Lahore, March 20, 2019 (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 met primarily 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 crushed and refined locally. Pakistan’s edible oil refinery industry, currently producing ~1.2 MMT of oil and ~3MMT of meal for cattle/poultry feed industry, has seen steady demand. However, it has been slowing lately.
The ratings reflects Sadiq Oil’s association with an established poultry group, named Sadiq Brothers 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, driven by volume. The margins are remain volatile, in line with international seed prices. The expected increase in extraction capacities will result in higher production volumes.
However, being an importer of oilseeds (Soybean, Canola and Sunflower), there is an inherent risk of currency fluctuations and prices of raw material. Financial risk profile of the Company is characterized by high leveraging – both to fund increasing working capital needs and expansion activities and weak coverages signifying high risk. The working capital cycle remains stretched but comfort can by drawn by Groups presence and integration in the Poultry sector.
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 margins. Any prolonged deterioration in margins and/or coverages will impact the ratings. Envisaged improvement in business and financial profile along with effective changes in governance framework would be beneficial.
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
Web: www.pacra.com