Lahore, February 14, 2023 (PPI-OT):Pakistan’s edible oil industry is heavily reliant on imports since oilseeds and edible oil account for ~80% of the cost of production. Edible oil is among the country’s top five imports. Total oilseed imports for FY23 are forecast to be 3.4MMT, unchanged from the estimated imports for FY22. Similarly, no growth is expected in edible oil imports in FY23, forecast at 3.7MMT. The price of soybean oilseed stood at ~547 USD/MT in Jan-23 followed by an increase of ~8% as compared to Jun-22. The industry is facing issues as imports remain restricted at port over GMO concerns impacting operations of many solvent extraction units from Oct-22.
Moreover, reduce imports due to LC restrictions has caused surge in costs of essential raw materials for the sector. This, along with latest interest rate hike, will further stretch the working capital requirements for many solvent extraction units. Currently, the industry players have ceased bulk selling in order to reduce inventory load. However, import substitution is expected to benefit the local refineries. Future outlook look of the industry is developing due to price volatility and PKR depreciation. Industry’s margins are expected to post a dip with stretched cashflows.
The rating reflects Jadeed Oil’s association with Jadeed Group, a leading and integrated player in the poultry supply chain. The Group has a significant presence along poultry supply chain as it imports and breeds grandparent poultry (Ross-308) stock. Jadeed Oil supports the Group’s vertical integration strategy. The Company’s business line includes two main products: meal and semi-refined edible oil. The Company’s topline depicts a positive trajectory supported by significant demand from the meal segment i.e. the feed mills; however, the Company falls among second tier players in the edible oil industry. The topline remains dominated by soybean meal, only to its Group Company.
While semi-refined edible oil is sold in bulk. Being an importer of soybean oilseed, the Company remains exposed to the inherent risk related to currency fluctuations and raw material cost. The recent uptick in the Company’s input costs was prudently managed by passing it on the refinery segment. This along with increased prices kept the business margins on an inclining trend. The Company’s financial risk profile is stretched due to high interest rates exerting the coverage ratios. Working capital requirement are expected to further elevate to support the cycle, however, Group’s integrated presence in the poultry sector provides comfort to the ratings.
The ratings are dependent on the management’s ability to prudently manage the liquidity and debt profile of the Company while improving sales. Envisaged improvement in business and financial profile along with effective changes in governance framework would be good. Any significant and/or prolonged deterioration in revenues and/or coverages will adversely impact the ratings.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com