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The Pakistan Credit Rating Agency Limited
Press Release

Date
23-Dec-20

Analyst
Shazia Afzal
shazia.afzal@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 Maintains Entity Ratings of Cherat Packaging Limited

Rating Type Entity
Current
(23-Dec-20)
Previous
(24-Dec-19)
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect Cherat Packaging Limited’s ( "CPL" or "The Company") established position as the leader in cement packaging sector. Over the years, the Company has built a strong business profile and now setting footprints in flexible packaging industry. This year marked as Second full year of operations of flexible packaging division. The Company is also active in exporting bags The Company has maintained healthy margins and profitability over the years despite its raw material being sensitive to exchange rate volatility. The margins and, in turn, profitability of the Company has come under pressure during FY20. This is mainly due to depressed cement demand in the region amid COVID-19 pandemic but revival can be seen during 1QFY21. The Company succeeded to maintain its market share in bags manufacturing segment at ~30% even in unprecedented times. The long term prospects of the Company are linked with demand and expansion in local cement demand, cement demand outside of country and flexible packaging business. The Company managed to earn healthy cash flows during the year. The downward trend of policy rates impacted the finance cost positively and in turn coverages improved. The Company has a leveraged capital structure where the long term debt is related to expansion activities. CPL managed to reduce its short term borrowings through effective working capital management. Strong liquidity position of the Company is also evident from the current ratio i.e. 7.7 times at end Jun'20. The Company’s association with Ghulam Faruque Group also bodes well for the ratings.
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. Materialization of management’s strategy of diversification through flexible packaging into better margins and profitability is important. Any significant decrease in margins and/or coverages will impact the ratings.

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%). 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 plant has production capacity of 595mln/annum (Kraft paper & PP bags) and 12.6mln Kgs (Flexible packaging material).The utilization capacity of cement bags unit stood at 46% while for flexible packaging unit remained at average of 48% during the period. 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 2018, 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.