Karachi, December 30, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Century Paper and Board Mills Limited (CPBML) at ‘AA-/A-1’ (Double A Minus/ A-One). Long term rating of ‘AA-’ signifies high credit quality with strong protection factors. Risk is modest but may vary slightly from time to time because of economic conditions. Short-term rating of ‘A-1’ depicts high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned rating is ‘Stable’. The previous rating was announced on November 10, 2021.
The ratings assigned to CPBML take into its account strong sponsor profile in line with majority shareholding vested with Lakson Group having business interests in FMCG, fast food, insurance, media, paper, technology and asset management. The business risk profile is marked by stable and growing demand supported by end consumers belonging to FMCG, cosmetic and pharmaceutical sectors, sizable market share in coated paperboard sub-segment, evolving consumer behaviour patterns and health consciousness with increased inclination towards hygienic products post pandemic favouring packaging industry and four-decade operating history.
Given the relatively stable demand for coated board and expected growth in the segment, CPBML has achieved higher capacity via modifications in existing plant and machinery along with quality and efficiency enhancement initiatives. Ratings also factor in further BMR activities planned for capacity enhancement of paper and board machines, and power and utilities. On the flip side, the company’s financial risk profile exhibits weakening in terms of dip in margins and profitability metrics, reduced liquidity in view of thin cash flows in terms of outstanding obligations and coverages coupled with timeline increase in leverage indicators.
The margin compression on a timeline was a combined outcome of forex risk as almost half of the raw material is imported, higher freight and fuel cost coupled with lag in transferring cost escalation to customers. Going forward the financial risk profile and ratings remain sensitive to downturn in country’s macroeconomic indicators involving policy rate increase, heightened general inflation and weakening on external front. The cost increases are expected to be passed on eventually but with a lag, so in coming quarters financial profile is expected to improve given volumes have been increasing. The recouping of financial risk profile of the Company in the early period of the ongoing fiscal year as envisaged by the management is important to mitigate the existing pressure on ratings.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/