Lahore, August 09, 2019 (PPI-OT): Pakistan is a leading consumer of edible oils and the industry is heavily reliant on imports. Additionally, low domestic oil seed production caused by a distortion in support price mechanism for wheat and sugar cane has attracted farmers away from oil seed, further increasing dependence on imports. Annual demand, which stands at ~4MMT, is primarily met through imports, wherein, ~80% (of total imports) is in the form of finished product. Remaining production is met through import oil seed for extraction by solvent extraction units. Pakistan’s edible oil refinery industry, currently produces ~1.6 MMT of oil and is on a stable growth path. However, owing to devaluation of Pakistani rupee, industry players have been impacted.
The ratings reflect Shujabad Agro Industries (Pvt.) Limited’s developing brand equity for its premium (Eva) and middle tier (Maan) brands. The Company maintained a stable topline despite a significant demand growth the meal segments. However, the Company managed to improve its margins. Refined and branded edible oil segment of the industry remains competitive where volumes and margins are function of timeliness and cost of raw materials procurement and supply.
Procuring edible oilseed in bulk due to seasonal constraints, highlights the inherent price risk of raw material along with storage issues and high holding. To manage this, the Company has loaded more debt on its balance sheet. Thus, stressing the financial risk profile of the Company. The rising interest rates are expected to impact the profitability, going forward. Competing in the branded edible oil segment and being an exporter of meal, enables Shujabad Agro to fairly pass on the increased cost due to rupee devaluation.
The ratings are dependent on the management’s ability to grow its business volumes, while sustaining the business margins and prudently managing the working capital. Sustaining the business and financial profile along with effective changes in governance framework would be beneficial for the ratings.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
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Lahore – Pakistan
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Category: General Business News