VIS Assigns Entity Ratings to Ittefaq Agro Industries (Pvt.) Limited

Karachi, VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Ittefaq Agro Industries (Pvt.) Limited (IAIPL),

According to VIS Credit Rating Company Limited, The medium to long-term rating of ‘A-‘ indicates good credit quality with adequate protection factors and the short-term rating of ‘A-2’ suggests a high certainty of timely payment, with sound liquidity factors and company fundamentals. The outlook on the assigned ratings is ‘Stable’.

Ittefaq Agro Industries (Pvt) Limited, established in 2009, primarily engages in the extraction, refining, and sale of edible oils and meals, including Soyabean, Canola, and Mustard. The company operates a Solvent extraction plant in Port Qasim, Karachi, with its corporate office situated in Business Centre, PECHS, Karachi. Privately owned by three partners, the company has a history of involvement in the feed business.

The assigned ratings consider the business risk profile of the edible oil industry, characterized by heavy reliance on imported raw materials, a fragmented market, low-value addition, and thin sector margins. In recent fiscal years, IAIPL witnessed a decline in revenues primarily due to a decrease in sales volume, although commodity price increases partially offset the decline. The ban on GMO-based seeds last year severely impacted soyabean imports, leading to lower capacity utilization and sales volumes. To address this, IAIPL is exploring alternate markets for sourcing non-GMO soyabean and Canola seeds, facing constraints such as quantity availability and documentation. Client concentration remains high, with the top clients accounting for a significant portion of total turnover. Operating and net margins are impacted due to lower soyabean volumes and declining prices of Canola products, leading to pressure on profitability metrics in the medium term.

The financial risk profile of the company, reflected in steady equity growth and maintenance of a conservative capital structure, contributes to the assigned ratings. Capitalization indicators, including gearing and leverage, have remained low with no long-term debt on the books. Additionally, sponsor support received by the company for working capital provides further comfort. Ratings also reflect the adequate liquidity profile of the company and comfortable cash flow coverages. However, maintaining profitability metrics in the face of declining volumes remains a key challenge for the company.

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