June 27, 2019 (MLN): Pakistan Credit Rating Agency (PACRA) has maintained the entity ratings of Packages Limited at AA for long-term and A1+ for short-term, with a stable outlook forecast.
The ratings reflect the Company’s strong business and financial profile built over the years as flagship Company of Packages Group.
The sponsor's business acumen and their widespread reach have remained beneficial. Lately, the Company plans for an internal restructuring; separating into operational and investment subsidiaries and making Packages a pure Holding Company.
Packages has prominent market presence in its operational segments – Packaging (Flexible and Folding Cartons) and Consumer Products (Tissue).
The Company has shown growth in business volumes as well as profitability. However, an overall decline was witnessed in the margins owing to surge in raw material prices and increased marketing expenses.
Although competition remains for its tissue and flexible packaging businesses, the management is confident to hold current market position and sustain the performance pattern.
Packages holds a sizeable investment book of PKR 45bln (as at Mar-19), comprising strategic (PKR 18bln) and non-strategic (PKR 26bln) investments. Packages Mall, a real estate venture, is progressing as envisioned. OmyaPack (Pvt.) Ltd, a JV with an international player for calcium carbonate, became operational and is still evolving. Bulleh Shah Packaging (Pvt.) Ltd. has yet to completely turn around and generate profits.
Packages has loaded more debt on its balance sheet to finance CAPEX and working capital needs. Moreover, the ended dividend stream from TetraPak exerts pressure on the Company’s financial profile.
However, Packages low geared capital structure and sufficient coverages provides cushion to meet its payments comfortably in a timely manner. The management envisages on an augmented potential dividend inflow from local and international investments to compensate its dividend stream in next two years.
The ratings are dependent upon achieving operational efficiency in growth activities and improved inflow of investment income. Materialization of same into sustained dividends is important.
The ratings draw comfort from low leveraged capital structure and the ability to maintain coverages. Predictable and consistent impact of internal restructuring would remain imperative.
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