Lahore, February 17, 2023 (PPI-OT):Nishat Paper Products Co Ltd.’s (“NPPCL” or the “Company”) ratings reflect the strong sponsor profile, satisfactory market position, and adequate financial profile of the Company. The demand for the cement packaging segment is directly linked with cement dispatches. The latest period reported a reduction in cement production reflecting an economic downturn. The increase in prices of all the construction materials has impacted demand for cement as well. However, cement’s demand is expected to come in the full circle once the macro-level fundamentals improve.
Through, industry-wide volumetric decrease in sales has been reported but the selling prices have absorbed the impact too much extent. While considering the depleting revenues of the country, the supply chain of the Company has also been impacted as the raw material is ~95% imported. However, being the subsidiary of D.G. Khan Cement Company Limited, NPPCL derives strength and economies of scale from the parent company, which bodes well for the ratings. Furthermore, the industry is also diverging more towards PP bags as these are less costly compared to KP bags. Currently, the Company has a production capacity of 220mln bags/per annum and operating at a capacity level of ~40% during FY22 (FY21: ~60%).
The Company has maintained adequate margins and profitability. The top line of the Company decreased by ~22.9% during FY22. The Company has generated a topline of ~ PKR 3,070mln in FY22 as compared to ~PKR 3,980mln in FY21. During FY22, Nishat Paper Products Company Limited generated a humble bottom line of ~PKR 292mln (FY21: ~PKR 525mln). The decline in profitability is attributable to PKR depreciation and increased commodity prices and finance cost.
The Company has leveraged capital structure. Long-term debt is related to expansion activities, whereas short-term debt has increased substantially pursuant to slow movement in receivables. However, the majority of receivables are from the related party which gives comfort to the credit risk. Going forward, the Company is planning to diversify its revenue stream by introducing a new product line that would support the Company in stable profitability.
The ratings would remain dependent upon the company’s ability to sustain its healthy business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remain important. Moreover, upholding of governance framework is vital.
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