The Pakistan Credit Rating Agency Limited
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Ateeb Riaz

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PACRA Maintains Entity Ratings of EcoPack Limited, Assigns 'Rating Watch'

Rating Type Entity
(07-May-20 )
(06-Nov-19 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Negative Stable
Rating Watch Yes -

The PET packaging sector mostly derives its demand from bottled water, Carbonated Soft Drink (CSD) industry, pharma and other consumables. The increase in consumer demand for CSD products and conversion from glass to plastic bottles in recent years brought significant growth in PET packaging industry. However, the industry remains exposed to seasonality as demand is higher in summer months. Lately, imposition of CNIC requirement on distributors and decline in consumer purchasing power due to high inflation has reduced demand for beverage and, in turn, industry products. The ratings reflect EcoPack's established position in PET Preform and PET Bottle segment and its strategic location in North. Volumetric decrease due to relatively lower demand has led to decline in the Company's top-line during the period. In recent years, the Company's sales mix has shifted towards preforms, which is a lower margin segment. Further, the Company’s inability to pass higher costs on to customers in off-peak season has impacted margins. Furthermore, spiraling finance costs on the back of higher borrowings and benchmark rate have deteriorated the bottom-line. Lower inflation and decline in PET Resin prices due to falling crude oil prices internationally may reduce some pressure on margins in the short-run. The Company’s capital structure remains moderately leveraged, though borrowings have shown rising trend over the years. The Company has utilized higher short term borrowings to manage working capital and other needs. This led to mismatch at trade level putting pressure on the financial profile. The recent measures announced by SBP, including principle deferment, and rate cut of 425bps is expected to provide some relief.
The 'Rating Watch' signifies uncertainty created by the COVID-19 outbreak in the prevailing challenging economic environment. The Company remains operational as it is exempted from shutdown, being related to food & allied sector. The demand may take time to recover amidst countrywide lockdown and closure of restaurants, banquet halls, and non-essential shops. The supply chain may also be impacted. PACRA will closely monitor the situation and take action accordingly.
The ratings are dependent on the Company's ability to sustain volumes and top-line in current scenario. Meanwhile, improving margins and reduction of asset liability mismatch remains critical. Prolonged lockdown, resulting in significant dip in demand and sustained losses would have negative impact on the ratings.

About the Entity
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 797 million PET Preforms and 304 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.

Majority of the Company's shares are held by the Jamil family (~32%). Mr. Hussain Jamil holds 17.2% shares in the Company and is the largest shareholder. Around 38% shares are held by acquaintances of the Sponsors while 32% shares are held by general public. EcoPack’s BoD comprises two independent Directors, three non-executive Directors and two Executive Director. Jamil family dominates the Board with five directors representing the family.

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.