Poly Pack (Pvt.) Limited

CREDIT RATING REPORT | Feb-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
28-Feb-25 A- A2 Stable Maintain -
01-Mar-24 A- A2 Stable Maintain -
02-Mar-23 A- A2 Stable Initial -
About the Entity

Poly Pack (Pvt.) Limited was founded as a private limited Company in 1991 and began its operations with the commercial production of Poly Propylene Bags. The Company is currently among the largest producers of plastic packaging products in Pakistan. The Company’s manufacturing plant is located near Raiwind. The Company is wholly owned by the sponsor family with major ownership of ~43.6% residing with Mr. Iftikhar Ahmed, followed by Mr. Aamir, Mr. Bilal, and Mr. Abdullah owns ~15.6% shares respectively while Mrs. Nazia Iftikhar owns ~9.4% shares.

Rating Rationale

Poly Pack (Pvt.) Limited (or the “Company”) is predominately manufacturing Poly Propylene Woven Bags. The Company is also engaged in the manufacturing of Polyethylene Plain Films, Polyethylene Shrink Film, POF Shrink Film, and Flexible Packaging. The Company is entirely family-owned, with sponsors possessing extensive expertise in packaging, having been active in the industry since 1991. The raw material of the finished product is ~100% imported hence, exposed to exchange rate risk. The demand for the product is derived from various industries including textile, sugar, fertilizer, chemical, edible ghee/oil, beverages and confectionery/FMCG. The strong customer base of the Company bodes well for the assigned rating. The plant has an annual production capacity of 60,000 MT, with utilization rising to 74% in FY24 from 68% in FY23. As per management representation, the Company has captured the major share of the PP Woven Bags market. Almost 60% of the Company's total sales are made in the Punjab region. The Company is in the process of setting up a Bi-axially Oriented Polypropylene (BOPP) plant of 50,000 MT with an approximate cost of USD 60mln in the Special Economic Zone, Sheikhupura. It will be operated as an associated Company of Poly Pack (Pvt.) Limited, named “Poly Pack Films (Pvt.) Limited”. This project features a backward integration model, reserving 10%-15% for in-house use while supplying the remainder to external markets. Set to commence operations by June 2025 or earlier, Poly Pack Films (Pvt.) Limited is positioned to become Pakistan’s third-largest BOPP film supplier, as per management representation. The Company has developed an effective mechanism for identifying, assessing, and reporting all types of risk arising out of the business operations.
On the financial profile side, the Company's revenue hasn't experienced substantial growth. In FY24, Poly Pack (Pvt.) Limited achieved a topline of PKR 15,503mln, marking a minor increase of about ~2.8% compared to PKR 15,077mln in FY23. Whereas, it stood at PKR 4,329mln at the end of 3MFY25. The gross profit margin declined from 8.5% in FY23 to 7.2% in FY24, due to high cost of sales primarily driven by increased raw material consumption. In 3MFY25, it further moderated to 7.1%. Consequently, the net profit margin experienced a slight contraction from 5.1% to 5.0% over the same period, standing at 4.6% in 3MFY25. The bottom-line of the Company clocked in at ~PKR 775mln during FY24 increased from ~PKR 771mln during FY23, driven by a reduction in finance cost. Whereas, by the end of 3MFY25, it amounted to PKR 198mln. The product demand is expected to strengthen further as macro-level fundamentals improve, leading to enhanced margins. The Company is low leveraged with sound financial indicators as of Sep'24. The trends of equity injections show strong financial commitments of the sponsors.

Key Rating Drivers

The ratings are dependent upon the management’s ability to improve margins while sustaining its market share. Prudent management of the working capital and maintaining sufficient cash flows and coverages are essential for the ratings. Any significant change in margins and coverages will impact the ratings.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Poly Pack (Pvt.) Limited

rating analysis

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Profile
Legal Structure

Poly Pack (Pvt.) Limited (or the "Company") was incorporated as a private limited Company in 1991.


Background

The Company has began its operations with the commercial production of polypropylene bags. The main sponsor family has utilized his skills and experience to turn Poly Pack (Pvt.) Limited into a competent contender in the PP bags and flexible packaging market. The Company is currently among the top ten producers of plastic packaging products.


Operations

Poly Pack (Pvt.) Limited provides different types of Poly Propylene Woven Bags, Polyethylene Plain Films, Polyethylene Shrink films, POF Shrink Films and flexible packaging. They have expanded their capacity year by year, from ~34,600 MT/annum to ~60,000 MT/annum tons, with a utilized capacity of 44,397 MT/annum (78%) in FY24. They have also set up a flexible packaging line where they print and provide packaging to large-scale corporate clientele. The Company has over 400 customers from various industries including textile, sugar, fertilizer, chemical, edible ghee/oil, beverages and confectionery/FMCG.


Ownership
Ownership Structure

Majority stake of Poly Pack (Pvt.) Limited lies with Mr. Iftikhar Ahmed who owns ~43.6% of the total shares. Mr. Aamir, Mr. Bilal, and Mr. Abdullah hold respectively ~15.6% ownership of the Company. Mr. Aamir, Mr. Bilal, and Mr. Abdullah are all brothers, with Mr. Aamir being the eldest, followed by Mr. Bilal and Mr. Abdullah. Mrs. Nazia Iftikhar, wife of Mr. Iftikhar Ahmed, holds 9.42%  stake in Poly Pack (Pvt) Limited.


Stability

Ownership structure is stable as owners have vast experience in the packaging industry while having a personal stake in business. Equity injections in FY23 of  PKR 617mln and PKR 228mln in FY24 show their commitment to business, and their plan to keep a low-leveraged capital structure keeps financial risk low.


Business Acumen

The owners and directors of Poly Pack (Pvt.) Limited possess extensive experience and deep industry insights, owing to their family background in the packaging sector. The Company is managed by three brothers under the guidance of their father. Mr. Bilal oversees all financial and tax-related matters, while Mr. Aamir and Mr. Abdullah are responsible for managing the Company's operational activities.


Financial Strength

The financial strength of the sponsors is sufficient to support the Company in the times of crises. The family has significant resources to finance the Company if the need arises.


Governance
Board Structure

The Company’s Board structure primarily revolves around its sponsor family. There are 4 directors on the Board, all of them are executive. The addition of independent director would be encouraged.


Members’ Profile

All the Board members are businessmen in the profession and have the relevant skills.


Board Effectiveness

The Board has the strength of all members belonging to the same family, increasing their cohesiveness. The Board met four times during FY24, with the majority attending to discuss pertinent matters.


Financial Transparency

M/s PKF F.R.A.N.T.S. are the external auditors of the Company. They have expressed an unqualified opinion on the financial reports for FY24. The firm is QCR rated by ICAP and is in the "B" Category of SBP’s panel of auditors.


Management
Organizational Structure

Poly Pack (Pvt.) Limited has developed a defined organizational structure keeping in mind the Company’s operational needs. The Company operates through Procurement, Sales and Marketing, Finance and Accounting, production and Technical department and Administration Departments.


Management Team

The Company’s General Manager (Production), Mr. Mushtaq Anjum Chaudhary has been associated with the Company since its inception. Mr. Mushtaq Anjum Chaudhary has over 45 years of relevant experience and also has special expertise in Polymer/Polyolefins. The Company’s Manager Finance, Mr. Aamir Manzoor, is a CA finalist and has over 29 years of relevant experience. He has been working with the Company for 20 years.


Effectiveness

The experience of the sponsors along with a professional management team has helped the Company to streamline its operations. However, Management’s effectiveness and efficiency can be ensured through the presence of management committees. At Poly Pack (Pvt.) Limited, absence of management committees are indicating the room for improvement.


MIS

To generate MIS and operational reports, the ERP software, SAP Crystal Reports is used.


Control Environment

The Company has developed an effective mechanism for identification, assessment, and reporting of all types of risk arising out of the business operations because there is an internal audit department in place to ensure operational efficiency which operates under the direct supervision of directors.


Business Risk
Industry Dynamics

A major challenge faced by the sector is prices and availability of raw materials specifically polymers such as polypropylene & polyethene (PP) resin. Resin prices are largely a function of global crude oil prices, demand-supply dynamics, and exchange rate volatility. Any volatility in the oil prices and exchange rates is, therefore, a significant source of risk for this segment. The variability in oil prices during FY24 was mainly due to the supply chain disruptions caused by the war in the Middle East and increased raw material prices on a global level due to high inflation and interest rate hikes. However, during FY24, oil prices decreased by ~3.0% YoY due to low demand for oil from major importers like China due to the economic slowdown. (Source: PACRA Sector Study)


Relative Position

The Company has captured the major share of the PP Woven Bags market. Poly pack (Pvt.) Limited is also becoming a well-known name in the PP films and flexible market segment and also holds a prominent share in this segment.


Revenues

During FY24, the Company generated a top line of ~PKR 15,053mln (FY23: ~PKR 15,077mln) remained largely stable whereas it stood at PKR 4,330mln at the 3MFY25. The Company generates revenue from the sale of  poly propylene woven bags, poly ethylene films and flexible packaging in the local market.


Margins

Raw materials being used for manufacturing Poly Propylene Woven Bags and flexible packaging are imported. So, to maintain the margins, the Company passes on the cost to B2B consumers. In FY24, gross margin and operating profit margin both decreased as compared to FY23. The GP margin decreased from ~8.5% in FY23 to ~7.2% in FY24 whereas in 3MFY25, it stood at 7.1%. OP margin decreased from ~7.2% to ~5.9% whereas in 3MFY25, it stood at 5.7%. Consequently, the net profit margin also decreased from ~5.1% to ~5.0% during the same period whereas in 3MFY25, it stood at 4.6%. The bottom-line of the Company clocked in at ~PKR 775mln during FY24 increased from ~PKR 771mln during FY23 wheres it stood at PKR 198mln at the end of 3MFY25.


Sustainability

In recent years, the Company has undergone through significant expansion while further capital is injected for the planned expansion. The Company is in the process of setting up of a BOPP plant titled as "Poly Pack Film (Pvt.) Limited" in Sheikhupura which will improve the operational efficiency of the Company and also will help to maintain a better position in the market. The Poly Pack Film (Pvt.) Limited will operate as associated Company of Poly Pack (Pvt) Limited. Its COD is expected in Jun'25 with the installed capacity of 50,000 metric tonnes annually with approx. cost of  USD 60mln. Once fully operational, Poly Pack Film (Pvt.) Limited will become the third-largest supplier of BOPP films in Pakistan as per management. 


Financial Risk
Working capital

Poly Pack (Pvt.) Limited experienced a notable rise in inventory days, increasing from ~34 days at end-FY23 to ~49 days at end-FY24 wheres it stood at 48 days at the end of 3MFY25. Inventory days increased because the Company has imported raw materials in huge quantities due to the rise in raw material prices and currency rate fluctuations. Meanwhile, trade receivable days remains constand at ~25 days during the same period wheres it stood at 24 days at the end of 3MFY25. But the trade payable days increased from ~64 days at end FY23 to ~90 days at end FY24 wheres it stood at 95 days at the end of 3MFY25. Consequently, the Company’s net working capital days decreased to (16) days at end FY23 from (6) days at the end of FY24 wheres it stood at (24) days at the end of 3MFY25.


Coverages

In FY24, the Company’s FCFOs stood at ~PKR 762mln decreasing from ~PKR 911mln in FY23 whereas it stood at PKR 182mln at the end of 3MFY25. During FY24, FCFO/Finance cost stood at ~ 22.2x increased from ~19.7x of coverage during FY23 due to a significant decrease in the finance cost. The finance cost stood at ~PKR 44mln in FY24 decreased from ~PKR 178mln at the end of FY23 whereas it stood at PKR 12mln at the end of 3MFY25; however, this is still a very healthy coverage level for the Company.


Capitalization

The Company has a low leveraged capital structure. Long-term debt is related to expansion activities, whereas short-term debt is related to working capital management. Its gearing ratio has decreased from ~7.7% at the end of FY23 to ~5.2% at the end of FY24 due to significant increase in equity and decrease in long term borrowing wheres it stood at 4.8% at the end of 3MFY25. At the end of FY24, the long-term borrowing has decreased to ~PKR 93mln from ~PKR 186mln at the end of FY23 whereas it stood at PKR 56mln at the end of 3MFY25. Consequently, the total borrowing has decreased to ~PKR 235mln from ~PKR 287mln during the same period wheres it stood at PKR 226mln at the end of 3MFY25. Whereas, the equity of the Company stood at PKR 4,905mln at end of FY24. (FY23: PKR 3,901mln) wheres it stood at 5,103mln at the end of 3MFY25.
 
 

Feb-25

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Poly Pack (Pvt.) Limited

financial summary

(PKR mln)

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Sep-24
3M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 4,771 4,483 1,442 1,308
2. Investments 50 50 0 0
3. Related Party Exposure 300 300 2,490 995
4. Current Assets 5,090 5,093 3,741 3,035
a. Inventories 2,039 2,477 1,649 1,169
b. Trade Receivables 1,194 1,087 1,001 1,035
5. Total Assets 10,211 9,925 7,674 5,337
6. Current Liabilities 4,810 4,707 3,401 2,380
a. Trade Payables 4,595 4,450 3,160 2,157
7. Borrowings 226 235 287 384
8. Related Party Exposure 28 34 37 24
9. Non-Current Liabilities 43 45 48 39
10. Net Assets 5,103 4,905 3,901 2,511
11. Shareholders' Equity 5,103 4,905 3,901 2,511
B. INCOME STATEMENT
1. Sales 4,330 15,503 15,077 14,252
a. Cost of Good Sold (4,023) (14,391) (13,795) (13,402)
2. Gross Profit 307 1,113 1,282 850
a. Operating Expenses (58) (197) (192) (144)
3. Operating Profit 249 916 1,091 706
a. Non Operating Income or (Expense) (13) (40) (48) (29)
4. Profit or (Loss) before Interest and Tax 235 876 1,042 677
a. Total Finance Cost (12) (44) (178) (27)
b. Taxation (26) (57) (93) (41)
6. Net Income Or (Loss) 198 775 771 609
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 182 762 911 523
b. Net Cash from Operating Activities before Working Capital Changes 173 722 735 503
c. Changes in Working Capital 246 (223) (971) (1,075)
1. Net Cash provided by Operating Activities 418 500 (235) (571)
2. Net Cash (Used in) or Available From Investing Activities (311) (688) (285) (250)
3. Net Cash (Used in) or Available From Financing Activities (14) 173 533 120
4. Net Cash generated or (Used) during the period 93 (15) 13 (701)
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 11.7% 2.8% 5.8% 18.8%
b. Gross Profit Margin 7.1% 7.2% 8.5% 6.0%
c. Net Profit Margin 4.6% 5.0% 5.1% 4.3%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 9.9% 3.5% -0.4% -3.9%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 15.8% 17.6% 24.1% 30.9%
2. Working Capital Management
a. Gross Working Capital (Average Days) 72 73 59 51
b. Net Working Capital (Average Days) -24 -16 -6 2
c. Current Ratio (Current Assets / Current Liabilities) 1.1 1.1 1.1 1.3
3. Coverages
a. EBITDA / Finance Cost 34.2 30.3 26.8 37.8
b. FCFO / Finance Cost+CMLTB+Excess STB 4.8 6.0 6.6 3.8
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 0.3 0.3 0.4 0.8
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 4.8% 5.2% 7.7% 14.0%
b. Interest or Markup Payable (Days) 85.4 78.7 61.3 170.7
c. Entity Average Borrowing Rate 12.4% 12.2% 12.7% 4.0%

Feb-25

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Poly Pack (Pvt.) Limited

rating scale

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Feb-25

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Poly Pack (Pvt.) Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
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    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
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  6. Probability of Default
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