Packages’ profitability remains subdued after discontinuation of dividend stream from Tetra Pak: PACRA

December 19, 2019: Pakistan Credit Rating Agency (PACRA) has maintained entity ratings of Packages Limited at “AA” for long-term and “A1+” for short-term, with a ‘stable’ outlook forecast.

The ratings reflect Packages Limited's (‘Packages’ or ‘The Company’) strong business and financial profile built over the years as flagship Company of Packages Group.

The sponsor's business acumen and strong connections have remained beneficial. Lately, the Company has planned 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 was able to pass on the surged raw material prices and increased marketing expenses while holding the margins.

However, profitability remained subdued due to high finance cost and low dividend income after discontinuation of dividend stream from Tetra Pak as per the terms of contract.

Although competition remains tough in tissue and flexible packaging businesses, the management is confident to hold the current market position and sustain the performance pattern.

Packages holds a sizeable investment book ~ PKR 39bln (as at Sept-19), comprising strategic (PKR 18bln) and non-strategic (PKR 20bln) 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 took additional debt to finance CAPEX and working capital needs. However, leveraging remains low and sufficient coverages provide cushion to meet its payments comfortably.

The management envisages augmented potential dividend inflow from local and international investments to supplement its dividend stream in the next two years.

The ratings are dependent upon achieving operational efficiency in operational activities and improved inflow of investment income. Materialization of same into sustained dividends is important.

The ratings draw comfort from the low leveraged capital structure and the ability to maintain coverages. Predictable and consistent impact of internal organizational restructuring would remain imperative.