87 days (end-Jun24: ~97 days), reflecting overall better working capital efficiency. At end-Dec25, inventory days remained broadly stable at ~104 days (end-Dec24: ~103 days), while trade payable days declined to ~49 days (end-Dec24: ~58 days). Consequently, net working capital days increased to ~132 days (end-Dec24: ~117 days), driven by sustained inventory levels and lower payable support, indicating higher working capital requirements.

In FY25, Pakistan Synthetics Limited (PSL) reported an improvement in Funds from Operations before Working Capital (FCFOs), which increased to ~PKR 1,391mln (FY24: ~PKR 1,047mln), driven by stronger operating cash generation and improved conversion of earnings into cash flows. Accordingly, FCFO/finance cost coverage improved to ~2.1x (FY24: ~1.4x), reflecting enhanced debt servicing capacity. During 6MFY26, FCFOs further increased to ~PKR 760mln (6MFY25: ~PKR 660mln), indicating continued improvement in core operating cash generation. However, finance cost increased to ~PKR 380mln (6MFY25: ~PKR 289mln), resulting in FCFO/finance cost coverage moderating to ~2.7x (6MFY25: ~1.9x), reflecting a relatively higher finance cost burden despite improved cash generation.

At end-Jun25, Pakistan Synthetics Limited (PSL) reported an improvement in leverage metrics, with gearing declining to ~42.2% (Jun24: ~51.8%), primarily driven by a reduction in total borrowings to ~PKR 3,373mln (Jun24: ~PKR 4,595mln). The decline was mainly attributable to a significant reduction in short-term borrowings, which fell to ~PKR 2,417mln (Jun24: ~PKR 3,726mln), reflecting improved working capital management and lower reliance on bank funding. Meanwhile, the equity base strengthened to ~PKR 4,627mln (Jun24: ~PKR 4,260mln), further supporting the reduction in leverage. At end-Dec25, total borrowings increased to ~PKR 5,404mln (Dec24: ~PKR 4,093mln), driven primarily by a rise in short-term borrowings to ~PKR 4,205mln, indicating higher working capital funding requirements. However, the equity base also increased to ~PKR 4,846mln, partially cushioning the impact on leverage. Overall, this suggests a rebuilding of leverage position in the second half, mainly due to higher short-term funding needs.