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

Berger Paints Pakistan Limited's ("Berger" or the "Company") ratings reflect a reputable brand name, strong business profile, and sturdy presence in the paint industry of Pakistan. The Company operates state-of-the-art manufacturing plants and it is equipped with modern technology to produce high-quality paints and coatings efficiently, adhering to both local and international standards. Berger’s diversified revenue streams bode well for the assigned rating. The paint industry in Pakistan is poised for steady growth, with market size expected to rise from USD 400.82mln in 2024 to ~ USD 491.90mln by 2029, reflecting a CAGR of 4.18%. This growth is primarily driven by the architectural coatings segment, supported by increasing residential and commercial construction activities. 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. Aligned with these trends, during FY24, the Company's net sales showed growth by 16.38%, reaching PKR 8,544mln. Sales and marketing expenses, including impairment loss, rose by 19.79%, mainly due to increased promotional activities and inflationary pressures. Financial costs slightly increased compared to the prior period. The Company’s strong performance is attributed to efficient treasury operations, an improved product mix, and vigilant cost control initiatives. This positive trend resulted in a 9.5% year-over-year increase in profit after tax, reaching Rs. 263mln. The Company has a strong financial profile with solid coverages, cash flows, and a stable working capital cycle. Its leveraged capital structure includes both short- and long-term debt, and the PP Sukuk.
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 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 control of the Company vests with the board of directors, which comprises 8 members including Dr. Mahmood Ahmad (CEO).

About the Instrument
Berger issued an unlisted, privately placed, and secured PKR 500mln Sukuk ('Sukuk') at 3MK + 1.50% per annum, with a four-year term and a one-year grace period starting from September 26, 2022. Redemption will occur in 12 equal quarterly installments, beginning 21 months post-issuance. The Sukuk is secured by a first Pari Passu charge on 94.7 Kanal of land and buildings in Lahore, with a 25% margin. Berger must maintain PKR 50mln in a Debt Service Reserve Account (DSRA) and a Debt Payment Account (DPA) with monthly deposits of one-third of the quarterly installment.