Karachi, June 07, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Habib Oil Mills (Pvt.) Limited (HOML) at ‘BBB/A-3’ (Triple B/A-Three). Outlook on the assigned rating is ‘Negative’. The medium to long-term rating of ‘BBB’ denotes adequate credit quality coupled with reasonable protection factors. Moreover, risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-3’ denotes timely payment of obligations coupled with satisfactory company fundamental and liquidity factors. Previous rating action was announced on March 14, 2022.
The ratings assigned to HOML take into account high business risk profile of local edible oil industry characterized by high competitive intensity due to fragmentation and low barriers of entry resulting in limited pricing power and thin profitability margins. Reliance on imported raw material exposes the sector to foreign exchange and price volatility risks. The assigned ratings incorporate established track record of sponsors in the edible oil business, market position, significant brand recognition and favourable demand prospects for edible oil in the domestic market.
Although financial risk profile remained somewhat manageable in FY22, the same displayed weakening in ongoing HYFY23 due to challenging macroeconomic environment. Topline and margin growth in FY22 was contributed by higher average selling prices. However, high sensitivity of exchange rate volatility continue to put pressure on margins in HYFY23 due to dependence on imports. Amidst challenging macroeconomic environment, improving margins will be important from a ratings perspective. Overall liquidity profile warrants improvement with limited funds generated from operations and current ratio below minimum threshold followed by declining cash flow coverages in the ongoing year. On the capitalization front, rising leverage levels continue to put pressure on the assigned ratings.
Negative outlook reflects stressed debt service coverage ability expected to remain the same going forward in view of global economic uncertainty impacting commodity prices and inflationary pressures increasing working capital requirements. Materialization of management’s expansion plan to generate operational efficiencies through cost rationalization will be important. Ratings remain dependent upon achievement of improvement in debt service ability, improvement in margins and cash flow coverages and maintenance of capitalization indicators, going forward.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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