The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Assigns Initial Entity Ratings of Packages Convertors Limited

Rating Type Entity
(18-Aug-22 )
Action Initial
Long Term AA-
Short Term A1
Outlook Stable
Rating Watch -

The ratings reflect Packages Convertors Limited ( "PCL" or the "Company") association with Packages Ltd., the holding Company of Packages Convertors. In 2020, after internal restructuring, the manufacturing business of Packages Limited has been transferred to Packages Convertors Ltd. which is now a wholly-owned subsidiary of Packages Ltd. Packages Convertors has a prominent market presence in its operational segments - Packaging (Flexible Packaging & Folding Cartons) and Consumer Products (Tissue). Packages Convertors Limited enjoys the largest market share of Tissues, Folding Cartons and Flexible packaging. The production of the segment is directly linked with the demand of food products and consumer goods. Considering the higher demand the utilization level has remained on the higher side.
Since PCL commenced its operations in July-2020, hence comparatives are showing 6-months while latest numbers are for 12-months ending on Dec-21. During CY21, the top line of the Company has significantly increased by 1.5x, the major contribution to this significant increase is attributed to Flexible packaging sales. The profit after tax of the Company has significantly increased by 2x to PKR 1.8bln (6MCY20: PKR 0.6mln) mainly due to high growth in the Tissue/Hygiene sector and effective marketing strategies. Resultantly, the cash flows have also been improved by 1.4 times as compared to last year. The strategic relationships with international suppliers helped the Company in reaping the benefits of high demand and effective inventory management as compared to 6MCY20. On the financial profile side, highly leveraged capital structure i.e. 71% (6MCY20: 68%) would remain imperative to the ratings where the long-term debt is related to expansion activities. However, good FCFO provides a cushion for the finance cost and debt repayment. Going forward, in order to strengthen its market position in Flexible Packaging, the Company is in process of further geographic expansion and other technological advancements are being done in all business units in order to improve the effectiveness of the business.
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
In 2020, after internal restructuring Packages Convertors has got the legal status of public limited company. It is a wholly owned subsidiary of Packages Limited and principally engaged in the manufacture and sale of packaging materials and tissue products. Tariq Iqbal Khan holds the position of Chairman of the Company. Mr. Khan is the member of ICAP and has been associated with the company since two years. The CEO of the Company Mr. Syed Hyder Ali has been associated with the Company since its inception and is also the Managing director of Packages Limited.

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.