PACRA Assigns Initial Entity Ratings to Mehmooda Maqbool Mills Limited
Pakistan's edible oil industry is heavily reliant on imports since oilseeds account for ~80% of the cost of production. Edible oil is the country’s 2nd largest import after petroleum. Pakistan’s total oil and fats consumption is ~ 5 million metric tons per annum. 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, along with rupee devaluation impacting importers. Subsequently, prices of cooking oil and vegetable ghee have remained on the higher side. Going forward, sales are expected to remain stable. Margins and profitability are expected to improve for players and costs will be offset by the increased demand and in turn prices.
The ratings reflect Mehmooda Maqbool's association with a well established player in the textile supply chain, Maqbool Group, along with developing its own brand equity in the edible oil and ghee segments. Over the years, the Company has benefitted from improved client base and geographical reach. Topline is dominated by semi-refined edible oil and meal, as the Company has maintained a strong network of dealers in the suburbs. Margins have experienced fluctuations on the back of higher cost of raw materials. However, margins have performed better compared to peers, as the Company crushes different varieties of oilseeds. Financial risk profile of the Company remains stable owing to adequately managed working capital cycle, coupled with strong coverages. Capital structure remains highly leveraged; consisting of short-term debt, obtained to finance the working capital requirement, and long term debt obtained to install a Ghee refining mill. Over the years, demonstrated support from sponsors bodes well for the ratings.
The ratings are dependent on the management's ability to maintain its growing business volumes while sustaining margins and profitability. Prudent management of highly leveraged capital structure is crucial. Effective changes in governance framework would be beneficial for the ratings.
Mehmooda Maqbool Mills Limited was incorporated in 1968, and is principally engaged in solvent extraction from oilseed, oil & ghee refining and flour milling. Solvent extraction units have a combined installed capacity of 400MT/day. Oil refining unit has an installed capacity of 144MT/day. Whereas, the flour mill has total installed capacity of 240MT/day. Moreover, the recently installed a Ghee Mill has a total refining capacity of 60MT/day.
Ownership of the Company vests with the Maqbool family (99%). Investment companies and Financial Institutions hold a negligible share of 1%. The Board is dominated by the Sponsoring family, and is Chaired by Mr. Tanvir Ahmad Sheikh, whereas, Mr. Mian Idrees Ahmad Sheikh is the CEO. They are assisted by a team of professionals.