Strategic split: Packages may part ways with loss-making division

Paper & paperboard segment likely to become independent private company.

KARACHI: Packages Limited is looking to sideline its loss-making paper & paperboard division as a separate business entity to try and manage it efficiently.

The highly capital intensive segment faced several challenges of high cost of raw material and energy shortages in 2011, according to an InvestCap research note.

The company upgraded its plant in 2011 and is expected to further increase production of high value added products for clients including Nestle Pakistan, Tetra Pack and Coca Cola Pakistan.

The competitiveness of the division was relatively low during due to increased consumption of high cost furnace oil because of non-availability of natural gas. Meanwhile, the writing and printing paper faced unfair competition from imported paper which was available at a cheaper price.

However, the performance of other division of the company which includes packaging and consumer products posted relatively better results.

Bulleh Shah Papermill is located near Kasur, Punjab with an installed production capacity of 300,000 tons per annum and capacity utilization of around 60%. The development works on production plant was completed in two phases, In first phase Brown Paper Machine PM-6 was installed during 2007, while the second phase was completed in 2009 with installation of writing and printing Paper machine PM-6. P&B division contributes 46% in total revenue and 71% of the total asset base of the company during the first nine months of 2011.

After separation from Packages Limited, Bulleh Shah Paper Mill will work as an independent private limited company.

The expected outcome of this proposed separation is to exclusively focus on P&B market with the efficiently managing resources to make P&B division as a separate profitable entity,  says the note. The separation of the P&B division – subject to approval in the annual general meeting – will benefit Packages but particularly Bulleh Shah Paper Mill, adds the note.

Published in The Express Tribune, April 4^th, 2012.