The Pakistan Credit Rating Agency Limited
Press Release


Madiha Sohail

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PACRA Upgrades Entity Ratings of Pakistan Synthetics Limited

Rating Type Entity
(29-Apr-22 )
(06-Aug-21 )
Action Upgrade Maintain
Long Term A- BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Pakistan Synthetics Limited's ("Pakistan Synthetics" or the "Company") established presence in the PET packaging industry through the provision of an integrated packaging solution to its customers. PSL is one of the market leaders in the caps and closures with a market share of ~60%. Over the period, the Company has established a suitable business profile and is now increasing its footprints in PET preform. The demand for the PET packaging industry's products has increased as the beverage industry saw an improved uplift of stock. During Covid-19 pandemic, the industry faced challenges including low demand, build-up of inventory and receivables, and lower capacity utilization. However, the Company largely maintained its top line during FY21 and improved its profitability. Post pandemic, the Company managed to earn healthy cash flows during the year and has shown significant growth by 3x as compared to FY20. Furthermore, the Company has successfully managed to convert its losses into profits and reported net profit after tax of PKR 748mln (FY20: PKR (99)mln. The main contributor to profitability was the improved revenue base and decreased finance cost on the back of repayment of long-term debt and the downward trend of policy rates, and subsidized loan (ITERF) during FY21. Resultantly, the coverages of the Company have also improved by significant margins. The Company has also managed to reduce its leveraging by injection of equity through the right issue. While the long-term debt is related to expansion activities. The revenue base of the Company has also increased by 10% since Jun'20. However, keeping in view the optimum capacity utilization of resin and caps further improvement in revenue is primarily expected from PET Preform. As the Company is also planning to expand the Pet Preform product line, after the successful expansion of 500ml PET bottles. The coverages improved on the back of better cashflows and profitability. The working capital has also improved on the back of better inventory management and speedy recovery from receivables. The ratings also take comfort from strong sponsor support as demonstrated in the past.
The ratings are dependent on the management's ability to strengthen the Company's position in the industry, sustain optimal production and margins. The reduction of the asset-liability mismatch remains imperative. The increase in profitability and/or coverages may have a positive impact on ratings. Sponsor support will remain important.

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 31,000 Octabins per annum and Plastic Closures and Metal Crowns at an installed capacity of 558,570 cartons per annum. Pakistan Synthetics' manufacturing facilities are located in Hub, Balochistan and Port Qasim, Karachi. The Company's registered office is located in West Wharf, Karachi. Pakistan Synthetics is primarily owned by the Haji Karim family (~73%) through individual family members. Mr. Yaqoob Haji Karim (~20%)and Mr. Noman Yaqoob (~21%) are the two largest stakeholders of the Company. Approximately 15% of the stake resides with the general public.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.