PACRA Maintains the Rating of Cherat Packaging Limited

Cherat Packaging Limited ("CPL" or the "Company"), a part of the renowned Ghulam Faruque Group, operates as a diversified packaging company with segments in Paper, Polypropylene (PP), and Flexible Packaging (FP). The Company also plans to commission a Carrier/SOS bags unit by March 2025. During FY24, the cement industry witnessed a significant shift in packaging materials, moving from kraft papersacks (KP) to polypropylene (PP) bags due to price differences. In response, CPL sold Papersack Line I, II, and V, generating proceeds that positively impacted other income. The proceeds were utilized to meet the working capital requirements of the Company, while stocks sales proceeds provided financial relief amid high-interest rates. Despite these challenges, the Company's proactive measures and emphasis on diversified segments position it strongly for future growth. Cherat Packaging Limited (CPL) has established strategic partnerships with leading international raw material suppliers such as SABIC, giving the Company a competitive edge through preferred supply arrangements. For its Flexible Packaging Division (FPD), CPL also procures various raw materials locally, including inks, solvents, and films, ensuring efficient supply chain management. The Company’s strong customer base and reputation for quality further solidify its market position.
On the financial front, Cherat Packaging Limited (CPL) experienced a 16.5% decline in topline during FY24, which stood at PKR 13.8bln (FY23: PKR 16.6bln; 1QFY25: PKR 3.2bln). Profit after tax for FY24 was recorded at PKR 886mln (FY23: PKR 908mln; 1QFY25: PKR 131mln). The Flexible Packaging Division (FPD) showed growth in both volume and sale price, whereas the Bag Manufacturing Division (BMD) saw a decline in volumes due to changing demand patterns, a slowdown in cement dispatches, and heightened competition. Inflationary pressures led to higher input costs, which negatively impacted production costs and posed challenges to profitability. CPL has arrangements with PEDO Khyber Pakhtunkhwa for Hydel Power which also assist the Company in reduction of energy cost in Bag Manufacturing Division (BMD), resulting in substantial savings. Additionally, the installation of solar power at the FPD significantly reduced production expenses, enhancing overall operational efficiency. The Company's leveraging improved significantly, declining to 25.6% as of June 2024 (FY23: 44.7%; 1QFY25: 24%), primarily due to the repayment of a major portion of borrowings. Looking ahead, the declining interest rate environment is expected to ease finance costs further, thereby improving the Company's interest coverage and overall financial stability.
The ratings are sensitive to CPL’s ability to improve margins, manage working capital effectively, and sustain growth in flexible packaging. Any significant decline in margins could negatively impact the ratings.

About the Entity
Cherat Packaging Limited, incorporated in 1989, is part of the Ghulam Faruque Group and is listed on the Pakistan Stock Exchange. The ownership structure includes: Faruque Private Limited: 10.25% Cherat Cement Company Limited: 7.35% Greaves Pakistan Private Limited: 5.02%, Mirpurkhas Sugar Mills Limited: 4.97%
Directors and other family members: Approximately 15% The remaining stake 57.41% is held by the general public, public sector companies, and financial and non-financial institutions. The plant has a production capacity of 420mln bags/annum (Kraft paper & PP bags) and 19.8mln Kgs (Flexible packaging material).