PACRA Maintains Entity Ratings to Shujabad Agro Industries (Pvt.) Limited

Pakistan is a leading consumer of edible oils and the industry is heavily reliant on imports. Additionally, low domestic oil seed production caused by a distortion in support price mechanism for wheat and sugar cane has attracted farmers away from oil seed, further increasing dependence on imports. Annual demand, which stands at ~4MMT, is primarily met through imports, wherein, ~80% (of total imports) is in the form of finished product. Remaining production is met through import oil seed for extraction by solvent extraction units. Pakistan’s edible oil refinery industry, currently produces ~1.6 MMT of oil and is on a stable growth path. However, owing to devaluation of Pakistani rupee, industry players have been impacted.

The ratings reflect Shujabad Agro Industries (Pvt.) Limited's developing brand equity for its premium (Eva) and middle tier (Maan) brands. The Company maintained a stable topline despite a significant demand growth the meal segments. However, the Company managed to improve its margins. Refined and branded edible oil segment of the industry remains competitive where volumes and margins are function of timeliness and cost of raw materials procurement and supply.

Procuring edible oilseed in bulk due to seasonal constraints, highlights the inherent price risk of raw material along with storage issues and high holding. To manage this, the Company has loaded more debt on its balance sheet. Thus, stressing the financial risk profile of the Company. The rising interest rates are expected to impact the profitability, going forward. Competing in the branded edible oil segment and being an exporter of meal, enables Shujabad Agro to fairly pass on the increased cost due to rupee devaluation.
The ratings are dependent on the management's ability to grow its business volumes, while sustaining the business margins and prudently managing the working capital. Sustaining the business and financial profile along with effective changes in governance framework would be beneficial for the ratings.

About the Entity
Shujabad Ago Industries (Pvt.) Limited is incorporated as a private limited company in Pakistan, since Feb,2000. The Company is primarily engaged in edible oilseed crushing/solvent extraction, refining, ghee manufacturing and its packaging. It also sells meal in local and export markets. The Company is competing in premium edible oil segment with ‘Eva’ and middle tier edible oil segment with ‘Maan’. It manufactures two different products (refined edible oil and meal) in four variants (cottonseed, sunflower, soybean and canola). The combined seed crushing capacity of the Company's three solvent extraction units is 213,000 MT per annum. The Company’s edible oil refinery has an installed capacity of 69,000 MT per annum and ghee manufacturing plant has an installed capacity of 10,800 MT per annum. Pouch making and filling plants have an installed capacity of making 43,200 pouches per day and filling 138,000 pouches per day, respectively. Around 7000 PET bottles of 3-5 litre edible oil are filled per day.

Shujabad Agro is owned by two families. The majority shareholding (60%) lies with the family members of Mr. Shakil Ashfaq, of which Mrs. Ambreen Shakil holds 45% of the shares. The remaining 40% of the shareholding resides with Mr. Abdul Wahid.