Madina Oil Refinery Limited’s Ratings Upgraded by VIS

Karachi, VIS Credit Rating Company Limited (VIS) has raised the entity ratings of Madina Oil Refinery Limited (MORL) from 'BBB-/A-2' to 'BBB/A-2', reflecting improvements in profitability and capitalization. The medium to long-term rating upgrade signals adequate credit quality with reasonable and sufficient protection factors, while the short-term rating denotes good certainty of timely payment, highlighting the company’s sound liquidity factors and fundamentals.

According to VIS Credit Rating Company Limited, this upgrade, announced on April 9, 2024, follows a previous rating action from February 20, 2023. The revised ratings, with a stable outlook, consider the business risks and performance dynamics of the edible oil sector, particularly the challenges of reliance on imported raw material and competitive market conditions.

MORL, a player in the edible oil refining industry and part of the Madinah Group, has diversified interests in sectors such as sugar, ethanol, power generation, and mass media. The company has recently expanded its operations, including installing a solvent extraction plant and refining capacity for canola oil, which contributed to an improvement in its financial metrics despite a decline in volume offset by price increases.

The rating adjustment acknowledges MORL’s stronger profitability, driven by enhanced gross margins from backward integration into seed crushing and favorable market prices for meal products. The company's capitalization has benefited from these profitability gains, with decreased gearing and leverage alongside comfortable coverage ratios. However, the report notes liquidity constraints due to significant investments in related party shares, necessitating short-term borrowing to manage cash flow.

VIS's analysis highlights the need for MORL to recover invested funds to sustain its liquidity and capital structure, underscoring the importance of financial management in maintaining the improved rating status.