PACRA Assigns Initial Ratings of Saigal Packages Industries Limited

Saigal Packages Industries Limited (“SPI” or “the Company”) ratings reflect an emerging business profile in the industrial packaging industry. The company is engaged in the manufacturing and sales of flexible packaging solutions offering a range of products, including plastic packaging and tin containers for food items, and provides comprehensive packaging design and printing services. SPI’s client base includes prominent and reputable names across various industries, showcasing its adequate market presence and credibility, but it faces concentration risk with a few customers contributing a significant portion of its revenue. The packaging sector mainly relies on imported polypropylene and polyethylene, which are key plastic resins widely used in the packaging industry for film extrusion applications. However, the prices of these polymers are volatile-linked with global crude oil prices and demand-supply dynamics. On the flip side prevailing macroeconomic challenges such as soaring inflation/interest rates, and currency devaluation adversely impacted the industry. However, the company managed to sustain revenue growth due to price inflation which was further supported by an increase in volumes from acquiring new customers. During 6MFY24, the company’s topline clocked in at ~PKR 2,862mln (FY23: ~PKR 3,500mln). The margins also showed improvement at all levels due to an increase in capacity utilization and better cost controls. The company is owned and managed by close family members and the second generation now actively involved in the business. However, there is room for improvement in the governance structure, as it currently lacks formal board committees and independent oversight. Furthermore, the external auditors are only QCR-rated. The Management has a good understanding of business and operational efficiencies being monitored through budgets and forecasts, furthermore establishment of internal audit function would strengthen the internal control environment. Moving forward, the company is actively pursuing capacity expansion in the plastic packaging segment with plans to finance these initiatives through internally generated cashflows as reflected in business plan. The financial risk profile of the company is demonstrated by comfortable coverages, cashflows, and working capital cycle. The company's capital structure is low leveraged, utilizing long-term borrowings only. The Company has taken advantage of the TERF facility to expand its production capacity and relay on internal cashflow for working capital management.
The ratings are dependent on SPI's ability to maintain its position in its specific business niches and sustain growth in the face of challenging industry dynamics. Essential factors include bolstering share capital, achieving consistent revenue growth, and margins, with improvement in governance framework, and maintaining prudent financial performance in-line with projections.

About the Entity
Saigal Packages Industries (Pvt.) Ltd is a private limited company established in 2007. CEO, Mr. Tauseef Ahmad owns the majority of the company, with 99.34% of the shares. The remaining shares are split equally between his son, Mr. Ahsan Tauseef, and his wife, Mrs. Amna Tauseef. The sponsors also own AJ Containers, which manufactures adhesive tapes, and Subhan Packages Limited, which produces food storage containers. They are supported by a team of professionals.