The Pakistan Credit Rating Agency Limited
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Bakhtawar Abid

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PACRA Maintains Entity Ratings of Packages Limited

Rating Type Entity
(17-Dec-19 )
(26-Jun-19 )
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect Packages Limited's (‘Packages’ or ‘The Company’) strong business and financial profile built over the years as flagship Company of Packages Group. The sponsor's business acumen and strong connections have remained beneficial. Lately, the Company has planned for an internal restructuring; separating into operational and investment subsidiaries and making Packages a pure Holding Company.
Packages has prominent market presence in its operational segments - Packaging (Flexible and Folding Cartons) and Consumer Products (Tissue). The Company was able to pass on the surged raw material prices and increased marketing expenses, while holding the margins. However, profitability remained subdued due to high finance cost and low dividend income after discontinuation of dividend stream from TetraPak as per the terms of contract. Although competition remains tough in tissue and flexible packaging businesses, the management is confident to hold current market position and sustain the performance pattern.
Packages holds a sizeable investment book ~ PKR 39bln (as at Sept-19), comprising strategic (PKR 18bln) and non-strategic (PKR 20bln) investments. Packages Mall, a real estate venture, is progressing as envisioned. OmyaPack (Pvt.) Ltd, a JV with an international player for calcium carbonate, became operational and is still evolving. Bulleh Shah Packaging (Pvt.) Ltd. has yet to completely turn around and generate profits.
Packages took additional debt to finance CAPEX and working capital needs. However, leveraging remains low and sufficient coverages provide cushion to meet its payments comfortably. The management envisages augmented potential dividend inflow from local and international investments to supplement its dividend stream in next two years.
The ratings are dependent upon achieving operational efficiency in operational activities and improved inflow of investment income. Materialization of same into sustained dividends is important. The ratings draw comfort from low leveraged capital structure and the ability to maintain covergaes. Predictable and consistent impact of internal organizational restructuring would remain imperative.

About the Entity
Packages Limited was established in 1957 as a Joint Venture between Ali Group of Pakistan and Akerlund & Rausing of Sweden, to convert paper and paperboard into packaging for consumer industry. Packages is listed on the Pakistan Stock Exchange (PSX) since 1965. Over the years, Packages has continued to enhance its facilities to meet the growing demand of packaging products. The Company has two business units in packaging division: folding cartons and flexible packaging. It started commercial production of tissue paper in 1982 and currently provides a complete range of tissues and personal hygiene products. Over the years, Packages has invested in other businesses that has given it character of a sizeable investment company as well.

Ali Group holds 56% shares of the company through individual family members (15%) and various entities (40%), with IGI Holdings owning the prime share of 30%. Foreign partners and financial institutions own 8% and 19% stake respectively, in the company. Remaining 17% shares are held by 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.