Karachi, December 01, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Century Paper and Board Mills Limited (CPBM) at ‘A+/A-1’ (Single A Plus/A-One). Long term rating of ‘A+’ signifies good credit quality with adequate protection factors. Risk may vary slightly from time to time because of economic conditions. Short term rating of ‘A-1’ depicts high certainty of timely payment where liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned rating has been revised from ‘Stable’ to ‘Positive Previous rating action was announced on November 21, 2019.
Reaffirmation of ratings continues to draw comfort from strong sponsor profile (majority shares held by Lakson Group), low business risk and CPBM’s leading market position in coated board segment (with more than 50% market share in high quality segment and 37% in overall coated board market). Positive outlook has been assigned on account of consistent growth in sales, improvement in financial profile and reduction in leverage indicators on a timeline basis. Given the relatively stable demand for coated board and expected growth in the segment, CPBM has achieved increase in capacity via modifications in existing plant and machinery along with quality and efficiency enhancement initiatives.
After 3% drop in market size, paper and paperboard industry further contracted by 6% in the outgoing fiscal year on account of overall economic slowdown and broad based curtailment in consumer demand. However, continued reduction in imports due to rupee devaluation and production constraints of recycled fiber based coated boards in China neutralized the negative impact of overall market size contraction on domestic industry. Reduced imports have provided an opportunity to domestic industry in general and CPBM in particular to best utilize its available capacities.
Market trust on domestic industry further improved with regular availability and lower lead time as compared to imports. Overall business risk profile is supported by end clients mostly belonging to fast growing Pharmaceutical and FMCG segment and favorable demand supply dynamics. In addition, Covid-19 crisis has changed consumers’ consumption patterns as health consciousness is leading to more use of packed products. This change is expected to favorably impact the packaging industry over medium to long term.
Improved and efficient use of available capacities and gradual passing on the cost impacts through pricing revisions have driven growth momentum in topline in the outgoing fiscal year while a short term dip in some of the inputs in international market also contributed in improved gross margins and thus, improved cash flows. Leverage indicators have trended downwards and are expected to remain at similar levels over the rating horizon.
Going forward, margins are expected to rationalize while higher sales volume (given increase in capacity), addition of value added products, reduction in policy rate and removal of additional custom duty on wood pulp will support the overall earning profile. Ratings take into account the maintenance of profitability, liquidity and debt servicing ability going forward.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
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