Pakistan Synthetics Limited

CREDIT RATING REPORT | Apr-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
25-Apr-25 A- A2 Stable Maintain -
26-Apr-24 A- A2 Stable Maintain -
28-Apr-23 A- A2 Stable Maintain -
29-Apr-22 A- A2 Stable Upgrade -
06-Aug-21 BBB+ A2 Stable Maintain -
About the Entity

Pakistan Synthetics Limited was incorporated as a private limited company in 1984. In 1987, the Company was converted into a public limited company and was listed on the Pakistan Stock Exchange. The Company provides complete packaging solutions through the production and sale of PET Resin at an installed capacity of 28,000MT per annum, PET Preform at an installed capacity of 52,000 Octabins per annum and Plastic Closures and Metal Crowns at an installed capacity of 558,570 cartons per annum. PSL's manufacturing facilities are located in Hub, Balochistan and Port Qasim, Karachi. The Company's registered office is located in Clifton, Karachi. PSL is primarily owned by the Yaqoob Karim family (~73%) through individual family members. Mr. Yaqoob Haji Karim (~20%) and Mr. Noman Yaqoob (~21%) arethe two largest stakeholders of the Company. Approximately 15% of the stake resides with the general public.

Rating Rationale

Pakistan Synthetics Limited ("PSL" or the "Company") ratings reflect the strong sponsor profile, satisfactory market position, and its adequate financial profile. The principal activity of the Company is the manufacturing and sale of Plastic and Crown Caps, PET resin, and PET Preform. As per management representation, Pakistan Synthetics holds a moderate market share of ~15% in the PET Resin segment. Whereas, in the Plastic Caps and Metal Crowns, the Company is a market leader with an estimated share of ~60% and ~15% in PET preform. The demand for Pakistan’s PET packaging industry is seasonal as it mostly drives its demand from the country’s beverage sector. In FY24, capacity utilization of PSL reflected mixed trends across segments—Plastic and Crown Caps operated at a relatively lower rate of ~79% (FY23: 111%), PET Resin saw improved utilization at ~95% (FY23: 80%), while PET Preform utilization declined to ~64% (FY23: 73%). The assigned rating takes into account the good governance framework, strong control environment, and qualified and experienced management team. The internal audit department is operating under the direct supervision of the directors. The Company has developed an effective mechanism for the identification, assessment, and reporting of all types of risk arising out of the business operations. The PET preform segment stood out as the top earner by contributing ~41.9% to the overall revenue in FY24. Whereas, metal crowns and plastic caps have contributed ~28.7%. Financially, the Company saw a decline in revenue during FY24 due to lower sales volume, reporting at PKR 13,799mln (FY23: PKR 14,425mln), a decrease of ~4.3%. While the profitability was impacted by rising raw material costs, exchange rate volatility, and higher finance costs, resulting in a decline in PAT to PKR 348mln (FY23: PKR 798mln). Subsequently, during 6MFY25, the Company saw a 21% increase in sales revenue driven by higher quantities sold. Consequently, the gross profit rose from PKR 843mln to PKR 975mln. However, despite a decrease in interest rates, the Company's higher utilization of short-term borrowing resulted in an increase in finance cost. Additionally the Company's investment in an associate reported a loss; these factors led to a decline in PAT to PKR 169mln (6MFY24: 216mln).

Key Rating Drivers

The management is proactively managing the situation to maintain existing market share in the industry while remaining competitive and keeping the profit margins intact.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Pakistan Synthetics Limited

rating analysis

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Profile
Legal Structure

Pakistan Synthetics Limited ("PSL" or the "Company") is a public limited company.


Background

Pakistan Synthetic was founded as a private limited company in 1984 and converted to a public limited company in 1987. The Company currently produces PET Resin, PET Preform, Plastic Caps, and Metal Crowns. Initially, the Company was also engaged in the production of Polymer Staple Fibre. However, its production was discontinued in 2015.


Operations

The Company produces Plastic Closures, Metal Crowns, PET Resin, and PET Preform with capacities of ~ 558,570 Cartons per annum, ~28,000 MT per annum, and ~52,000 Octabins per annum. The Company's manufacturing facilities are located in Hub, Baluchistan, and Port Qasim, Karachi. The registered office is located in Clifton, Karachi.


Ownership
Ownership Structure

The majority stake of Pakistan Synthetics lies with the Yaqoob Karim family who own approximately 73% of total shares. Mr. Yaqoob Karim (~20%) and Mr. Noman Yaqoob (~21%) are the two largest stakeholders of the Company. Mutual funds own ~7% of the Company’s shares and insurance companies own ~3%. Approximately ~15% of the stake resides with the general public.


Stability

The ownership structure is stable.


Business Acumen

Pakistan Synthetics Limited is wholly owned by the Yaqoob Karim family. Previously, the Company was the successful venture of Al-Karam Group. The Group was ranked amongst the leading industrial groups of the country with interests in textile, financial institutions, consumables, and consumer product sectors.


Financial Strength

Pakistan Synthetics is owned by a strong business family. The members of the sponsoring family hold shares and directorships of many companies.


Governance
Board Structure

The Company's board is comprised of eight members and is dominated by Haji Karim family. There are three Independent Directors, two Non-Executive Directors, one Nominee Director, and two Executive Directors, including the CEO, on the board.


Members’ Profile

The Board's Chairman, Mr. Khurshid Akhtar, serves as an independent director and has been associated with the board for over 5 years. All the directors have diversified backgrounds and expertise which enables them to provide effective oversight and guidance to the management.


Board Effectiveness

The Board met four times during FY24, with a majority attendance to discuss pertinent matters. To ensure effective governance, the Board has formed four committees, namely, (i) Audit Committee, (ii) HR and Remuneration Committee, (iii) Risk Committee and (iv) Nomination Committee.


Financial Transparency

BDO Ebrahim & Co.Chartered Accountants are the external auditors of the Company. They have expressed an unqualified opinion on the financial reports for 6MFY25. The firm is QCR-rated by ICAP and is in the "A" Category of SBP’s panel of auditors.


Management
Organizational Structure

The Company has established a structured organizational framework tailored to its operational requirements, comprising key departments such as Procurement, Sales and Marketing, Finance and Accounting, Production, Technical, and Administration.


Management Team

The Company's CEO, Mr. Yaqoob Haji Karim, has been associated with the Company for over 28 years. He also serves on the boards of Al-Karam Textile Mills (Pvt.) Limited and Amna Industries (Pvt.) Limited. Mr. Shahid Yaqoob, the CFO, has been associated with the Company for 6 years. He has a post qualification experience of 10 years in the manufacturing industry, i.e., Textile, Cement and Plastic Products. All members of the senior management are experienced and have long associations with the Company, which bodes well for operational efficiency. 


Effectiveness

The experience of the sponsors along with a professional management team has helped the Company to streamline its operations. However, management’s effectiveness and efficiency can be ensured through the management committees. At PSL, the absence of management committees indicates room for improvement.


MIS

The Company has recently installed SAP and various modules have already been implemented. The Company was previously operating through a legacy system and the switch to SAP was made in order to facilitate the generation of various types of operational reports required by the management.


Control Environment

The Company has an internal audit function in place, which provides an effective mechanism for identification and reporting the risks arising out of the business operations. The Company has numerous certifications including ISO 9001 and Halal certification indicating strong compliance with quality standards.


Business Risk
Industry Dynamics

The demand for Pakistan’s PET packaging industry is seasonal as it mostly drives its demand from the beverage sector. The price of the major raw material used in the making of plastic, Polyethylene Terephthalate (PET), is correlated with international oil prices. Any volatility in the oil prices and exchange rates is, therefore, a significant source of risk for this segment.


Relative Position

Pakistan Synthetics holds a moderate market share of ~15% in the PET Resin segment. Whereas, in the Plastic Caps and Metal Crowns, the Company is a market leader with an estimated share of ~60% and ~20% in PET Preform during 6MFY24, respectively.


Revenues

The PET preform segment stood out as the top earner by contributing ~41.9% to the overall revenue in FY24. Whereas metal crowns and plastic caps have contributed ~28.7% to the total revenue. On the financial profile side in CY24, the Company experienced a declining trend in its top line, primarily due to decreased sales volume. In FY24, the Company's revenue declined by 4.3% and stood at ~PKR 13,800mln (FY23: ~PKR 14,425mln). During 6MFY25, the revenue of the Company increased by 20.5% and was reported at PKR 6,575mln (6MFY24: ~PKR 5,452mln).


Margins

During FY24, with declining revenue, the Company also faced challenges arising from i) rising raw material costs, ii) exchange rate volatility, and iii) higher finance costs, which have resulted in a decline in profit margins. Consequently, in FY24, the gross margin and operating profit margin both decreased compared to FY23. The GP margin decreased to ~15%  (FY23: ~17.9%), while the OP margin decreased to ~11.8% (FY23: ~14.4%). Consequently, the net profit margin also decreased to ~2.5% (FY23: 5.5%). The PAT of the Company clocked in at ~PKR 348mln during FY24, which declined from ~PKR 798mln during FY23. During 6MFY25, the GP margin was reported at ~14.8%, while the OP margin stood at ~12.4%, and the net profit margin was reported at ~2.6%. The PAT was reported at PKR 169mln.


Sustainability

In recent years, the Company has undergone significant expansion. Going forward, the Company plans to invest in BMR activities to improve operational efficiency and maintain market position. Additionally, the management is focused on consolidating its position in the industry and increasing the capacity utilization of the PET Preform segment


Financial Risk
Working capital

At end-Jun24, PSL experienced a rise in inventory days, increasing to ~86 days (end-Jun23: ~73 days). Inventory days increased because the Company has imported raw materials in huge quantities due to the rise in raw material prices and currency rate fluctuations. The trade payable days decreased to ~44 days (end-Jun23: ~53 days). Consequently, the Company’s net working capital days increased significantly to ~ 97 days (end-Jun23: ~61 days). At end-Dec24, the inventory days, decreased to ~103 days (end-Dec23: ~135 days). The trade payable days also decreased to ~58 days (end-Dec23: ~63 days). Therefore, the Company’s net working capital days increased to ~ 117 days (end-Dec23: ~114 days).


Coverages

In FY24, PSL’s FCFOs stood at ~PKR 1,047mln, decreasing from ~PKR 1,899mln in FY23. As a result, the FCFO/Finance cost also showed a decrease from ~5.7x during FY23 to ~ 1.4x during FY24 (6MFY25: ~1.9x, 6MFY24: ~1.3x) due to a decline in FCFOs and a rise in finance cost from PKR 381mln during FY23 to PKR 844mln during FY24. During FY24, the interest coverage was reported at 1.5x. During 6MFY25, PSL’s FCFOs were reported at ~PKR 660mln, increasing from ~PKR 420mln in 6MFY24. As a result, the FCFO/Finance cost also showed an increase from ~1.3x during 6MFY24 to ~ 1.9x during 6MFY25 due to an increase in FCFOs and a rise in finance cost from PKR 380mln during 6MFY24 to PKR 391mln during 6MFY25.


Capitalization

Pakistan Synthetics Limited's gearing ratio has increased from ~38.3% at the end of Jun-23 to ~51.9% at the end Jun-24 due to a significant increase in total borrowings. Total borrowing increased from PKR 2,432mln at the end of Jun-23 to PKR 4,595mln at the end of Jun-24 due to an increase in STB. Short-term borrowing increased from PKR 1,381mln at the end of Jun-23 to PKR 3,726mln at the end of Jun-24. At end-Jun24, the equity base increased to PKR 4,261mln (end-Jun23: PKR 3,911mln). At end-Dec24, the total borrowing was reported at PKR 4,093mln. While, the Short-term borrowing stood at PKR 3,346mln. At end-Dec24, the equity base was reported at PKR 4,429mln.
 
 

Apr-25

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Pakistan Synthetics Limited

financial summary

(PKR mln)

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Dec-24
6M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 3,181 2,953 3,254 3,328
2. Investments 7 8 4 6
3. Related Party Exposure 1,074 1,179 1,398 0
4. Current Assets 7,789 7,020 4,952 5,226
a. Inventories 4,099 3,336 3,201 2,594
b. Trade Receivables 2,466 2,692 1,428 1,818
5. Total Assets 12,051 11,160 9,608 8,560
6. Current Liabilities 3,528 2,305 3,050 3,048
a. Trade Payables 2,604 1,558 1,780 2,442
7. Borrowings 4,093 4,595 2,432 2,250
8. Related Party Exposure 0 0 0 0
9. Non-Current Liabilities 0 0 215 148
10. Net Assets 4,429 4,261 3,911 3,115
11. Shareholders' Equity 4,429 4,261 3,911 3,115
B. INCOME STATEMENT
1. Sales 6,575 13,800 14,425 12,311
a. Cost of Good Sold (5,600) (11,725) (11,847) (9,988)
2. Gross Profit 975 2,074 2,578 2,324
a. Operating Expenses (159) (443) (500) (333)
3. Operating Profit 815 1,632 2,078 1,990
a. Non Operating Income or (Expense) (130) (230) (325) (261)
4. Profit or (Loss) before Interest and Tax 686 1,402 1,753 1,730
a. Total Finance Cost (391) (844) (381) (248)
b. Taxation (126) (210) (574) (495)
6. Net Income Or (Loss) 169 348 798 986
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 660 1,047 1,899 2,055
b. Net Cash from Operating Activities before Working Capital Changes 287 344 1,592 1,846
c. Changes in Working Capital 608 (2,276) (83) (857)
1. Net Cash provided by Operating Activities 895 (1,932) 1,508 989
2. Net Cash (Used in) or Available From Investing Activities (390) (223) (1,740) (1,398)
3. Net Cash (Used in) or Available From Financing Activities 225 886 116 337
4. Net Cash generated or (Used) during the period 730 (1,269) (116) (72)
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -4.7% -4.3% 17.2% 69.8%
b. Gross Profit Margin 14.8% 15.0% 17.9% 18.9%
c. Net Profit Margin 2.6% 2.5% 5.5% 8.0%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 19.3% -8.9% 12.6% 9.7%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 7.8% 8.5% 22.7% 36.1%
2. Working Capital Management
a. Gross Working Capital (Average Days) 175 141 114 105
b. Net Working Capital (Average Days) 117 97 61 49
c. Current Ratio (Current Assets / Current Liabilities) 2.2 3.0 1.6 1.7
3. Coverages
a. EBITDA / Finance Cost 2.9 2.6 6.5 9.7
b. FCFO / Finance Cost+CMLTB+Excess STB 1.4 1.0 4.0 5.1
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 1.2 3.1 0.7 0.6
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 48.0% 51.9% 38.3% 41.9%
b. Interest or Markup Payable (Days) 31.7 29.6 25.3 31.9
c. Entity Average Borrowing Rate 15.9% 19.8% 15.4% 9.8%

Apr-25

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Pakistan Synthetics Limited

rating scale

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Apr-25

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Pakistan Synthetics Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
    4. PACRA ensures before the commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest. (Chapter III; 11-A-(r))
    5. PACRA maintains the principle of integrity in seeking rating business. (Chapter III; 11-A-(u))
    6. PACRA promptly investigates in the event of misconduct or a breach of the policies, procedures, and controls, and takes appropriate steps to rectify any weaknesses to prevent any recurrence, along with suitable punitive action against the responsible employee(s). (Chapter III; 11-B-(m))
  4. Independence & Conflict of Interest
    1. PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA’s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity, and independence of its ratings. Our relationship is governed by two distinct mandates: i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed with the payer, which can be different from the entity.
    2. PACRA does not provide consultancy/advisory services or other services to any of its customers or their associated companies and associated undertakings that are being rated or have been rated by it during the preceding three years, unless it has an adequate mechanism in place ensuring that the provision of such services does not lead to a conflict of interest situation with its rating activities. (Chapter III; 12-2-(d))
    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
    4. PACRA ensures that the rating assigned to an entity or instrument is not affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship. (Chapter III; 12-2-(i))
    5. PACRA ensures that the analysts or any of their family members shall not buy, sell, or engage in any transaction in any security which falls in the analyst’s area of primary analytical responsibility. This clause, however, does not apply to investments in securities through collective investment schemes. (Chapter III; 12-2-(l))
    6. PACRA has established policies and procedures governing investments and trading in securities by its employees and for monitoring the same to prevent insider trading, market manipulation, or any other market abuse. (Chapter III; 11-B-(g))
  5. Monitoring and Review
    1. PACRA monitors all the outstanding ratings continuously, and any potential change therein due to any event associated with the issuer, the security arrangement, the industry, etc., is disseminated to the market immediately and in an effective manner after appropriate consultation with the entity/issuer. (Chapter III; 17-(a))
    2. PACRA reviews all the outstanding ratings periodically on an annual basis. Provided that public dissemination of annual review and in an instance of change in rating will be made. (Chapter III; 17-(b))
    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
    4. PACRA engages with the issuer and the debt securities trustee to remain updated on all information pertaining to the rating of the entity/instrument. (Chapter III; 17-(d))
  6. Probability of Default
    1. PACRA’s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability). PACRA’s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA’s Transition Study available at our website. (www.pacra.com) However, the actual transition of rating may not follow the pattern observed in the past. (Chapter III; 14-3(f)(vii))
  7. Proprietary Information
    1. All information contained herein is considered proprietary by PACRA. Hence, none of the information in this document can be copied or otherwise reproduced, stored, or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s prior written consent.

Apr-25

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