Lahore, February 14, 2022 (PPI-OT):Pakistan’s edible oil industry is heavily reliant on imports since oilseeds account for ~80% of the cost of production. Edible oil is the country’s 2nd largest import after petroleum. Pakistan’s total oil and fats consumption is ~ 5mln MT per annum. Consumption is met by 70% (~3.3 MMT) of edible oil import. The remaining 30% (~1.7 MMT) of edible oil is produced from oilseeds (local ~ 3.5MMT, imported ~ 3.1 MMT). Additionally, low domestic oilseed production in Pakistan caused by a distortion in support price mechanism and lower yields have pushed farmers away from oilseed, further increasing dependence on imports.
Demand for edible has picked up due to the reopening of demand avenues. On the supply side, the key raw materials – oilseed and RBD palm oil – are imported primarily from USA, Brazil, and Malaysia. Raw material prices have continued to inflate amid supply uncertainties and historically low global inventory levels, along with rupee devaluation impacting importers. Subsequently, prices of cooking oil and vegetable ghee have remained on the higher side. Going forward, sales are expected to remain stable. Margins and profitability are expected to improve for players and costs will be offset by the increased demand and in turn prices.
The ratings reflect Shujabad Agro Industries (Pvt.) Limited’s established brand equity for its premium (Eva Oil) and middle tier (Maan Ghee) brands. The Company’s revenue witnessed growth supported by increasing prices and volumes. This led to strong margins and profitability, as it passed on the higher costs to the end consumers. Higher demand for meal also benefitted the Company. Refined and branded edible oil segment remains competitive where volumes and margins are functions of timeliness and prudence of raw materials procurement. Shujabad follows a cautious approach for its procurement and avoids inventory pile up.
The Company has a leveraged capital structure supplemented by strong coverages. Coverages have further benefited from the low interest rate scenario, whereas, the overall quantum of borrowings rose. The Company improved its working capital cycle with strong cushion for borrowings at the trade level. The ratings are dependent on the management’s ability to maintain its growing business volumes, while sustaining margins and profitability. Prudent management of working capital and maintaining strong coverages is critical.
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