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VIS Assigns Initial Entity Rating to Karachi Grains (Private) Limited

Karachi, March 28, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B plus/ A-Two) to Karachi Grains (Private) Limited (KGPL). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality; reasonable and sufficient protection factors. Risk factors are considered variable if changes occur in the economy. Short-term rating of ‘A-2’ reflects good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.

Incorporated in 2001, KGPL commenced operations in 2004 and is primarily engaged in the extraction, refining and sale of edible oil products. The Company caters to B2B (business-to-business) market mainly covering local institutional clients. The Company also produces industrial fats, and various feed ingredients for the poultry and livestock sector. Production process in KGPL involves importing, extracting and refining of oilseeds (soybean and Canola) from Canada, USA and Brazil. KGPL is a family owned company who have experience in other food related companies in Pakistan. Common directorship of the sponsors include DD Ship Breakers, Hyderabad Roller Flour Mills (Pvt.) Limited, Korangi Roller Flour Mills (Pvt.) Limited and Goodluck Flour Mills Limited.

Assigned ratings factor in high business risk given fragmented market structure and heavy reliance on imported raw materials. While industry demand remains stable with edible oil being a staple product, the industry remains vulnerable to changes in raw material prices and foreign exchange rate fluctuations, resulting in volatility in margins. Amidst low margins and competitive landscape, ratings are sensitive to the company’s ability to manage costs effectively, which, in turn, is correlated with the level of competition and operational efficiency.

Assessment of financial risk profile incorporates raw material supply constraints due to challenging operating environment resulting in topline reduction in the previous fiscal year. However, the Company expects to achieve revenue growth in the ongoing year through diversifying product offerings and expand into the branded segment over the rating horizon. During 8MFY23, margins exhibit improvement on the back of inventory gains. However, given elevated business risk profile, margins remain sensitive to exchange rate volatility and high dependence on imports. Low finance cost with no interest-bearing obligation on the books and consistent dividend income from short-term investment exposure in the listed equity market somewhat supports profitability profile of the Company. Given challenging market dynamics, materialization of projected diversification plans, consistent inflow of dividend income and improving profitability profile will be important.

The ratings reflect the Company’s adequate liquidity and capitalization profile, which is supported by short-term liquid investments and a low leveraged capital structure. The Company’s working capital needs are met through internal cash generation and interest-free short-term loans from directors and related parties. Ratings remain underpinned by effective working capital management and the maintenance of ungeared balance sheet over the rating horizon.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873

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