VIS Reaffirms Ratings for Unity Foods Amid Economic Challenges

Karachi: VIS Credit Ratings Company Ltd. (VIS) has reaffirmed the entity ratings of Unity Foods Limited (UFL) at ‘A/A2’, indicating a good credit quality with adequate protection factors, albeit with a ‘Negative’ outlook due to potential economic fluctuations. Short-term ratings signify a strong likelihood of timely repayment obligations. The previous rating action was announced on November 01, 2023.

According to a statement by VIS Credit Rating Company Limited, UFL, established in 1991 and listed on the Pakistan Stock Exchange since 1994, is engaged in the production of edible oils, industrial fats, and feed ingredients, with brands such as Dastak, Lagan, Ehtimam, and Zauqeen. The company operates across Sindh, Hyderabad, Balochistan, and Punjab. Its subsidiary, Sunridge Foods, focuses on staple foods processing.

The ratings incorporate the high business risk in the edible oil sector, which relies heavily on imported raw materials, subject to currency exchange and pricing volatility. Despite challenges, UFL benefits from strong sponsor support from Wilmar International Limited, which increased its equity stake from 28.97% to 42.17% during FY24.

Financially, UFL has faced a contraction in revenue due to reduced prices in the cooking oil segment and subdued demand from carryover stocks. High financial charges impacted profitability in FY24, though there has been some improvement in 1QFY25 due to better margins and a policy rate cut. The company’s liquidity profile remains under pressure from an extended working capital cycle and support to related parties, but management anticipates easing in the future. Ratings are supported by improved margins, sponsor support, and liquid investments to address short-term cash needs, though enhanced profitability and reduced leverage are crucial for future ratings stability.

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