The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Maintains Entity Ratings of Pakistan Oil Mills (Pvt.) Limited

Rating Type Entity
(09-Dec-22 )
(10-Dec-21 )
Action Maintain Initial
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan is among the biggest importers of edible oil, as Palm Oil is the 4th largest imported product after petroleum and LNG. The industry, including both ghee (hydrogenated oil) and cooking oil production, relies on 70% of imports in the form of edible oilseed (soy and canola, ~ 3.4 MMT) and edible oil (mostly RBD Palm Oil, ~ 3.1MMT) which accounts for 80% of the cost of production. While, only 30% of the consumption is fulfilled by locally produced oilseed (cottonseed and mustard seed, ~1.7MMT). Domestic consumption for edible oil stood around 5.1 MMT, during FY22. With a minimal surge in demand along with the inflationary pressure on oilseed import and production, edible oil production grew meagerly over ~ 2% during FY22. The industry remains affluent with steady cashflows; however, debt levels remain considerably high. Being a staple item, despite consistent inflationary pressure, the industry's volumes and profits are expected to remain stable going forward.
The ratings reflect Pakistan Oil Mills (Pvt.) Limited's ('the Company') 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. Over the years, the Company has integrated backwards into oilseed crushing along with expanding its refining capacity. With a relatively adequate market share, the Company has experienced growth in its top-line owing to stable demand growth in refined and branded edible oil and meal segments. 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 procures raw materials in bulk due to seasonality constraints, posing an inherent price risk along with storage issues and a high holding period. This has led to a modest increase in the Company's debt levels. Moreover, the rupee depreciation and increasing interest rate environment have impacted the Company's profits leading to reduced margins. However, the Company's financial risk remains low supplemented by strong coverages and a healthy working capital cycle. Capital structure remains modest. Demonstrated support from sponsors bode well for the Company's ratings.
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. Effective changes in governance framework would be beneficial for the ratings. Any prolonged deterioration in revenues and/or coverages will adversely impact the ratings.

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 production facility is located in Kotri, Sindh with an oilseed crushing capacity of 400MT per day and a refining capacity of 280MT per day.
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. He is assisted by an experienced team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.