PACRA Maintains Entity Ratings of Ultra Pack (Private) Limited

Ultra Pack (Pvt.) Limited (UPPL) specializes in providing industrial packaging solutions primarily tailored for the cement industry, with a significant portion of its sales directed towards its affiliated entity, "Kohat Cement Company Limited," having PACRA assigned ratings (A+/A1). UPPL's core operations revolve around the manufacturing and distribution of polypropylene bags, including block-bottom AD-Star Bags, block-bottom open-mouth Bags, Laminated Stitched Bags, and Woven PP Fabric. The company's ratings are reflective of its market presence, underpinned by the backing of its principal sponsor, ANS Capital (Pvt.) Limited. The production of this packaging sector is closely linked with the demand derived from cement industry. The price of major raw materials in the packaging segment is correlated to international oil prices. Volatility in oil prices and exchange rates is a source of risk as market players face difficulty to pass on impact of increased material prices, thus ultimately holding an impact on the profitability of the sector. Consequently, the Company’s revenue stream is a derivative of its cement bags sales including to its associated entity. Oil prices declined steadily and consolidated around the range of USD~70/bbl. at the end of CY23 from the price of USD~114.59/bbl. at End-FY22, however, this positive development was offset by the dismal performance of the cement industry and wider macroeconomic challenges. The cement industry recorded capacity utilization of ~57% in FY23, which was the lowest in two decades, in line with the industry Ultra Pack capacity utilization also got impacted and stood at ~56% during FY23 (FY22 ~ 70%). UPPL has an installed capacity of ~120mln PP bags/annum. Accordingly, it captures a market share of around ~21% in PP bag distribution. The Company’s topline is a function of sales channeled through North region of Pakistan. Profit margins of UPPL are dependent on two factors: sales earnings and merchandise cost. During the review period, UPPL experienced a decline in profitability due to cost-push inflation, which was not adequately offset by sales revenue. Consequently, the company must reevaluate its pricing model. Moreover, UPPL needs to strengthen its equity base. Currently, ownership of the company is exclusively held by members of the sponsoring family. UPPL has implemented a robust internal control system throughout its operations. Financial risk profile of the Company is demonstrated by modest coverages, cashflows, and adequate working capital cycle. UPPL’s capital structure is moderately leveraged; encompassing STBs and low equity.
The ratings are dependent on the UPPL’s ability to grow its position amidst challenging industry environment while improving its proceeds. Prudent management of the working capital, maintaining sufficient cash flows and coverages are imperative for the ratings. Any significant decrease in margins and coverages will impact the ratings.

About the Entity
Ultra Pack (Pvt.) Limited, incorporated in 2016, is a private limited concern principally engaged in the production & sale of PP bags. During 2017, the Company formally started its operations by installing the latest Extrusion & Bag Conversion technologies. The Company is wholly owned by ANS Capital (Pvt.) Ltd. (~100%) through sponsoring family. Mr. Ibrahim Tanseer Sheikh is the CEO of the Company. He has more than 10 years of diversified professional experience in cement and paper & packaging sectors. He is assisted by a team of qualified professionals. Going forward, the sponsoring group is ready to setup a paper packaging plant in Faisalabad. Furthermore, in order reap benefits from expected boom in cement industry, the management of ANS Capital and Kohat Cement has strategically decided for green field expansion of 7,800-10,000 TPD, near Khushab. Estimated project cost stands at ~PKR 28bln out of which ~60% will be debt financed.