PACRA Maintains Entity Ratings of Jadeed Oil Extraction (Private) Limited, Assigns Positive Outlook
Pakistan's edible oil industry is heavily reliant on imports since oilseeds account for ~80% of the cost of production. Total oil and fats consumption of the country is ~ 5mln MT per annum and the per capita consumption is ~22 kg, while global per capita consumption is ~26 kg. Consumption is met by 70% (~3.3 MMT) of edible oil import. The remaining 30% (~1.7 MMT) of edible oil is produced from oilseeds (local ~ 3.5MMT, imported ~ 3.1 MMT). Additionally, low domestic oilseed production in Pakistan caused by a distortion in support price mechanism and lower yields have pushed farmers away from oilseed, further increasing dependence on imports. Post Jan-21, demand for edible has picked up due to the reopening of demand avenues. On the supply side, the key raw materials – oilseed and RBD palm oil – are imported primarily from USA, Brazil, and Malaysia. Since Dec-20, raw material prices have continued to inflate amid supply uncertainties and historically low global inventory levels. Subsequently, prices of cooking oil and vegetable ghee have remained on the higher side. Being a staple food item, sales are expected to remain stable going forward. Margins and profitability are expected to improve for players and costs will be offset by the increased demand and in turn prices.
The rating reflects Jadeed Oil’s association with Jadeed Group, a leading and integrated player in the poultry supply chain. The Group has significant presence along poultry supply chain as it imports and breeds grandparent poultry stock. Jadeed Oil supports the Group's vertical integration strategy. The Company's business line includes two main products: soybean meal and soybean edible oil. The Company topline depicts a positive trajectory, however, remain small as compared to other players. The topline remains dominated by soy meal, only to its Group Company. While refined edible oil is sold in bulk. Uptick in topline is supported by significant demand for soy meal and increased prices. Being an importer of soybean oilseed in Pakistan, the Company remains exposed to the inherent risk related to currency fluctuations and prices of raw materials. Financial risk profile showcased a recovery as the coverages of the Company showcased improvement owing to rationalized finance costs. Additionally, capital structure of the Company has improved due to an equity injection by Jadeed Feeds.
The ratings are dependent on the management's ability to prudently manage the liquidity and debt profile of the Company while improving sales and margins. Envisaged improvement in business and financial profile along with effective changes in governance framework would be good. Any significant and/or prolonged deterioration in revenues and/or coverages will adversely impact the ratings.
Jadeed Oil Extraction (Pvt.) Limited, was incorporated in Nov-17 as a private limited company. Jadeed Oil is primarily engaged in the process of seed crushing and solvent extraction by mechanical and chemical processes, along with refining edible oil. At present, Jadeed Oil has a crushing capacity of 500 MT per day and refining capacity of 100 MT per day.
Jadeed Oil's present shareholding resides with Jadeed Feeds Industries (Pvt.) Limited (~48%) and Mr. Javaid (~28%). Remaining (~12%) stake is equally divided between his two sons, Mr. M. Sohaib Javaid and Mr. M. Safwan Javaid. The BoD is dominated by the sponsoring family. Board’s Chairman and the Company's CEO, Mr. Javaid plays a pivotal role in making strategic decisions.