EcoPack's credit ratings held steady by PACRA

August 13, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of EcoPack Limited (PSX: ECOP) at "BBB" for long term and "A2" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

ECOP is one of the leading manufacturers of quality PET bottles and preforms in Pakistan.

The strategic location of the company is in the northern region of the country. EcoPack has a production capacity of over 327 million bottles and 729 million preforms per year.

The ratings reflect EcoPack Limited's established position in the PET preform and PET bottle market, sound governance, and experienced management team associated with EcoPack for a long time.

The PET packaging sector mostly derives its demand from the Carbonated Soft Drink (CSD) and water bottle industry, edible oil, pharma, and other consumables.

The industry is exposed to seasonality as beverage demand remains higher in the summer months and the M/O Holy Ramazan.

During 9MFY24, the topline of the company increased by 6% to stand at Rs4.9bn (9MFY23: Rs4.6bn) with a major contribution of PET Bottles at 64% followed by PET Preforms clocking in at 36%.

The increase in topline is attributable to an increase in volumetric sales of products and sale prices during the period.

The gross profit of the company inclined to PKR 374mln (9MFY23: PKR 335mln) owing to enhanced revenues.

However, due to the off-season impact and increase in the operational expenses and finance costs the company has reported a net loss of Rs30m (9MFY23: Rs23m).

Moreover, the financial matrix reveals moderate leveraging, weakened coverages, and a stretched working capital cycle.

Going forward, the impact of higher finance costs & overheads on profitability is expected to be offset by transferring the cost impact to customers, which would result in improvement in margins and an increase in the top line.

On the ownership side, the ongoing litigation is still in process i.e. i) the appointment of the CEO and ii) the Acquisition of shares beyond prescribed limits.

The Sindh High Court has granted an ad-interim stay order with a direction to maintain the status quo in this respect. The matter is still pending in the Sindh High Court.

Considering ongoing litigation, the rating watch will remain intact. Ratings would remain 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 imperative for the ratings. Any significant decrease in margins and coverages will impact the ratings.

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