The Pakistan Credit Rating Agency Limited
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Shazia Afzal

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PACRA Maintains Entity Ratings of Macpac Films Limited

Rating Type Entity
Action Maintain Downgrade
Long Term BBB- BBB-
Short Term A3 A3
Outlook Stable Stable
Rating Watch - -

Macpac operates within the Biaxially Oriented Polypropylene (BOPP) and Cast Polypropylene (CPP) segments of the industry. Both are petrochemical of which price is linked to oil and gas prices, which causes volatility. Its raw material polypropylene (PP) is not manufactured in Pakistan and its demand is met almost entirely by imports. So the key input is dependent on regional supply and demand dynamics as well as strength of PKR. Exchange rate volatility also put pressure on the industry margins. Revenues growth of the players in packaging industry became slow due to increased competition.
The assigned ratings reflect Macpac Films relatively stable position in the packaging industry and strong acumen of the sponsors. The Company's margins showed an improvement - both at gross and operating levels - resulting a decrease in net losses for 3QFY20. Decreasing raw material cost coupled with predictable exchange rates volatility translates into better gross margins. New Cast Polypropylene (CPP) unit achieved 35% capacity utilization during the period and will add in profitability as utilization will increase in future. The Company has increased its leveraging during 3QFY20, though it remains moderate, with certain repayments coming up. The equity base has reduced due to losses.
The ratings are dependent on improving margins and profitability of the Company as a going concern. Meanwhile, adequate equity base and intact coverages is imperative. Sustained losses will have negative impact on the ratings.

About the Entity
Macpac Film Ltd. was incorporated as a Public Limited Company in 1993. The Company is listed on the Pakistan Stock Exchange. Macpac Films produces multiple grades of BOPP films variants at an installed capacity of 15,000 MT per annum. The Company's diverse portfolio includes multi layered CPP films variants, manufactured at an installed capacity of 7,000 MT per annum. These films have applications in confectionery: biscuits, cookies, snacks, tea and baked products packaging.
Macpac Films is primarily owned by Elahi family (48%), with major ownership residing with Mr. Maqbool Elahi (47%). Munshi family owns 15% stake while Mr Munaf Ibrahim owns 9% holding in the Company. The remaining holding lies with Institutions and general public.

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.