Analyst
Muhammad Atif Chaudhry
Atif.Chaudhry@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA maintains the rating of Nishat Paper Products Company Limited
Rating Type | Entity | |
Current (17-Feb-23 ) |
Previous (17-Feb-22 ) |
|
Action | Maintain | Maintain |
Long Term | A | A |
Short Term | A1 | A1 |
Outlook | Stable | Stable |
Rating Watch | - | - |
Nishat Paper Products Co Ltd.'s ("NPPCL" or the "Company") ratings reflect the strong sponsor profile, satisfactory market position, and adequate financial profile of the Company. The demand for the cement packaging segment is directly linked with cement dispatches. The latest period reported a reduction in cement production reflecting an economic downturn. The increase in prices of all the construction materials has impacted demand for cement as well. However, cement’s demand is expected to come in the full circle once the macro-level fundamentals improve. Through, industry-wide volumetric decrease in sales has been reported but the selling prices have absorbed the impact too much extent. While considering the depleting revenues of the country, the supply chain of the Company has also been impacted as the raw material is ~95% imported. However, being the subsidiary of D.G. Khan Cement Company Limited, NPPCL derives strength and economies of scale from the parent company, which bodes well for the ratings. Furthermore, the industry is also diverging more towards PP bags as these are less costly compared to KP bags. Currently, the Company has a production capacity of 220mln bags/per annum and operating at a capacity level of ~40% during FY22 (FY21: ~60%).
The Company has maintained adequate margins and profitability. The top line of the Company decreased by ~22.9% during FY22. The Company has generated a topline of ~ PKR 3,070mln in FY22 as compared to ~PKR 3,980mln in FY21. During FY22, Nishat Paper Products Company Limited generated a humble bottom line of ~PKR 292mln (FY21: ~PKR 525mln). The decline in profitability is attributable to PKR depreciation and increased commodity prices and finance cost. The Company has leveraged capital structure. Long-term debt is related to expansion activities, whereas short-term debt has increased substantially pursuant to slow movement in receivables. However, the majority of receivables are from the related party which gives comfort to the credit risk. Going forward, the Company is planning to diversify its revenue stream by introducing a new product line that would support the Company in stable profitability.
The ratings would remain dependent upon the company’s ability to sustain its healthy business profile amidststrong competition, herein, effective and prudent management of financial risk indicators remainimportant. Moreover, upholding of governance framework is vital.
About
the Entity
Nishat Paper Products Co Ltd was incorporated as a Public Limited Company in 2004. NPPCL was a Joint venture project of Nishat with Shuaiba Paper Products Company Ltd. Kuwait (Shuaiba). The Primary purpose of the project was the vertical integration in Cement business for supply of paper sacks for cement packaging. D G Khan Cement Company Ltd. (DGKCC) and Shuaiba entered into an agreement on 12th June 2004 for setting up a paper sack plant in Pakistan, but later in June 2008, Nishat acquired the stake from Shuaiba Paper. Now NPPCL is subsidiary of D.G. Khan Cement Company Ltd. DG Khan cement is the major shareholder with 55% holding, Nishat Mills Ltd holds 25% shares, while the remaining 20% shareholding lies with Mansha Family. Mr. Mian Raza Mansha is the CEO and chairman of the Company. He has more than 23 years diversified professional experience in various business sectors. He is associated by an able team.