The Pakistan Credit Rating Agency Limited
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Bakhtawar Abid

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PACRA Maintains Entity Ratings of Punjab Oil Mills Limited

Rating Type Entity
(29-Feb-20 )
(30-Aug-19 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The edible oil industry of Pakistan, largely dependent on imports, has been impacted by the devaluation of Pakistani Rupee. This has inflated the cost of production and has impacted the eroded profitability of industry players. Moreover, challenging industry dynamics represented by stiff competition, low domestic supply for oil seed and increased taxes levied on imports are likely to keep the industry under pressure.

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 premium brand (Canolive) enjoys solid margins as the Company was able to pass on the higher cost to consumers. Curtailed selling and distribution costs resulted in maintained operating margin. Moreover, higher prices coupled with better volumes, specially in cooking oil segment, led to increase in profitability. Nonetheless, going forward, profitability may come under stress amid challenges arising from stern market competition, inflationary pressure and high interest rates. The Company is expected to engage in high marketing and promotional activities for the development of new products. The ratings draw strength from the Company's strong financial profile, comprising minimal short-term borrowings only. Punjab Oil Mills enjoys a low leveraged capital structure, strong coverages and efficient working capital management.
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 1981 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 employs ~206 employees and has 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, Mailk Family and Batla Family have shareholding in the Company. Other shareholders include NIT, Mutual Funds, Financial Institutions and the general public. Mr. Izaz Ilahi Malik is the CEO of the Company with more than four decades of experience and associated with the company since 39 years.

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.