The Pakistan Credit Rating Agency Limited
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Ateeb Riaz

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

Rating Type Entity
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes -

The ratings reflect Pakistan Synthetics Limited's (Pakistan Synthetics or 'the Company') established presence in the PET packaging industry through provision of an integrated packaging solution to its customers. Pakistan's PET packaging industry derives its demand from the country's beverage industry, which has been impacted due to inflation round and spread of COVID-19 pandemic in the country and subsequent imposition of countrywide lockdown in March 20. The demand for the PET packaging industry's products as beverage industry saw lower up lift of stock. Resultantly, the industry is faced challenges including low demand, build-up of inventory and receivables and lower capacity utilization. The Company largely maintained its top-line in 9MFY20 and improved its profitability due to higher margins and as effect of exchange losses diminished. The revenues are expected to remain low due to COVID-19 outbreak and its impact in 4QFY20. The situation improved recently with up lift of lockdown in majority areas and start of peak season. The Company's margins are expected to remain intact due to reduced price of raw materials on the back of decrease in international oil prices. The utilization level of the new Preform segment improved but remained below optimal levels. The Company's financial profile is characterized by a leveraged capital structure. The leveraging reduced on YoY basis as sponsors injected equity through right issue. The coverages improved on the back of better cashflows. The working capital remains stressed due to asset liability mismatch at trade level. The ratings incorporate strong sponsor support as demonstrated in the past.
The 'Rating Watch' signifies uncertainty created by the COVID-19 outbreak in the prevailing challenging economic environment. The demand for industry products has recovered recently although it may take time to reach pre-COVID levels. The Company remained operational as it was exempted from shutdown, being related to food & allied sector. However, production in the metal crowns segment was suspended due to low demand. PACRA will closely monitor the situation and take action accordingly.
The ratings are dependent on the management's ability to strengthen the Company's position in the industry, sustain optimal production and margins. The reduction of the asset liability mismatch remains imperative. Significant decline in profitability and/or coverages may have a negative impact on ratings. Sponsor support will remain important.

About the Entity
Pakistan Synthetics Limited was incorporated as a private limited company in 1984. In 1987, the Company was converted into a public limited company and was listed on the Pakistan Stock Exchange. The Company provides complete packaging solution through production and sale of PET Resin at an installed capacity of 28,000MT per annum, PET Preform at an installed capacity of 31,000 Octabins per annum and Plastic Closures and Metal Crowns at an installed capacity of ~559,000 cartons per annum. Pakistan Synthetics' manufacturing facilities are located in Hub, Balochistan and Port Qasim, Karachi. The Company's registered office is located in West Wharf, Karachi. Pakistan Synthetics is primarily owned by the Haji Karim family (~75%) through individual family members. Mr. Yaqoob Hahi Karim (~17%)and Mr. Anis Yaqoob (~14%) are the two largest stakeholders of the Company. Approximately 15% of the stake resides with the 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.