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PACRA Maintains Entity Ratings of Punjab Oil Mills Limited

Rating Type Entity
(11-Feb-21 )
(29-Feb-20 )
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 key imported raw materials account for ~80% of the cost of production. Additionally, lower yields have pushed farmers away from cultivating oilseeds, further increasing dependence on imports. Demand for edible oil was impacted during lockdown in the later half of FY20 due to the Covid-19 outbreak. However, being a staple food item, edible oil demand at household level did not drop. On the supply side, the key raw materials – oilseed and RBD palm oil – were imported primarily from the USA, Brazil and Malaysia. Industry players had sufficient inventories to fulfill demand. Lately, demand from all avenues for edible oil has picked up. International prices of Soybean oilseed and RBD Palm oil have picked up by ~51% and 60%, respectively, while the rupee has depreciated around 9% since Jan-20. Resultantly, domestic prices of branded cooking oil and vegetable ghee surged by 4% and 10%, respectively. Going forward, players in the refining segment and making ghee may further benefit from increased prices. However, branded and packaged oil segment is expected to remain competitive. Interest rate cut and SBP initiative steps like restructuring/deferment of loans have provided some respite in the short-time.

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. However, low volumes depleted the profitability. Going forward, revenue and profitability are expected to recoup from all channels supported by increased prices, specially in branded cooking oil segment, amid challenges arising from stern market competition. 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 and long-term borrowings. Punjab Oil Mills has a low leveraged capital structure, strong coverage ratios 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 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 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.