PSX’s scripts encompassing Pakistan Packaging Industry – is likely to be the major beneficiary

Pakistan Packaging Sector, which includes Flexible Packaging, Paper & Paper board, and Films is likely to be major beneficiary of Pakistan’s improving economic growth driven by consumer demand.

Pakistan’s young & rising population with increasing urbanization, increasing per capita income, e-commerce revolution and increased health consciousness is driving demand for Pakistan’s Packaging sector. Consumers, Pharmaceutical and Appliances sector are the main customers for the Packaging Industry.

Given its demand outlook, we expect the Flexible Packaging industry to grow at a 5-year (FY22-FY27) CAGR of 15% in line with last 5-year growth. We also anticipate the Paper & Paper board sector to grow at a 5-year (FY22-FY27) CAGR of 5% vs. the last 5-year CAGR of -2%.

Flexible packaging due to its specific characteristics is growing at a much better pace than the overall industry. It also offers superior margins compared to the rest of the industry as major proportion of raw material used by the Flexible Packaging Industry is procured locally.   

Paper & Paper board sector’s volumetric growth has remained subdued but reduction in raw material (waste paper prices) during FY15-FY21 helped lift Paper & Paper board margins. Further, imposition of antidumping duty in FY18 in the range of 2-36% for a period of 5-years also helped contain import of Paper & Paper board products (finished and semi finished). Currently, waste paper prices are hovering ~US$300/ton due to global increase in commodity prices which pose key risk for the sector.

BOPP Films (Biaxially Oriented Polypropylene) and CPP Films (Cast Polypropylene) are also two key products used in the manufacturing of packaging industry. BOPP Films are used in food packaging whereas CPP Films are used in both food and non-food packaging. In Pakistan, the usage of BOPP on per capita basis remains much lower i.e. 0.28kg vs. 1.38kg in the world. BOPP domestic market has been growing at a CAGR of 6% over the last 5-years (2015-2020).

Key listed players in the formal Flexible Packaging sector include Packages Convertors (PCL), Roshan Packages (RPL), Merit Packaging (MERIT) and Cherat Packaging (CPPL). Within the Paper & Paper board formal sector, key players are Bulleh Shah (BSPL), Century Paper & Board (CEPB), Cherat Packaging (CPPL), Pakistan Paper Product (PPP), Thal Limited (THALL), and Security Paper (SEPL).

Pakistan Packaging sector is trading at 2022E PE of 6.35x and PBV of 0.85x. We have a ‘Buy’ recommendation on Packages Limited (PKGS), Tri-Pack Films (TRIPF) & CEPB. They currently trade at a 2022 PE multiple of 5.20x, 5.50x, and 5.77x., respectively. On other hand, we have a ‘Hold’ stance on RPL that currently trades at a 2022 PE of 7.00x.

Courtesy – Topline Securities

Sharing is caring

Leave a Reply