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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Jun-19

Analyst
Shahzaib Khalid
shahzaib.khalid@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Assigns Initial Entity Ratings to Cherat Packaging Limited

Rating Type Entity
Current
(28-Jun-19 )
Action Initial
Long Term A
Short Term A1
Outlook Stable
Rating Watch -

The ratings reflect Cherat Packaging Limited’s established position as the largest cement bag manufacturer in the country. Over the years, the company has built a strong business profile and recently diversified its revenues by adding flexible packaging. The company has maintained healthy margins and profitability. It imports its raw material, which remains sensitive to rupee devaluation. However, the management expects to sustain margins through timely inventory procurement and phased passing out of cost. The long term prospects of the company are linked with demand and expansion in local cement capacity, exports cement demand and flexible packaging business. The company has a leveraged capital structure supplemented by strong coverages and prudent working capital management. The long term debt is related to expansion activities, whereas short term debt has increased recently pursuant to aggressive inventory procurement. The company’s association with Ghulam Faruque Group and its strong governance framework are the rating factors.
The ratings are dependent upon the management’s ability to improve revenues while sustaining margins. Prudent management of the working capital, maintaining sufficient cash flows and optimal capital structure is imperative for the ratings. Materialization of management’s strategy of diversification through flexible packaging into better margins and profitability is important.

About the Entity
Cherat Packaging Limited, incorporated in 1989, is a Ghulam Faruque Group Company, listed on the Pakistan Stock Exchange. Faruque Private Limited – holding company for the group – owns (10.25%), followed by Cherat Cement Company Limited (7.35%), Greaves Pakistan Private Limited (5.02%) and Mirpurkhas Sugar Mills Limited (4.97%), leading to 27.59% shareholding of the group. The remaining stake is held by the general public, public sector companies, financial and non-financial institutions. The company is engaged in manufacturing, marketing and sale of paper sacks, polypropylene bags and flexible packaging material. The company has a long history of expansion and diversification. In 1992, the company started its production of paper sacks and diversified its business with manufacturing of polypropylene bags in 2012. In 2017, company entered in the field of flexible packaging.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.