PACRA Maintains Entity Ratings of Hi-Tech Edible Oils (Pvt.) 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 ~ 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 the Company’s association with Hi-Tech Group, one of the major integrated players in Pakistan’s poultry and allied industry. Topline was supported by improved meal and semi-refined oil prices. However, high dependence on imported oilseeds made the Company susceptible to inherent risk of currency fluctuations and prices of key raw material. Timely passing on the increased cost led to better margins. Meanwhile, rationalized finance cost led to healthy profitability. The Company has a highly leveraged structure albeit adequate utilization of financing facilities. Moreover, high inventory levels and its associated financing requirements further stretched the Company’s financial profile.
The ratings are dependent on the Company's ability to prudently manage liquidity and debt structure. Improvement in margins and ensuing coverages while, ensuring working capital discipline, remains critical for the ratings. Any deterioration in profits, diluting coverages, is likely to have an adverse impact on the Company's ratings.

About the Entity
Hi-Tech Edible Oils (Pvt.) Limited, is a venture of Hi-Tech Group, well-known player in Pakistan’s poultry industry. Hi-Tech Edible oil was incorporated in 2002 and commenced operations in 2006 as Private Limited Company. The Company is primarily engaged in seed filtering and crushing, selling edible oil and meal. At present, the Company has a crushing capacity of 365,000 MT per year and is utilized ~85%.
The overall control of group companies vests with four founding members with equal shareholding. All members are having executive roles in group companies. Dr. Anwar Mehmood Randhawa is the Chairman of all group companies. and possess experience of 45 years in Poultry and integrated businesses. Dr. Muhammad Arshad is the CEO of the Group and also Director on the Board. Both, Chairman and CEO, are Doctor of Veterinary Medicine. He is assisted by a team of professionals.