PACRA Maintains Entity Ratings of Shujabad Agro Industries(Pvt.) Limited

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 one of the highest imported commodities in Pakistan. The Genetically Engineered (GE) import ban is removed by third quarter FY23, total oilseed imports are forecasted to reach 2.6 million tons in FY24, which would be 71% higher than the estimated use for FY23. The price of Soybean oilseed stood at 750 USD/MT in Jun-23, whereas the price of Palm Oil stood at 800 USD/MT in Jun-23, forecasted to ease further. Due to the rise in input costs, especially raw material cost, many companies have experienced a reduction in their profit margins and faced working capital shortages. Total oilseed production in FY24 is projected to increase to 2.95mln Tons. Higher selling prices have increased revenues substantially for the refineries; despite the rise in input costs could not be fully covered and gross profit margins have also been reduced Future outlook of the industry is developing due to price volatility and PKR depreciation.
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 a slight dip (FY23: PKR 42bln FY22: PKR 43bln) resulting from low volume supply of soybean seed. The Company being an importer of edible oilseed remains exposed to inherent industry risks, like currency fluctuations and raw material costs. In FY23, increased raw material and finance costs led to a significant margin squeeze, reducing profitability to 1.9% from 3.5% in FY22. The company faces challenges in sustaining previous levels of profitability due to these elevated expenses. Moreover, stable demand for meal remains beneficial. Shujabad follows a cautious approach for its procurement and avoids inventory pile-up. However, recently, the company experienced a slight increase in inventory days ( FY23: 69 days FY22: 62 days) due to demand constraints. The Company has a leveraged capital structure of ~52.7%. Coverages are stretched in to high interest rate scenario, whereas, the overall quantum of borrowings decreased. The Company's working capital cycle is supported by considerable borrowing cushion 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

About the Entity
Shujabad Ago Industries (Pvt.) Limited is incorporated as a private limited company in Pakistan, since Feb 2000. The Company is primarily engaged in edible oilseed crushing/solvent extraction, refining, oil and ghee manufacturing, and its packaging. It also sells soymeal, canola and sunflower meal in local and export markets. The Company is competing in the premium edible oil segment with ‘Eva’ and the middle-tier ghee segment with ‘Maan’. The combined seed crushing capacity of the Company's three solvent extraction units is 225,000 MT per annum. The Company’s edible oil refinery has an installed capacity of 135,000 MT per annum and ghee manufacturing plant has an installed capacity of 30,000 MT per annum. Shujabad Agro is owned by two families. The majority shareholding (~60%) lies with the family members of Mr. Shakil Ashfaq, out of which Mrs. Ambreen Shakil holds ~46% shares. The remaining 40% of the shareholding resides with Ms. Bushra Asad.