Sohail Ahmed Qureshi
PACRA Maintains Entity Ratings of Reliance Petrochem Industries (Pvt.) Limited
Reliance Petrochem Industries (Pvt.) Limited (hereafter referred to as ‘the Company’ or RPI) is a leading manufacturer & trading corporation principally involved in the business of petrochemicals, polymers and chemicals/solvents. The ratings incorporate adequate profile of Reliance Group and its long-term association with international and national clientele. Reliance is the only white oil producer in Pakistan having wide range of applications in lubrication, textile, cosmetic, perfume, plastic, paper, shoe polish, and paint industries. During FY2021, export revenues of RPI significantly dropped owing to structural reforms in Afghanistan. As a part of strategic business plan, RPI is now expanding its customer range by opening new international offices to channel smooth supply in different abroad countries. Risk profile of the sector is underpinned by possible changes in the economy. An increase in demand of consumer goods, urbanization and cost effectiveness bodes well for the industry. Further, the industry is considered volatile when it comes to the procurement of raw materials (polymers, base-oils and white spirit), as they are directly linked with the international prices of crude oil. Thus, the Company's top-line and margins have depicted fluctuations over recent years. As at end Dec-21, export sales of RPI from polymers and petrochemicals declined however the same was offset through local sales of chemicals/solvents. Resultantly, overall margins of the Company dropped as export sales had to offer better margins. In present times, RPI is focusing on increasing the productivity and efficiency of its operations as the Company signed high-valued long-term contracts with the renowned foreign oil trading companies. Going forward, the Company intends to regain its exports sales which will enhance margins and profitability in future. Financial risk profile of the Company is considered adequate with moderately leveraged capital structure. Free cash flow from operations were reduced, however coverages slightly improved on the back of diminished interest cost. An independent insight on the corporate governance can bring new balance which will improve the Company’s operations, financial performance and overall business health.
The ratings are dependent on RPI’s sustainable growth in top-line and bottom-line with upheld margins while retaining sufficient cash flows. Improvement in margins, coverages and upright working capital management are imperative. Governance framework needs improvement as the Board is dominated by Sponsoring family. Any significant decline in profitability; impacting cash flows and coverages, will have negative impact on the ratings.
Reliance Petrochem Industries was incorporated in 2013 as a private limited company under the repealed Companies Ordinance 1984. The Sponsoring family is involved in trading business even before the partition of India and Pakistan. Trading of petrochemicals was started by Mr. Jai Kumar, son of Mr. Bool Chand. As the business grew, sponsors engaged in the manufacturing of polypropylene bags.
The board of Reliance Petrochem comprises of three brothers. Mr. Jawahar Lal is the CEO and also heads the board. Mr. Anil Parkash (Director) and Mr. Jai Kumar (Managing Director) are the other two board members. They collectively hold 100% ownership of the Company. The Company’s CEO – Mr. Jawahar Lal – has overall 25 years of experience in the chemical sector. He is responsible for operations of the Company and associated with the board since inception. He is supported by an able management team.