Muhammad Atif Chaudhry
PACRA assigns Entity Ratings to EcoPack Limited
The ratings reflect EcoPack's established position in the PET preform and PET bottle segment, sound governance, and experienced management team associated with the EcoPack for a long. The market share in PET preform and PET bottle segments is 10% and 29% respectively and its strategic location is in the Central region. The PET packaging sector mostly derives its demand from water bottles, Carbonated Soft Drink (CSD) industry, pharma, and other consumables. The industry is exposed to seasonality as beverages demand remains higher in the summer months and the M/O Holy Ramazan. On the other hand, increased PET resin prices due to increasing crude oil prices internationally also have some pressure on margins, though some respite is being witnessed now. Considering the high demand, during 9MFY22 the utilization level remained on the higher side Blowing ~56% and Injection ~63% (SPLY Blowing ~40% and Injection ~58%).
On the financial profile, Consistent growth in sales and higher margins have been seen during 9MFY22. The top line of the Company has increased by 24%, the major contribution is made by PET bottle 51% followed by PET preform 49%. The profit after tax of the Company has increased by 30%. Resultantly, the cash flows have also been improved by 8%. Assessment of financial risk profile incorporates improving liquidity indicators. However, leverage indicators continue to remain elevated on account of higher utilization of short-term borrowing for funding working capital requirements. The local procurement of the raw material (PET resin) relieved the Company from any supply chain issues and also some savings in cost terms during critical times. Going forward, the impact of higher finance costs & overheads on profitability is expected to be offset by an improvement in margins and an increase in the top line. The sponsor's business acumen and strong connections bode well for the rating.
The ratings are dependent upon the management’s ability to improve margins while sustaining its market share. Prudent management of the working capital, and maintaining sufficient cash flows and coverages are imperative for the ratings. Any significant decrease in margins and coverages will impact the ratings.
EcoPack was incorporated as a public limited Company in 1992. EcoPack was listed on the Pakistan Stock Exchange (Formerly Karachi Stock Exchange) in 1994. EcoPack has two product lines, namely i) PET Preforms, and ii) PET Bottles. Currently, the Company has an annual installed capacity to manufacture 729 million PET Preforms and 327 million PET Bottles. EcoPack provides a complete range of PET Preforms and PET Bottles required by the Carbonated Soft Drinks (CSD)and bottled water industry.