Lahore, March 22, 2018 (PPI-OT): Pakistan is a leading consumer of edible oils – a function of its population and eating habits. With ~ 4MMT annual demand, Pakistan is the 4th largest market for edible oil. This is primary through imports (~ 86% of total consumption), wherein ~80% (of total imports) is in the form of finished product and for the rest oil seed is imported that is refined locally. Pakistan’s edible oil refinery industry, currently producing ~1.2 MMT of oil and ~3MMT of meal for cattle/poultry feed industry, is on a good growth path.
The rating reflects Sadiq Oil’s association with an established poultry group, named SB Group. The group has significant presence along poultry supply chain and Sadiq Oil is supporting its vertical integration strategy. At present, Sadiq Oil is experiencing growth in sales, on the back of capacity expansion. Although margins are currently squeezed, these are expected to improve once expansion in extraction capacities will be streamlined. This would also result in the rise of production volumes.
Inventory management system and related efficiencies would require the company’s attention to keep its working capital costs low. Rising topline on account of bulk semi-refined oil sale as well as management’s focus on meal sale within group would enhance the profitability prospects. However, being an importer of oilseeds (Soybean, Canola and Sunflower) in Pakistan, there is an inherent risk involved of currency fluctuations and prices of raw material, leading to reductions in margins. Financial risk profile of the company is characterized by high leveraging – both to fund increasing working capital needs and expansion cost.
The ratings are dependent on the management’s ability to prudently mange the liquidity and debt profile of the company, particularly working capital, while improving business margins. Comfort is drawn from the company’s commitment to reduce reliance on external funding. Envisaged improvement in business and financial profile along with effective changes in governance framework would be good.
For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
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