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PACRA Maintains Entity Ratings of Punjab Oil Mills Limited

Rating Type Entity
(10-Feb-23 )
(11-Feb-22 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

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 the country’s 2nd largest import after petroleum. Total oilseed imports for FY23 are forecast to be 3.4 million metric tons (MMT), un-changed from the estImated imports for FY22. Similarly, no growth is expected in edible oil imports in FY23, which are forecast at 3.7 MMT. The price of Palm Oil stood at 998 USD/MT in Jan-23 followed by a decrease of ~33% as compared to same period last year. Similarly, the price of Soybean oilseed stood at 547 USD/MT in Jan-23 followed by an increase of ~8% as compared to Jun-22. The industry however is facing issues with imports being halted by port authorities over GMO concerns. This impacted the operations of many Solvent Extraction Units from Oct-22 till mid Jan-23. Moreover, reduce imports due to LC restrictions has caused surge in costs of essential raw materials for the sector. However, higher selling prices have in-creased revenues substantially for the refineries; despite the rise in input costs could not be fully covered and gross profit margins have also reduced. Future outlook look of the industry is developing due to price volatility, PKR depreciation and latest hike in the policy rate.
The ratings reflect Punjab Oil Mills Limited's ('Punjab Oil' or 'the Company') established presence in the cooking oil industry through its flagship brands Canolive and Zaiqa. The Company's revenue witnessed growth supported by increasing prices, however, volumes were submerged. The Company being an importer of edible oilseed remains exposed to inherent industry risks, like currency fluctuations and raw material costs. Lately, a considerable increase in the raw material costs. However, operating in the branded segment, margins and profitability remain intact as it passed on the higher costs to the end consumers. Moreover, stable demand for meal remains beneficial. Punjab Oil follows a cautious approach for its procurement and avoids inventory pile up. However, lately, the Company had inventory constraints due to shipment issues. The situations is expected to ease in near term. The Company has a leveraged capital structure. Coverages are stretched in to high interest rate scenario, whereas, the overall quantum of borrowings has risen. 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 improve profitability and gain market share, while maintaining prudent working capital management. Substantial increase in leveraging may impact ratings

About the Entity
Punjab Oil Mills Limited, most famous for its flagship brands Canolive and Zaiqa, is a public listed company. The Company was incorporated in 1983 and commenced operations in 1984. The primary business activity of the Company involves manufacturing and sale of ghee, cooking oil, specialty fats, laundry soap, mushrooms, and coffee. The Company has its production facility located at Industrial Triangle in Islamabad. The Company has the production capacity to process 14,000 M.T of Ghee/Specialty fats and 19,000 M.T of Cooking Oil.
Three families, namely, Jahangir Family, Malik Family, and Batla Family have a shareholding in the Company. Other shareholders include NIT, Mutual Funds, Financial Institutions and the general public. Mr. Usman Ilahi Malik is the CEO of the Company and is assisted by a team of experienced professionals

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.