PACRA Upgrades Entity Ratings of Mehmooda Maqbool Mills 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 3.4MMT, unchanged from the estimated imports for FY22. Similarly, no growth is expected in edible oil imports in FY23, which are forecast at 3.7MMT. 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 is facing issues as imports remain restricted at port over GMO concerns impacting 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. This, along with latest interest rate hike, will further stretch the working capital requirement of many solvent extraction units. Currently, the industry players have ceased bulk selling in order to reduce inventory load. However, import substitution is expected to benefit the local refineries. Future outlook look of the industry is developing due to price volatility and PKR depreciation. Industry's margins are expected to post a dip with stretched cashflows.
The ratings reflect association of Mehmooda Maqbool Mills Limited ("Mehmooda Maqbool" or "the Company") 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. Despite facing restrictions on the economic front, the Company's topline, dominated by semi-refined edible oil and meal, has improved. Moreover, switching towards local oilseeds would be beneficial for the Company's operations, going forward. The Company has maintained a strong network of dealers in the suburbs. Mehmooda Mabool's margins have depicted an improving trend, backed by strong revenue streams. Financial risk profile of the Company remains stable owing to maintained cashflows and improved leveraging supported to enhanced equity base; however, leveraging remains on the higher side. Continued support from sponsors bodes well for the ratings.
The ratings are dependent on the management's ability to maintain growth in business volumes while sustaining margins and profitability. Prudent management of 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 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 Bakhtawar Tanvir Sheikh is the CEO. They are assisted by a team of professionals.