The Pakistan Credit Rating Agency Limited
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Kanwal Ejaz

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PACRA Assigns Preliminary Rating to Berger Paints Pakistan Limited | PP SUKUK

Rating Type Debt Instrument
Action Initial
Long Term A
Short Term -
Outlook Stable
Rating Watch -

The ratings reflect Berger’s established position and strong brand in the premium domestic paint market of the country. The ratings incorporate a strong governance framework and an experienced management team leading to effective controls. The Company's revenue stream is well diversified with retail, non-retail and allied business segments. The paint industry remains competitive and faces pressure due to presence of large unorganized sector. Paint industry is closely linked with construction industry and recently Government announced various construction packages which created a positive impact on industry and raised demand for paints. Company’s non-retail business which is dominant by automotive paints also performing well as car OEMs showed a significant growth in production and sales volumes. Thus financial performance of the Company showed improvements during 9MFY21, revenues depicted ~ 30% growth and overall decline in raw materials prices (i.e. petrochemicals and commodity chemicals) and reduction in finance cost due to fall in policy rates further strengthen margins and profitability which has a positive effect on ratings. The financial risk profile of the Company is characterized by strong coverages and adequate working capital management. The capital structure remains moderately leveraged mainly comprising short-term borrowing.
The ratings are dependent upon the management’s ability to sustain operations in prevailing uncertain environment as pandemic situation is still underway and third wave is around. Generating operating cashflows along with maintaining efficient supply chain and prudent working capital management is important.

About the Entity
Berger Paints Pakistan Limited was initially incorporated in 1950 as a Private Limited Company under the repealed Companies Act 1913 (now Companies Act, 2017). It was subsequently converted into a public listed company in 1974. It is currently listed on Pakistan Stock Exchange (PSX). In 1991, Slotrapid Limited, a company incorporated in British Virgin Islands, acquired control of Berger Paints Pakistan by purchasing 52.02% shares from its former parent, Jenson & Nicholson Limited. The principal business activity of the Company is manufacturing and trading of paints, varnishes and other related items. The registered office and manufacturing facility of the Company is in Lahore. The control of the Company vests with board of directors, which comprises eight members including Dr. Mahmood Ahmad (Managing Director). There are four independent directors and three non-executive directors. Dr. Mahmood Ahmad, nominee of Slotrapid limited, has ~25 years of experience and is well versed with the industry dynamics. He is ably supported by a professional management team.

About the Instrument
Berger Paints Pakistan Limited (the “Berger” or the “Company) intends to issue an Unlisted, Privately Placed & Secured Sukuk. Sukuk issue amount is PKR 500 million at an offer of 3M KIBOR +1.00% p.a with a tenor up to 4 years inclusive of 1 year Grace Period commencing from the Facility Effective Date. The first profit / Rental payment shall fall due at the end of six (6) months period falling immediately after first Drawdown. It will be redeemed in 12 equal quarterly consecutive buyout units commencing from the end of 4th quarter from the date of first disbursement, and subsequently every three months thereafter.

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.