The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Maintains Debt Instrument Rating of Berger Paints Pakistan Limited | PP Sukuk | Sep -21

Rating Type Debt Instrument
(24-Nov-23 )
(26-May-23 )
Action Maintain Maintain
Long Term A A
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect Berger Paints Pakistan Limited's (“Berger” or the “Company) established position and strong brand in the premium domestic paint market of the country. The Company has a strong governance framework and an experienced management team leading to effective controls. The ratings also find comfort in Berger's well-diversified revenue stream with retail, non-retail and allied business segments. The paint industry remained competitive and pressurized due to the presence of a large unorganized sector and ongoing global inflation, supply chain disruption, and a hike in policy rates coupled with rupee deprecation. The Company’s non-retail business, dominated by automotive paints, also faces pressure due to the recent decline in passenger car sales.
During 3MFY24, revenues depicted marginal growth stood at PKR 2.07bln (3MFY23: PKR 1.57bln). The company's profit after tax stood at PKR 49.74mln during 3MFY24 (3MFY23: PKR 0.386mln). The equity of the Company as of Sept'23 was PKR 3,244mln (FY23: PKR 3,195mln). The financial risk profile of the Company is characterized by moderate coverages and a stretched working capital cycle which is an industry-wide norm. Berger had issued the privately placed sukuk to facilitate the working capital management of the Company. The leveraging during 3MFY24 was 25.5% as compared to 3MFY23 43.2%
Generating operating cashflows along with maintaining an efficient supply chain and prudent working capital management is important. Compliance with the covenants of the term sheet especially maintenance of the DSRA and DPA account would remain crucial.

About the Entity
Berger was initially incorporated in 1950 as a Private Limited Company and subsequently converted into a public listed company in 1974. In 1991, Slotrapid Limited, a company incorporated in the British Virgin Islands, acquired control of Berger Paints Pakistan by purchasing 52.02% shares from Jenson & Nicholson Limited. The control of the Company vests with an 08-member Board of Directors including Mr. Maqbool H. H. Rahimtoola (Minority Shareholder & Chairman). There are 04 independent directors and 03 non-executive directors. The CEO-Dr. Mahmood Ahmad has 26 years of experience and is supported by a professional management team.

About the Instrument
Berger issued Unlisted, Privately Placed & Secured PKR 500mln Sukuk at a rate of 3MK+1.50% P.A and tenor of up to 4years inclusive of 1year grace period commencing from the facility's effective date: 26-sept-2022. The first rental payment fell due at end of first quarter from issue date. However, the Issue is expected to be redeemed in 12 equal consecutive quarterly buyout units starting from 21st month of issue date. The Sukuk are secured by 1st Pari Passu charge by way of mortgage over company's Land & Building measuring 94.7 Kanal located at Multan road district Lahore with a 25% margin. Berger is maintaining PKR 50 million in Debt Service Reserve Account (DSRA), throughout the tenure of the Sukuk. The account is maintained with Bank Islami. Additionally, DPA is expected to be maintained with Accounts Bank with 1/3 of quarterly payments in each month .Further, lien on Company's operating Account, Debt Payment Account (DPA), and DSRA is maintained with Accounts Bank in favor of Investment agent.

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.