PACRA Maintains Debt Instrument Ratings of Berger Paints Pakistan Limited | PP Sukuk | Sep -21

Berger Paints Pakistan Limited (“Berger” or “the Company”) ratings reflect its strong brand equity, established market position, and resilient business profile in Pakistan’s paint industry. The Company operates modern manufacturing facilities and offers a diversified portfolio across three segments: Retail (decorative paints), Non-Retail (powder, protective, and automotive coatings), and Allied Business (road safety products, construction chemicals, and adhesives). Berger also undertakes toll manufacturing for Buxly Paints Limited, strengthening its operational base. Pakistan’s paint industry, valued at about USD 401 mln in CY24, is projected to grow at a CAGR of 4.2% to USD 492 mln by 2029, led by the decorative segment amid urbanization, construction growth, and post-flood reconstruction. The market remains fragmented, with around half the share held by unorganized players competing on price, while the organized segment is led by multinational and strong local brands under the Pakistan Coating Association. The industry is raw material intensive, with imports comprising roughly 85% of COGS, exposing players to exchange rate volatility and cost pressures. Other challenges include price competition, macroeconomic uncertainty, and a shift toward eco-friendly, low-VOC coatings. Nonetheless, demand for branded paints and investments in local production are expected to drive medium-term growth. Within this context, Berger retains a strong competitive position supported by product quality, innovation, a wide distribution network, and a loyal customer base. The Company reported revenue of PKR 8,544 mln in FY24 (FY23: PKR 6,760 mln), reflecting growth of about 5.5%, with stable margins achieved through effective pricing and cost control. Governance and management oversight remain robust, ensuring sound risk management and operational efficiency. The financial profile is adequate with stable cash flows, though working capital remains tight. The capital structure is leveraged, funded through a mix of short- and long-term borrowings.
The ratings are dependent upon the management’s ability to sustain the market operation amidst stiff competition. Generating operating cashflows along with maintaining an efficient supply chain and prudent working capital management is important.

About the Entity
Berger Paints Pakistan Limited was incorporated in 1950 as a Private Limited Company under the Companies Act, 1913 (now Companies Act, 2017) and became a publicly listed company in 1974. It is listed on the Pakistan Stock Exchange (PSX). In 1991, Slotrapid Limited (BVI) acquired a 52.02% shareholding from the Company’s former parent, Jenson & Nicholson Limited, thereby assuming control. Governance is overseen by an eight-member Board comprising four independent, three non-executive, and one executive director. The CEO, Dr. Mahmood Ahmad, a nominee of Slotrapid Limited, brings nearly 28 years of industry experience and is supported by a skilled and experienced management team.

About the Instrument
Berger issued an unlisted, privately placed, and secured Sukuk of PKR 500 mln (“the Sukuk”) at a rate of 3MK + 1.50% per annum, with a four-year tenor and a one-year grace period commencing on September 26, 2022. Redemption is scheduled in 12 equal quarterly installments, beginning 21 months after issuance, with PKR 250 mln redeemed to date. The Sukuk is secured by a first pari passu charge on 94.7 kanal of land and buildings in Lahore, with a 25% margin. Berger is required to maintain a Debt Service Reserve Account (DSRA) of PKR 50 mln and a Debt Payment Account (DPA) funded through monthly deposits equivalent to one-third of the quarterly installment.