PACRA Upgrades the Entity Rating of Pakistan Oil Mills (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. Assuming 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 1200 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 2.95 mln 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 look of the industry is developing due to price volatility and PKR depreciation.
The ratings reflect Pakistan Oil Mills (Pvt.) Limited's developing brand equity for its edible oil brands (Naz, Pak, Sun, and Pure) and its association with a large industrial group that has ventured into shipbreaking, textile, and real estate. Extracting oil mostly from canola seeds, the Company has ~16,000 storage capacity for said raw material. Equipped with state-of-the-art automated technology with minimal human intervention, the crushing capacity of the plant stood at 400 MT per day, and the refining capacity of 280 MT of vegetable oil/ghee per day, through both its physical and chemical Refining. With an adequate reservoir for its finished goods, the storage capacity for crude oil stood at ~20,000 MT. The given rating is further supported by the extensive experience of its sponsors in the edible oil and agriculture business. The operations of the Company are strengthened by an experienced and qualified management team. Having a relatively adequate market share, the Company has experienced growth in its top-line (FY23: PKR 23bln, FY22: PKR 16bln) owing to stable demand growth in edible oil segments, as well as targeted customer concentration guaranteeing both quality and punctual cash payments. Moreover, is diversifying its revenue streams through the installation of flour mill which will be operational from FY24. However, the refined and branded edible oil segment remains competitive where volumes and margins are functions of timeliness and prudence of raw materials (Canola oilseed and RBD Palm olein) procurement. The Company has minimized its debt level. Moreover, the rupee depreciation and increasing interest rate environment have impact, but the Company was able to sustain better profits leading to improved margins. However, the Company's financial risk remains strong supplemented by strong coverages and a healthy working capital cycle. The capital structure remains moderately leveraged.
The rating depends 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. Brand reputation through customer satisfaction remains vital for the given rating.

About the Entity
Pakistan Oil Mills (Pvt.) Limited was incorporated in April, 1960 as a private limited company. The Company primarily sells vegetable oil/ghee, canola meal, and other byproducts including laundry soap. The Company’s major ownership resides with Mr. Masood Pervez (~ 64%) and Mr. Muhammad Usman (~ 33%). Mr. Masood chairs the Company's Board and is also the CEO.