The Pakistan Credit Rating Agency Limited
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Wajeeha Asghar

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PACRA Maintains Entity Ratings of Packages Convertors Limited

Rating Type Entity
(18-Aug-23 )
(18-Aug-22 )
Action Maintain Initial
Long Term AA- AA-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect Packages Convertors Limited ( "PCL" or the "Company") association with Packages Limited, the holding Company of Packages Convertors. In 2020, after internal restructuring, the manufacturing business of Packages Limited were transferred to PCL, which is now a wholly-owned subsidiary of Packages Limited. PCL has a prominent market presence in its operational segments - Packaging (Flexible Packaging & Folding Cartons) and Consumer Products (Tissue & Sanitary Napkins). PCL enjoys the largest market share of Tissues, Folding Cartons and Flexible Packaging. The production of each segment is directly linked with the demand of food products and consumer goods. Considering the higher demand, the utilization level has remained on the higher side.
On the financial profile side, during 6MCY23 the Company has reported growth in sales by 32.8%, to PKR 25.9bln (SPLY: 19.5bln). The major contribution in sales growth came from Tissue segment. The profit after tax of the Company has increased resulting in improved NP margins from 5.5% to 7.5%. The cash flows have also been improved as compared to last year. The strategic relationships with international suppliers helped the Company in reaping the benefits of catering demand. However, the capital structure of the Company remained highly leveraged ~73% (6MCY22: 74%) which would remain imperative to the ratings where the long-term debt is related to expansion activities. However, good FCFO provides a cushion for the financial cost and debt repayment. Going forward, in order to strengthen its market position, the Company is in the process of further expansion and other technological advancements. The backing of Packages Limited is playing a pivotal role in supporting the current rating.
The ratings depends upon the management's capacity to enhance profit margins while upholding its market share. Skillful oversight of working capital, lowering the leverage ratio, robust cash flows, and adequate coverage are under considerations for the ratings. The successful execution of the management's diversification strategy, leading to improved margins and heightened profitability, holds significant importance. The ratings would be impacted by decline in margins or coverages.

About the Entity
In 2020, after internal restructuring Packages Convertors has got the legal status of public limited company. It is a wholly owned subsidiary of Packages Limited and principally engaged in the manufacture and sale of packaging materials and tissue products. Tariq Iqbal Khan holds the position of Chairman of the Company. Mr. Khan is the member of ICAP and has been associated with the company since two years. The CEO of the Company Mr. Syed Hyder Ali has been associated with the Company since its inception and is also the Managing Director of Packages Limited.

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.