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PACRA assigns Initial Entity Rating’s to Popular Aseptic Packaging Private Limited

Lahore, November 23, 2022 (PPI-OT):Popular Aseptic Packaging Private Limited (“the Company”) ratings reflect the strong sponsor’s profile, growing market position, and adequate financial profile of the Company. The sponsor’s family has vast experience in packaging and engaged in this business since 2012. The Company is predominately manufacturing seven-layer aseptic packaging for the Popular Food and Juice. The demand for the product is derived mainly from the food industry. The raw material of the finished product is ~100% imported hence, exposed to exchange rate risk. As per management representation, the Company approximately holds 12% market share.

The production utilization of the Company is directly linked with foods and consumer products. During FY22, the utilization level remained on the higher side at ~60% (FY21: ~52%). In order to cater the growing demand and capture market share, the Company has performed BMR on its seven-layer aseptic packaging plant to enhance the capacity utilization by approximately three times in FY22.

The internal audit department is operating under the direct supervision of directors. On the financial profile side, during FY22 ~98% top line of the Company is generated from the sales to its associated companies which shows the high captive buying and low level of credit risk. The Company has generated a top line of ~ PKR 3,402mln in FY22 as compared to ~PKR 3,001mln in FY21. In FY22, Popular Aseptic Packaging Private Limited generated a humble bottom line of ~PKR 23mln (FY21: ~PKR -52mln). The main reason for the net loss in FY21 was a significant increase in finance costs and deferred tax expenses.

Going forward, the Company is expecting healthy growth in sales volume which will ultimately be converted into profits and increased market share. While the equity of the Company stood at ~PKR 1,432mln at the end of FY22 (FY21: ~PKR 1,410mln). On the other side, leverage indicators continue to remain elevated on account of higher utilization of short-term and long-term borrowings for funding working capital requirements, performing BMR work on its seven-layer aseptic packaging plant, and related party exposure. Going forward, the impact of higher finance costs and overheads on profitability is expected to be offset by an improvement in margins and an increase in the top line.

The ratings are dependent upon the management’s ability to improve margins while sustaining its market share. Prudent management of the working capital, and maintaining sufficient cash flows and coverage’s are imperative for the ratings. Any significant decrease in margins and coverage’s will impact the ratings.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com

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