Lahore, March 30, 2023 (PPI-OT): Ultra-Pack (Pvt.) Limited (‘UPPL’ or ‘the Company’) is primarily offering industrial packaging solutions to cement industry with majority sales to its associated concern “Kohat Cement Company Limited” (having PACRA’s assigned ratings: A/A1). UPPL is engaged in the manufacturing and sale of polypropylene bags; product line includes Block Bottom AD-Star Bags, Block Bottom Open-Mouth Bags, Laminated Stitched Bags, and Woven PP Fabric.
The ratings reflect Company’s emerging market position underpinned by the strong sponsor’s profile – ANS Capital (Pvt.) Limited. During financial period 2022, the Cement sector’s dispatches reported a decline of ~7.8% in total dispatches with significant contribution from decline in exports. Local dispatches also dwindled by ~0.9% on an annual basis.
However, in view of the infrastructure projects in pipeline at national level, the overall industry’s future outlook seems stable. Further, packaging industry is diverging towards PP bags as these are less costly compared to kraft paper bags. The production of this sector is closely linked with the demand derived from cement industry.
The price of major raw material in packaging segment is correlated to international oil prices. Volatility in oil prices and exchange rates is a source of risk as market players face difficulty to pass on impact of increased material prices, thus ultimately holding an impact on the profitability of the sector.
Consequently, the Company’s revenue stream is a derivative of its cement bags sales including to its associated entity. UPPL has an installed capacity of ~120mln PP bags / annum. Accordingly, it captures market share of around ~21% in PP bags distribution.
The Company’s topline is a function of sales channelled through North region of Pakistan. Profit margins of UPPL are dependent on two factors: sales earnings and merchandise cost. During review period, UPPL’s profitability matrix has been significantly reduced owing to cost push inflation, yet the same wasn’t successfully covered through sales earnings.
Therefore, the Company needs to revise its sales price model with its associate concern for the supply of PP bags. Also, the Company has to build strong equity base. Ownership profile of the Company is solely represented by the sponsoring family members. UPPL has executed a sound system of internal control across the organization.
Financial risk profile of the Company is demonstrated by adequate working capital cycle, deteriorated coverages and cash flows. UPPL’s capital structure is moderately leveraged; encompassed STBs and low equity. The ratings are dependent on the UPPL’s ability to grow its position amidst challenging industry environment while improving its proceeds. Prudent management of the working capital, maintaining sufficient cash flows and coverages are imperative for the ratings. Any significant decrease in margins and coverages 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