The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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PACRA Maintains Entity Ratings of Pakistan Synthetics Limited

Rating Type Entity
(06-Aug-21 )
(07-Aug-20 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - Yes

The ratings reflect Pakistan Synthetics Limited's ("Pakistan Synthetics" or the "Company") established presence in the PET packaging industry through the provision of an integrated packaging solution to its customers. PSL is one of the market leaders in the caps and closures with a market share of ~40%-45%. Pakistan's PET packaging industry derives its demand from the country's beverage industry, which has been impacted due to the inflation round and spread of the COVID-19 pandemic in the country. However, the demand for the PET packaging industry's products has increased as the beverage industry saw an improved uplift of stock. The industry is faced with challenges including low demand, build-up of inventory and receivables and lower capacity utilization however, the Company largely maintained its top-line in 3QFY21 and improved its profitability due to higher margins. Preventive measures have been started throughout the country by the relevant authorities which will gradually improve the COVID related uncertainty. The Government is continuously countering the fourth wave through a smart lockdown instead of overall shutdowns. Amid the COVID pandemic, steps taken by the SBP on slashing the discount rates to 7%, refinance scheme on salaries and wages, and ITERF, has significantly reduced the finance cost of the Company, resultantly the profits have also improved. The revenues are expected to improve and its impact can be seen in 3QFY21. The Company recently went into expansion and has started a new product line of 500ml PET bottles, previously it was manufacturing 1000ml and 1500ml. The Company's gross margin is expected to suffer on the back of an increase in the international oil prices, however, the net margin is expected to remain intact due to the decrease in markup on borrowings. The utilization level of the new Preform segment improved but remained below optimal levels. The coverages improved on the back of better cashflows and profitability. The working capital remains stressed due to asset-liability mismatch at the trade level. The ratings incorporate strong sponsor support as demonstrated in the past.
The removal of 'Rating Watch' signifies the company's ability to cope up with the changes in the prevailing challenging economic environment. The demand for industry products has recovered recently although it may take time to reach pre-COVID levels. The Company remained operational as it was exempted from shutdown, being related to the food & allied sector. Although the production in the metal crowns segment was suspended due to low demand in FY20, the company has regained its pace and achieved 67% production in the metal crowns segment in 3QFY21. PACRA closely monitored the situation and took action accordingly.
The ratings are dependent on the management's ability to strengthen the Company's position in the industry, sustain optimal production and margins. The reduction of the asset-liability mismatch remains imperative. The increase in profitability and/or coverages may have a positive impact on ratings. Sponsor support will remain important.

About the Entity
Pakistan Synthetics Limited was incorporated as a private limited company in 1984. In 1987, the Company was converted into a public limited company and was listed on the Pakistan Stock Exchange. The Company provides complete packaging solution through the production and sale of PET Resin at an installed capacity of 28,000MT per annum, PET Preform at an installed capacity of 31,000 Octabins per annum and Plastic Closures and Metal Crowns at an installed capacity of 558,570 cartons per annum. Pakistan Synthetics' manufacturing facilities are located in Hub, Balochistan and Port Qasim, Karachi. The Company's registered office is located in West Wharf, Karachi. Pakistan Synthetics is primarily owned by the Haji Karim family (~73%) through individual family members. Mr. Yaqoob Haji Karim (~20%)and Mr. Noman Yaqoob (~21%) are the two largest stakeholders of the Company. Approximately 15% of the stake resides with 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.