PACRA Maintains Entity Ratings of Berger Paints Pakistan Limited, Assigns 'Rating Watch'

The ratings reflect Berger’s established position and strong brand in the premium domestic paint market of the country. The ratings incorporate a strong governance framework and an experienced management team leading to effective controls. The Company's revenue stream is well diversified with retail, industrial and government clients. The paint industry remains competitive and faces pressure from informal sector. The Company partially passed on escalating costs to customers resulting in relatively lower revenues and margins. However, the profitability remained intact by curtailing operating expenses. The financial profile of the Company is characterized by strong coverages and adequate working capital management. The capital structure remains moderately leveraged mainly comprising short-term borrowing.
The 'Rating Watch' signifies uncertainty due to imposition of countrywide lockdown by the Government to halt the spread of COVID-19. The Company had also closed production facility in compliance with Government directive. The Government has allowed construction sector to open in a phased manner. The Company, being part of this sector, has recently been able to resume operations. The demand for the Company's product is expected to be impacted. However, declining prices of raw materials (i.e. Petrochemicals and commodity chemicals), tax incentives and relaxations announced by the Government and recent rate cut of 425bps will provide some respite, going forward.
The ratings are dependent upon the management’s ability to sustain operations in prevailing uncertain environment. Generating operating cashflows along with maintaining efficient supply chain and prudent working capital is important. Prolonged shutdown due to COVID-19 and/or significant delay in recovery of sales will impact the ratings.

About the Entity
Berger Paints Pakistan Limited was initially incorporated in 1950 as a Private Limited Company under the repealed Companies Act 1913 (now Companies Act, 2017). It was subsequently converted into a public listed company in 1974. It is currently listed on Pakistan Stock Exchange (PSX). In 1991, Slotrapid Limited, a company incorporated in British Virgin Islands, acquired control of Berger Paints Pakistan by purchasing 52.02% shares from its former parent, Jenson & Nicholson Limited. The principal business activity of the Company is manufacturing and trading of paints, varnishes and other related items. The registered office and manufacturing facility of the Company is in Lahore.

The control of the Company vests with board of directors, which comprises eight members including Dr. Mahmood Ahmad (Managing Director). There are four independent directors and three non-executive directors. Dr. Mahmood Ahmad, nominee of Slotrapid limited, has ~25 years of experience and is well versed with the industry dynamics. He is ably supported by a professional management team.