PACRA Maintains Entity Ratings of Sabirs' Vegetable Oils (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 the country’s 2nd largest import after petroleum. Total oilseed imports for FY23 are forecast to be 3.4MMT, unchanged from the estimated imports for FY22. Similarly, no growth is expected in edible oil imports in FY23, which are forecast at 3.7MMT. 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 is facing issues as imports remain restricted at port over GMO concerns impacting 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. This, along with latest interest rate hike, will further stretch the working capital requirement of many solvent extraction units. Currently, the industry players have ceased bulk selling in order to reduce inventory load. However, import substitution is expected to benefit the local refineries. Future outlook look of the industry is developing due to price volatility and PKR depreciation. Industry's margins are expected to post a dip with stretched cashflows.
The rating reflects Sabirs' Vegetable Oils (Pvt.) Limited’s (‘Sabirs' Oil’ or ‘the Company’) association with Sabirs' Group, which has significant presence along poultry supply chain. Sabirs' Oil is primarily engaged in the process of seed filtering, seed crushing, oil extraction and refining of soybean seed. The Company's business line includes two main products: soybean meal and semi-refined soybean edible oil. The topline remains dominated by soybean meal, sold only to Group Companies, while semi-refined edible oil is sold in bulk. Uptick in topline is supported by significant demand for soybean meal. However, high input cost led to stretched margins. Being an importer of soybean oilseed, the Company remains exposed to the inherent risk related to currency fluctuations and raw material prices. The Company's operations were halted for sometime due to soybean inventory stuck at the port. However, the Company has started to crush again; though, the utilization levels are low. The Company's financial risk profile is characterized by significant borrowings to fund high inventory levels. Working capital cycle remains stretched but drives comfort from Group's integrated presence in the poultry sector. Interest cover remains stable despite increasing finance cost.
The ratings are dependent on the management's ability to prudently manage the liquidity and debt profile of the Company while improving sales. Envisaged improvement in business and financial profile along with effective changes in governance framework would be necessary. Any significant and/or prolonged deterioration in revenues and/or coverages will adversely impact the ratings.
Sabirs’ Oil was incorporated in Oct-17 as a private limited concern. Sabirs’ Oil is primarily engaged in the process of seed filtering, crushing, oil extraction and refining by mechanical and chemical process. At present, Sabirs' Oil has a crushing capacity of 121,986 MT per year and is utilized upto ~75%. The Company's majority ownership resides with Dr. Faqir M. Sabir (∼23%). ∼68% holding resides among Dr. Sabir’s five sons, ∼12-14% held by each son. The remaining stake resides with two associated companies Sabirs’ Poultry (Pvt.) Limited (∼6%) and Shahzor Feeds (Pvt.) Limited (∼4%). The BoD is dominated by the sponsoring family. Board’s Chairman and the Company's CEO, Dr. Faqir M. Sabir plays a pivotal role in making strategic decisions.