The Pakistan Credit Rating Agency Limited
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Ahmad Faraz Arif

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PACRA Maintains Entity Ratings of Punjab Oil Mills Limited

Rating Type Entity
(11-Feb-22 )
(11-Feb-21 )
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 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 ~ 5mln MT 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. 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. 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 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; however, during FY21 the increased cost of raw materials could not be fully passed on. This kept the margins under pressure despite higher prices of cooking oil and vegetable ghee locally. Going forward, revenue and profitability are expected to recoup from all channels supported by increased prices, especially 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. The Company has a low leveraged capital structure, strong coverage ratios and efficient working capital management. Strong acumen of sponsors bodes well for the Company.
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 the 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, Malik Family, and Batla Family have a shareholding in the Company. Other shareholders include NIT, Mutual Funds, Financial Institutions and the general public. Mr. Usman Ilahi Malik is the CEO of the Company and is assisted by a team of experienced professionals.

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.