Lahore, December 28, 2021 (PPI-OT):The ratings reflect Cherat Packaging Limited’s (“CPL” or “The Company”) established position as one of the leading players in cement packaging sector. Over the years, the Company has built a strong business profile and now setting footprints in flexible packaging industry. The Company is also focusing on strengthening its position in export segment (PP Bags) and managed to increase its exports by 50% (FY20: PKR 244mln). The Company succeeded to maintain its market share in bags manufacturing segment at ~30%. The long-term prospects of the Company are linked with demand and expansion in local cement demand, outside of country and flexible packaging business.
The Company has managed to earn healthy cash flows during the year. While the profit margin of the Company increased due to high growth in cement sector, favourable government policies, effective marketing strategies and reduction in discount rates. Further strategic relationships with international suppliers helped the Company in reaping benefits of high demand and effective inventory management. Financial leveraging went down during the year on the back of effective working capital management (which resulted in reduction in short term borrowing) better profitability and loan repayments.
The Company has moderately leveraged capital structure where the long-term debt is related to expansion activities. Strong liquidity position of the Company is also evident from its current ratio of 1.7 times (FY20: 1.6 times) at end FY21. The Company’s association with Ghulam Faruque Group also bodes well for the ratings. Going forward, in order to strengthen its market position in bags manufacturing division, the Company is in process of installation of new PP line which is expected to be completed in Jan’22. This will have a production capacity of ~65mln bags/annum taking the total production capacity to 260mln PP bags per annum. The Company has availed the Temporary Economic Refinance Facility (TERF) from SBP amounting to PKR 655mln, to finance the project.
The ratings are dependent upon the management’s ability to improve margins while sustaining its market share. Prudent management of the working capital, maintaining sufficient cash flows and coverages is imperative for the ratings. Materialization of management’s strategy of diversification through flexible packaging into better margins and profitability is important. Any significant decrease in margins and/or coverages will impact the ratings.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com