PACRA maintains entity ratings of Nimir Chemicals

September 18, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Nimir Chemicals Pakistan Limited (NCPL) at "A-" for long term and "A2" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

The ratings reflect NCPL's long-established history and prominent position in the domestic petrochemicals industry (specifically in PA and DOP).

NCPL is Pakistan's major PA producer, retaining a strong market share of 80%.

It captures around 40% share in the DOP segment, 21% in AR, and 14% in MA.

Phthalic Anhydride is a basic component for further downstream industries like DOP, UPR, and Alkyd Resins, thus creating value addition from plasticizers to the manufacturing of artificial leather, plastic moldings, cable compound, flexible PVC, hoses, footwear, paint, textile, and various other products.

Pakistan’s reliance on imported intermediate chemicals is reducing with time as local companies are injecting more investments to increase their production capacities.

The sector is considered a backbone in the development of forward-linked industries.

However, the sector faces considerable production cost pressures amidst high energy prices, massive currency devaluation, and high borrowing costs.

In CY22, NCPL's topline registered 9.6% growth mainly due to price inflation, but the margins displayed dilution at all levels due to foreign exchange losses and elevated finance costs.

In 1HCY23, the performance showed improvement as the company was able to pass on cost hikes to its customers and implemented changes in its sales strategy which enabled the company to reduce reliance on short-term borrowings.

Going forward the demand side from the construction, coating/paint, and PVC products is expected to remain subdued due to the challenging economic situation hence will impact the volumes of Plasticizers (DOP), PA, and AR in the near future.

The National Tariff Commission of Pakistan imposed definitive anti-dumping duties on PA imports to support the local players.

NCPL's revenue streams are driven by PA sales and other product sales to a diverse customer base.

Its growth function is usually a mix of better prices and higher volume though, the former was the prime factor during recent periods.

Predominantly, NCPL has to put together realistic projections to monitor financial results.

The financial risk profile is demonstrated by efficient working capital management, adequate coverages, and comfortable cash flows.

Currently, NCPL's capital structure is low-leveraged.

Going forward, the implementation of good governance, and improvement in the internal control system are required to ensure compliance at all levels and smooth running of operations.

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