The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Maintains Entity Ratings of Packages Limited

Rating Type Entity
(17-Jun-20 )
(17-Dec-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’) holding company character and robust profile built over the years as the flagship Company of the Ali Group. The sponsor's business acumen and strong connections have remained beneficial. Lately, the Company is in process of internal restructuring and will transfer the manufacturing business into 100% owned subsidiary; Packages Convertors Limited. Packages has prominent market presence in its operational segments - Packaging (Flexible Packaging and Folding Cartons) and Consumer Products (Tissue). The Company was able to pass on the surge in raw material prices and maintained its margins. However, profitability remained subdued due to high finance cost and low dividend income after discontinuation of dividend stream from Tetra Pak Limited. In the wake of recent pandemic, volumes remain low in tissue and flexible packaging businesses. However, the management is confident to hold its market share share and improve performance, going forward, despite rise in competition. The profitability of the Company is expected to remain under pressure as envisaged dividend flow from investments may be delayed due to prevailing situation.
Packages holds a sizable investment book ~ PKR 43bln (as at Mar-20), comprising core (PKR 12bln), strategic (PKR 5bln) and non-strategic (PKR 26bln) investments. Packages Mall, a real estate venture, is operational as envisioned. However, it had to waive off rents due to Covid-19. OmyaPack (Pvt.) Ltd, a JV with an international player for calcium carbonate, became operational and is still evolving. While, Bulleh Shah Packaging (Pvt.) Ltd. has generated profits for the first time. In CY19, Packages financed CAPEX and working capital needs through debt. However, leveraging remains low and strong coverages provide comfort.
The ratings are dependent upon achieving operational efficiency, holding margins and building sustainable dividend stream from maturing investments. Maintaining low leveraged capital structure and strong coverages is critical. 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 sizable investment company as well.

Ali Group holds 45% shares of the Company through Directors and individual family members (3%), and its corporates (42%), with IGI Holdings Limited owning the prime share of 30%. Financial institutions and Modarabas own 9% and 8% stake, respectively. Remaining, 31% shares are held by the 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.