The Pakistan Credit Rating Agency Limited
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Ateeb Riaz

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PACRA Maintains Entity Ratings of Pakistan Synthetics Limited

Rating Type Entity
(07-Feb-20 )
(09-Aug-19 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan's PET packaging industry derives its demand from the country's beverage industry, which has been negatively impacted due to the reduced purchasing power of end consumers. This, in turn, has reduced the demand for the PET packaging industry's products. The ratings reflect Pakistan Synthetics Limited's (Pakistan Synthetics or 'the Company') established presence in the PET packaging industry through the provision of an integrated packaging solution to its customers. Pakistan Synthetics witnessed top-line growth on the back of volumetric increase in sales as the Company continued to establish its new Preform segment. The Company's margins declined due to increased cost of imported raw material, putting pressure on margins. The increased finance cost and significant exchange loss eroded the Company's bottom-line as it suffered a net loss in FY19. Although margins did not improve, stable rupee provided some relief as the Company returned to profitability, albeit modest. The Company's financial profile remains under pressure due to asset liability mismatch at trade level, declining coverages and high leveraging. The Company has recently received capital through right issue, increasing its equity base and providing cushion for repayment. The ratings draw strength from the Company's association with a strong business group and sponsor's demonstrated ability to provide support.
The ratings are dependent on the management's ability to strengthen the Company's position in the industry and continued revenue growth. Improvement in margins and reducing the asset liability mismatch remains imperative. Significant decline in coverages may have a negative impact on ratings.

About the Entity
Pakistan Synthetics Limited was incorporated as a private limited company in 1984. In 1987, the Company was converted into a public limited company and was listed on the Pakistan Stock Exchange. The Company provides complete packaging solution through production and sale of PET Resin at an installed capacity of 28,000MT per annum, PET Preform at an installed capacity of 31,000 Octabins per annum and Plastic Closures and Metal Crowns at an installed capacity of ~559,000 cartons per annum. Pakistan Synthetics' manufacturing facilities are located in Hub, Balochistan and Port Qasim, Karachi. The Company's registered office is located in West Wharf, Karachi.

Pakistan Synthetics is primarily owned by the Haji Karim family (~73%) through individual family members. Mr. Anis Yaqoob (~10%) and Mr. Fawad Anwar (~9%) are the two largest stakeholders of the Company. Approximately 17% of the stake resides with the general public. The Company's Board of Directors consists of three Independent Directors, four Non-Executive Directors and two Executive Directors, including the CEO. Mr. Anwar Haji Karim is the Chairman of the board. He has been associated with the Company since its inception.

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.