The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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

Rating Type Entity
(11-Feb-22 )
(04-Mar-21 )
Action Maintain Upgrade
Long Term A- A-
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 Shujabad Agro Industries (Pvt.) Limited's established brand equity for its premium (Eva Oil) and middle tier (Maan Ghee) brands. The Company's revenue witnessed growth supported by increasing prices and volumes. This led to strong margins and profitability, as it passed on the higher costs to the end consumers. Higher demand for meal also benefitted the Company. Refined and branded edible oil segment remains competitive where volumes and margins are functions of timeliness and prudence of raw materials procurement. Shujabad follows a cautious approach for its procurement and avoids inventory pile up. The Company has a leveraged capital structure supplemented by strong coverages. Coverages have further benefited from the low interest rate scenario, whereas, the overall quantum of borrowings rose. The Company improved its working capital cycle with strong cushion for borrowings at the trade level.
The ratings are dependent on the management's ability to maintain its growing business volumes, while sustaining margins and profitability. Prudent management of working capital and maintaining strong coverages is critical.

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, oil and ghee manufacturing, and its packaging. It also sells soy meal in local and export markets. The Company is competing in the premium edible oil segment with ‘Eva’ and the middle-tier ghee segment with ‘Maan’. The combined seed crushing capacity of the Company's three solvent extraction units is 225,000 MT per annum. The Company’s edible oil refinery has an installed capacity of 144,000 MT per annum and ghee manufacturing plant has an installed capacity of 30,000 MT per annum.
Shujabad Agro is owned by two families. The majority shareholding (60%) lies with the family members of Mr. Shakil Ashfaq, out of which Mrs. Ambreen Shakil holds 46% shares. The remaining 40% of the shareholding resides with Ms. Bushra Asad.

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.