The Pakistan Credit Rating Agency Limited
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Shazia Afzal

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PACRA Assigns Entity Ratings to Nishat Paper Products Co. Ltd.

Rating Type Entity
(17-Feb-21 )
Action Initial
Long Term A
Short Term A1
Outlook Stable
Rating Watch -

Nishat Paper Products Co Ltd. ("NPPCL" or the "Company") operates within the paper segment of the paper and packaging industry. Installation of the latest machine has increased the production capacity of the Company to 220mln bags/annum. Whereas, the efficiency of producing cement bags enhanced from 1000bags/hr to 16000bags/hr, which provides the competitive advantage to NPPCL. The Company's raw material procurement is entirely met by imports. The Company has maintained healthy margins and profitability over the years despite its raw material being sensitive to rupee devaluation. The cement industry's operational capacity remained at 69.1mln MT with despatches of ~48mln MT during the year FY20. NPPCL contribution to total cement dispatches remained 10% which is also in line with the system share of D.G Khan cement. Being the subsidiary of DG Khan cement, NPPCL derives strength and economies of scale from the parent company, which bodes well for the ratings. The assigned ratings reflect NPPCLs 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 -since last year and resulting in net profit for FY20. Stable raw material cost coupled with predictable exchange rate volatility translates into better gross margins. The Company has a leveraged capital structure. The long term debt is related to expansion activities, whereas short term debt has increased substantially pursuant to slow movement in receivables due to recent crises in cement sector. Going forward, improvement in profitability for timely repayment of debt remains vital.
The ratings are dependent upon the management’s ability to improve margins while sustaining its market share. Prudent management of the working capital, maintaining sufficient cash flows and coverages is imperative for the ratings. Any significant decrease in margins and coverages will impact the ratings.

About the Entity
Nishat Paper Products Co Ltd was incorporated as a Public Limited Company in 2004. NPPCL was a Joint venture project of Nishat with Shuaiba Paper Products Company Ltd. Kuwait (Shuaiba). The Primary purpose of the project was the vertical integration in Cement business for supply of paper sacks for cement packaging. D G Khan Cement Company Ltd. (DGKCC) and Shuaiba entered into an agreement on 12th June 2004 for setting up a paper sack plant in Pakistan, but later in June 2008, Nishat acquired the stake from Shuaiba Paper. Now NPPCL is subsidiary of D.G. Khan Cement Company Ltd. The Company has installed latest machine, which have improved the efficiency of producing bags per hour from 10,000bags/hr to 16000bags/hr. DG Khan cement is the major share holder with 55% holding, Nishat Mills Ltd holds 25% shares, while the remaining 20% shareholding lies with Mansha Family. Mr. Mian Raza Mansha is the CEO and chairman of the Company. He has more than 23 years diversified professional experience in various business sectors. He is associated by an able team.

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.