PACRA Maintains Entity Ratings of Shujabad Agro Industries (Pvt.) Limited
Pakistan's edible oil industry is heavily reliant on imports since oilseeds and edible oil account for ~80% of the cost of production. Edible oil is the country’s 2nd largest import after petroleum. Total oilseed imports for FY23 are forecast to be 3.4 million metric tons (MMT), un-changed from the estimated imports for FY22. Similarly, no growth is expected in edible oil imports in FY23, which are forecast at 3.7 MMT. The price of Palm Oil stood at 998 USD/MT in Jan-23 followed by a decrease of ~33% as compared to same period last year. Similarly, the price of Soybean oilseed stood at 547 USD/MT in Jan-23 followed by an increase of ~8% as compared to Jun-22. The industry however is facing issues with imports being halted by port authorities over GMO concerns. This impacted the operations of many Solvent Extraction Units from Oct-22 till mid Jan-23. Moreover, reduce imports due to LC restrictions has caused surge in costs of essential raw materials for the sector. However, higher selling prices have in-creased revenues substantially for the refineries; despite the rise in input costs could not be fully covered and gross profit margins have also reduced. Future outlook look of the industry is developing due to price volatility, PKR depreciation and latest hike in the policy rate.
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, however, volumes were submerged. The Company being an importer of edible oilseed remains exposed to inherent industry risks, like currency fluctuations and raw material costs. Lately, a considerable increase in the raw material costs. However, operating in the branded segment, margins and profitability remain intact as it passed on the higher costs to the end consumers. Moreover, stable demand for meal remains beneficial. Shujabad follows a cautious approach for its procurement and avoids inventory pile up. However, lately, the Company had inventory constraints due to shipment issues. The situations is expected to ease in near term. The Company has a leveraged capital structure. Coverages are stretched in to high interest rate scenario, whereas, the overall quantum of borrowings has risen. The Company's working capital cycle is supported by considerable borrowing cushion 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
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.