The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of Berger Paints Pakistan Limited

Rating Type Entity
(14-Sep-23 )
(16-Sep-22 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Berger’s established position and strong brand in the premium domestic paint market of the country. The ratings incorporate a strong governance framework and an experienced management team leading to effective controls. The Company's revenue stream is well diversified with (i) retail business (B2C) which includes sales of decorative paints through distributors ii) non-retail business (B2B) which includes powder coating, protective coating, and automotive paint including undercoats and top coats iii) allied business which includes road safety coatings, construction chemicals, and adhesive. The paint industry continues to grapple with intense price competition and encounters significant challenges stemming from the prevalence of predominately unorganized players. However, Berger has substantial competitive advantages, including superior product quality, innovative formulations, an extensive nationwide distribution network, and a steadfast/loyal customer base. The paint industry is intricately connected to the construction and automobile industry. The construction industry is currently going through formidable challenges such as soaring costs of essential construction-related raw materials, substantial rupee depreciation, and elevated interest rates. On the other hand, the automobile industry is heavily dependent on CKD kits, and import restrictions due to the depleting foreign exchange reserves created an essential raw material shortage. This leads to frequent plant shutdowns and non-production periods, observed by all OEMs. Furthermore, massive rupee depreciation coupled with high inflation and rising interest rates contracted consumer demand. In the longer term, the demand side appears promising, driven by the imperative to enhance existing infrastructure, PSDP investments, ongoing urbanization trends, and population growth. During 9MFY23 the company was able to sustain its topline, but the volumes remain subdued. Margins showed a humble improvement at all levels due to better pricing and cost control. The operations of the company receive benefits from good governance, an experienced management team, and a robust internal control system. The financial risk profile of the Company is characterized by comfortable coverages and cashflows. Working capital remained stretched which depicts industry norms. The capital structure is leveraged and borrowings are comprised of short-term and long-term.
The ratings are dependent upon the management’s ability to sustain the market operation amidst fierce competition. Generating operating cashflows along with maintaining an efficient supply chain and prudent working capital management is important.

About the Entity
Berger Paints Pakistan Limited was initially incorporated in 1950 as a Private Limited Company under the repealed Companies Act 1913 (now Companies Act, 2017). It was subsequently converted into a publicly listed company in 1974. It is currently listed PSX. In 1991, Slotrapid Limited, a company incorporated in the British Virgin Islands, acquired control of Berger Paints Pakistan by purchasing 52.02% shares from its former parent, Jenson & Nicholson Limited. The principal business activity of the Company is the manufacturing and trading of paints, varnishes, and other related items. The registered office and manufacturing facility of the Company is in Multan Road, Lahore. The control of the Company vests with the board of directors, which comprises 9 members including Dr. Mahmood Ahmad (Managing Director). There are 5 independent directors and 3 non-executive directors. Dr. Mahmood Ahmad, a nominee of Slotrapid limited, has ~26 years of experience and is well-versed in industry dynamics. He is ably supported by a professional management 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.