Muhammad Harris Ghaffar
PACRA Maintains Entity Ratings of Reliance Petrochem Industries (Pvt.) Limited
Reliance Petrochem Industries (Pvt.) Limited (hereafter referred to as ‘the Company’ or RPI) is considered a leading manufacturer & trader of petroleum oils (White Oil) in Pakistan. The Company primarily operates into three segments i.e petroleum oils, solvents and polymers. The rating takes comfort in Company’s long-term association and supplier agreement with the world’s leading diversified energy group ADNOC (Abu Dhabi National Oil Company) and Saudi Aramco. RPI core strength lies in its product differentiation as they are the sole producer of white oil in Pakistan which opens up the Company’s product utility in multiple market segments like lubrication, textile, cosmetic, perfume, plastic, paper, shoe polish, and paint industries. The current economic downturn scenario also affects the chemical sector of Pakistan through changes in people's consumption patterns, a dip in national construction activity, etc. mainly triggered by depleting foreign reserves, PKR devaluation, a hyperinflationary environment, and restrictions on the import of raw materials. The industry is considered volatile when procuring raw materials (polymers, base oils and white spirit), as they are directly linked with the international prices of crude oil. A flash of hope that Reliance imported its first-ever raw material consignment from Saudi Arabia in Pakistani rupees, paving the way for further imports in the local currency and relieving pressure from the country’s dwindling forex reserves. The restrictions on the import of basic raw materials have mainly triggered the volumetric dip in topline pertinent to both local and export avenues sales. The Company’s margins are under stress mainly on the back of the surge in KIBOR and escalation in cost on procurement of imported raw materials. The Lag in LC’s opening has created the non-availability of basic raw materials and due to this end product timeline cycle followed a spiral trend. This endorsed the higher trade receivable, payables and advances from customers and stretched the Company's working capital cycle. The size of the board is considered adequate and independent insight into corporate governance can bring new balance which will improve the Company’s operations, financial performance and overall business health. The top management of the Company has diversified industry exposure and focused towards the optimal utilization of resources through advancement in technology. As a part of a strategic business plan, RPI is now expanding its customer range by opening new international offices to channel smooth supply. As per the RPI management presentation, the company is focusing on regaining its lost momentum by achieving an optimal level of productivity and efficiency in its operations as the Company has long-term contracts with renowned foreign oil trading companies. The financial risk profile of the Company is considered adequate with a moderately leveraged capital structure. Free cash flow was reduced along with coverages mainly due to magnifying finance costs.
The ratings are dependent on RPI’s sustainable growth in top-line and bottom-line with upheld margins while retaining sufficient cash flows. Improvement in margins, coverages and upright working capital management is imperative. Any significant decline in profitability; impacting cash flows and coverages, will have a negative impact on the ratings.
Reliance Petrochem Industries was incorporated in 2013 as a private limited company under the repealed Companies Ordinance 1984. The board composition and ownership comprises three brothers. Mr. Jawahar Lal is the CEO, Mr. Anil Parkash (Director) and Mr. Jai Kumar (MD).