May 07, 2020 (PPI-OT)

Following is the text of press release issued by The Pakistan Credit Rating Agency Limited (PACRA)

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The PET packaging sector mostly derives its demand from bottled water, Carbonated Soft Drink (CSD) industry, pharma and other consumables. The increase in consumer demand for CSD products and conversion from glass to plastic bottles in recent years brought significant growth in PET packaging industry.

However, the industry remains exposed to seasonality as demand is higher in summer months. Lately, imposition of CNIC requirement on distributors and decline in consumer purchasing power due to high inflation has reduced demand for beverage and, in turn, industry products. The ratings reflect EcoPack's established position in PET Preform and PET Bottle segment and its strategic location in North. Volumetric decrease due to relatively lower demand has led to decline in the Company's top-line during the period. In recent years, the Company's sales mix has shifted towards preforms, which is a lower margin segment.

Further, the Company's inability to pass higher costs on to customers in off-peak season has impacted margins. Furthermore, spiralling finance costs on the back of higher borrowings and benchmark rate have deteriorated the bottom-line. Lower inflation and decline in PET Resin prices due to falling crude oil prices internationally may reduce some pressure on margins in the short-run. The Company's capital structure remains moderately leveraged, though borrowings have shown rising trend over the years. The Company has utilized higher short-term borrowings to manage working capital and other needs. This led to mismatch at trade level putting pressure on the financial profile. The recent measures announced by SBP, including principle deferment, and rate cut of 425bps is expected to provide some relief.

The 'Rating Watch' signifies uncertainty created by the COVID-19 outbreak in the prevailing challenging economic environment. The Company remains operational as it is exempted from shutdown, being related to food and allied sector. The demand may take time to recover amidst countrywide lockdown and closure of restaurants, banquet halls, and non-essential shops. The supply chain may also be impacted. PACRA will closely monitor the situation and take action accordingly.

The ratings are dependent on the Company's ability to sustain volumes and top-line in current scenario. Meanwhile, improving margins and reduction of asset liability mismatch remains critical. Prolonged lockdown, resulting in significant dip in demand and sustained losses would have negative impact on the ratings.

For more information, contact:AnalystThe Pakistan Credit Rating Agency Limited (PACRA)Awami Complex, FB1, Usman Block New Garden Town,Lahore - PakistanTel: +9242 586 9504 -6Fax: +9242 583 0425Email: hammad.rashid@pacra.comWeb: www.pacra.com

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© Pakistan Press International, source Asianet-Pakistan