Cherat Packaging Limited (CPPL) was established in 1991 and has been recognised as the leading manufacturer of premium quality cement sacks in Pakistan. It is a Ghulam Faruque Group (GFG) company which operates dual lines of business for Kraft paper and Polypropylene products (PP). Apart from serving the local market, the company exports bags to different parts of the world. With an annual production capacity of 410 million bags (Kraft paper and Polypropylene) it also supplies bags to sugar, wheat, chemical and other sectors. Cherat Packaging is ISO 9001 certified, in 2015 it announced a new PP line to produce 100 million bags per annum.
Cement manufacturers in the northern region comprise 76 percent of national cement sales, and the company's production facility is situated in this vicinity, in District Swabi, KPK. It is listed on the Karachi and Lahore stock exchanges with its registered head office located in Karachi.
Performance snapshot of FY14 Cherat Packaging Limited has able to show strong historical performance trend by taking advantage of cement industry in Pakistan. Cherat's results have seen a massive turnaround as polypropylene plant came online in late December 2011. Its production and sales are increasing every year on the back of the introduction of new products for the cement industry. Net sales over five year's period register strong CAGR of 26 percent. It is mainly on account of expansions, increased market share and appreciation of market prices in addition to induction of PP Plant.
The performance of the packaging company has been phenomenal in FY14. Strong budgetary allocation towards development in FY14 reinvigorated domestic demand for cement and, in turn, packaging materials. The company benefited from the greater demand for bags especially PP bags, which has helped the company to improve its top line by 30 percent, year-on-year to reach Rs 5.4billion in FY14. Regarding volumes, the company has produced 259 million bags during the FY14 compared to 217 million bags in FY13. Aggressive marketing policies helped the Company to enhance sales volume. During the year under review, the Company faced the challenge of inflating costs of input items like Kraft paper and PP granules and hike in electricity tariff.
However, the company was finally able to make inroads with the export of PP bags which has helped CPPL to usher into new markets. The Company also made a successful entry into sugar and other related sectors, which also assisted in exploring new markets for the Company and contributed to its profitability. There was an increase of 44 percent year-on-year in finance cost during the year due to higher working capital requirements owing to increased business volumes and acquisition of long-term loan for the new PP line. Additionally, a flat tax rate of 6 percent on account of available tax credit helped the Company to derive a bottom line of Rs 251.49 million for the year under review.
CPPL has installed the second line of the polypropylene plant for manufacturing cement bags successfully during FY14. The expansion has increased the production capacity of the polypropylene plant of the CPPL to 145 million bags per annum. This step has taken CPPL production capacity to 410mn bags/annum, up by 11 percent against previous 370mn bags. With enhanced PP production, overall volumes improved by 22 percent in FY14. However, as only 64 percent of production capacity was utilised during the year.
Financial performance FY15 As the cement industry saw improvements in FY15 so does CPPL. On the back of an increase in the quantity of both paper and PP bags sold, the sales revenue of the Company rose by an impressive Rs 6,223 million, year-on-year, reflecting an increase of 16 percent from the previous year. The demand for paper and PP bags was high on account of solid cement industry volumes. The packaging company should get credit to manage efficiently its resources to overcome the hike in electricity tariff and increase in labour costs.
The Company pursued aggressive marketing policies and also concentrated on the export of PP bags to enhance its sales volume. Top line growths were assisted by improving margins and better other income largely from the sale of scrap. Core expenses are well under controlled but aggressive marketing has caused the selling costs to increase quite a bit. During the year, the finance cost of the Company declined due to the decrease in interest rates and efficient monitoring of outstanding payments and inventory levels. Cherat Packaging has firmly held its ground in local market sales and has improved its exports. The Company successfully enhanced its exports of PP bags to the Middle East, Africa, and Afghanistan during the year under review.
Outlook for 1QFY16 and beyond While the fiscal year 2015 was certainly a blessing for the Packaging Company, FY16 is being anticipated as a year where the Corporation will focus more on its exports along with its domestic sale. With the help of volumetric increase, the company saw an increase of 18 percent in its top line year-on-year. Due to a reduction in discount rate, the finance cost of the CPPL has come down. The Company has witnessed an increase in its other charges on the account for payment to workers welfare fund. The Company has posted a net profit of Rs 209 million as compared to profit after tax of Rs 97 million in 1QFY15.
Cherat Packaging Limited (CPPL) has shown an intention to make an investment in the equity of proposed (associated) Joint Venture Wind Power Generation Company currently in the process of incorporation of up to Rs 150 million. The Company will be formed to produce electricity using alternate energy sources.
Domestic demand for cement is expected to stay high in the northern part of Pakistan as big infrastructure work has been initiated under the PSDP scheme and CPEC. This should bode well for Cherat Packaging. To take advantage of the demand, the company has invested further in its PP plant capacity by installing a third line in FY15. The capacity expansion will allow the company to meet rising demand for PP bags. As the only company in Pakistan to provide a one-window cement packaging solution, CPPL is well positioned for domestic sales and exports.

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Cherat Packaging Limited
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                                      FY11     FY12      FY13      FY14     FY15
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Profitability
Gross margin                        12.29%    8.54%    10.57%    11.33%      21%
Operating margin                       10%       6%        8%        9%      18%
Net margin                           7.58%    2.20%     2.87%     4.70%   10.47%
Return on Equity                    27.74%    8.00%    11.17%    19.37%   36.35%
EBITDA to sales                     10.91%    8.02%     9.65%    10.94%   19.69%
Liquidity
Current ratio                          1.5     1.24      1.13       1.4     2.35
Quick/Acid test ratio                 0.47     0.54      0.51      0.72     1.38
Cash to Current Liabilities           0.01     0.03      0.01      0.01     0.01
Cash flow from Operations to Sales   -0.12     0.05      0.06      0.06      0.2
Activity & Investment
Fixed asset turnover                  0.72     0.75      0.86      0.71     0.22
Total asset turnover                  0.19     0.29      0.33      0.27     0.63
EPS (Rs per share)                   11.87     3.39      5.42      9.13    23.65
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