The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of Berger Paints Pakistan Limited

Rating Type Entity
(16-Sep-22 )
(16-Sep-21 )
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Berger’s established position and strong brand in the premium domestic paint market of the country. The ratings incorporate a strong governance framework and an experienced management team leading to effective controls. The Company's revenue stream is well diversified with retail, non-retail, and allied business segments. The paint industry remains competitive and faces pressure due to the presence of a largely unorganized sector. The paint industry is closely linked with the construction industry and recent economic instability, coupled with massive rupee deprecation, cost escalation, and higher interest rates slowing down construction activity. Furthermore, global inflation, commodities super cycle, and supply chain disruption is creating immense pressure on industry margins. The company’s non-retail business which is dominated by automotive paints will also be impacted as most of the OEMs announced a temporary shutdown due to hurdles in the clearance of import consignments. The recent devastating flood also caused massive damage to the infrastructure, and it is expected construction industry will gain momentum though after a slow down initially, in response to the rehabilitation of affected sites. As a response to these challenges, the Board has formed a business risk strategy committee for better planning, forecasting, and operations sustainability. During the period under review, revenues recorded ~23% growth. The customer base is well-diversified catering B2B and B2C segments. The financial risk profile of the Company is characterized by comfortable coverages and cashflows. Working capital remained stretched which depicts industry norms. The capital structure is leveraged and borrowings are mainly comprised of short-term to finance working capital.
The ratings are dependent upon the management’s ability to sustain the market operation amidst fierce competition. Generating operating cashflows along with maintaining an efficient supply chain and prudent working capital management is important.

About the Entity
Berger Paints Pakistan Limited was initially incorporated in 1950 as a Private Limited Company under the repealed Companies Act 1913 (now Companies Act, 2017). It was subsequently converted into a publicly listed company in 1974. It is currently listed on Pakistan Stock Exchange (PSX). In 1991, Slotrapid Limited, a company incorporated in the British Virgin Islands, acquired control of Berger Paints Pakistan by purchasing 52.02% shares from its former parent, Jenson & Nicholson Limited. The principal business activity of the Company is the manufacturing and trading of paints, varnishes, and other related items. The registered office and manufacturing facility of the Company is in Multan Road, Lahore. The control of the Company vests with the board of directors, which comprises nine members including Dr. Mahmood Ahmad (Managing Director). There are five independent directors and three non-executive directors. Dr. Mahmood Ahmad, a nominee of Slotrapid limited, has ~25 years of experience and is well versed in industry dynamics. He is ably supported by a professional management team.

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.