The Pakistan Credit Rating Agency Limited
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Muhammad Zain Ayaz

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PACRA Maintains the Entity Ratings of Nishat Paper Products Co. Ltd.

Rating Type Entity
(17-Feb-22 )
(17-Feb-21 )
Action Maintain Initial
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Nishat Paper Products Co Ltd.'s ("NPPCL" or the "Company") ratings reflect the strong sponsor profile, emerging market position and adequate financial profile of the Company. The Cement sector’s dispatches have recorded splendid growth and surged by 21% in FY21 as demand in the domestic market accelerated. Industry-wide exports have also gone up as a new export window is created in the Bangladesh market. The industry’s future demand outlook is positive, in view of the infrastructure projects in the pipeline. Furthermore, the industry is also diverging more towards PP bags as these are less costly compared to KP bags. The production of packaging sector is directly linked with the cement demand of the Industry. Currently, the Company has production capacity of 220mln bags/annum. The Company is also in the process of evaluation of plan to install its first PP line. This expansion will be supported by the Company's after tax reserves and borrowing from bank, adhering to the policy of keeping total debt to equity ratio below 70%. The expansion would support the Company in competing with other players and strengthening the existing market share. During FY21, the utilization capacity of the the kraft paper plant remained at an average of 60%. The Company's raw material procurement is entirely met by imports. Being the subsidiary of DG Khan cement, NPPCL derives strength and economies of scale from the parent company, which bodes well for the ratings. Further, the ratings assigned to NPPCL also draw support from the strong sponsor's profile. The Company's margins showed an improvement - both at gross and operating levels -since last year and resulting in net profit for FY21. Stable raw material cost coupled with predictable exchange rate volatility translates into better gross margins. The Company has leveraged capital structure. The long term debt is related to expansion activities, whereas short term debt has increased substantially pursuant to slow movement in receivables due to recent crises in cement sector. Going forward, improvement in profitability for timely repayment of debt remains vital.
The ratings are dependent upon the management’s ability to improve margins while sustaining its market share. Prudent management of the working capital, maintaining sufficient cash flows and coverages is imperative for the ratings. Any significant decrease in margins and coverages will impact the ratings.

About the Entity
Nishat Paper Products Co Ltd was incorporated as a Public Limited Company in 2004. NPPCL was a Joint venture project of Nishat with Shuaiba Paper Products Company Ltd. Kuwait (Shuaiba). The Primary purpose of the project was the vertical integration in Cement business for supply of paper sacks for cement packaging. D G Khan Cement Company Ltd. (DGKCC) and Shuaiba entered into an agreement on 12th June 2004 for setting up a paper sack plant in Pakistan, but later in June 2008, Nishat acquired the stake from Shuaiba Paper. Now NPPCL is subsidiary of D.G. Khan Cement Company Ltd. DG Khan cement is the major shareholder with 55% holding, Nishat Mills Ltd holds 25% shares, while the remaining 20% shareholding lies with Mansha Family. Mr. Mian Raza Mansha is the CEO and chairman of the Company. He has more than 23 years diversified professional experience in various business sectors. He is associated by an able team.

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.