PACRA Assigns Entity Ratings to Khadija Edible Oil Refinery (Pvt.) Limited

The ratings reflect Khadija Edible Oil Refinery (Pvt.) Limited's (or 'the Company') established presence across the edible oil sector including vegetable oil/ghee and shortening. The Company encompasses growing brand equity for its edible oil brands (Fauji Supreme, Islamabad, Perlli, Phool, Zeenat). The Group is presently capable of producing well over a combined 850 million tonnes of vegetable ghee and edible oil every day. The given rating is further supported by the extensive experience of its sponsors in the transport, hotel, construction, and development sectors as well. The operations of the Company are strengthened by an experienced and qualified management team. Pakistan's edible oil industry is heavily reliant on imports since oilseeds and edible oil account for ~80% of the cost of production. During the year, 2.7mln tonnes of edible oil (including oil extracted from imported oilseed) of value PKR 794bln (US $2.8bln) was imported as compared to 2.2mln tonnes in FY23. Local edible oil production remains at 0.47mln tonnes (FY23: 0.504mln tonnes). Pakistan encountered a series of significant challenges, such as widespread disease outbreaks, soaring production costs, the lack of locally grown crops like soybeans, and rising interest rates. However, the industry is expected to be stable in FY25 on account of improving macroeconomic indicators and reduced interest rates. In FY24, edible oil prices, including palm oil reduced by ~20%. However, the international and domestic prices began to follow the increasing trend. The Company has diversified its revenue streams. The Company primarily generates its revenue through the sale of vegetable oil and ghee products, which account for ~88% of total sales. This is followed by sales of shortening, contributing around 10%, and tolling income, which makes up about 3%. During FY24, the Company faced an increase of ~33% in its topline resulting from volumetric sales due to increased production. The revenues stood on the stronger side when compared with peers’ universe owing to demand growth in edible oil segments. Margins are functions of timeliness and prudence of raw materials (RBD Palm oil and palm olein) procurement. The Company has demonstrated a marginal decline in its margins this year. The decline is attributed to the inflationary factor resulting in a higher cost of production. However, the Company's financial risk remains strong supplemented by strong coverages and an adequate working capital cycle. On the other side, leverage indicators continue to remain moderate on account of a slight increase in short term borrowing. The Company maintains an aggressive market strategy, relying on short-term borrowings to meet its working capital requirements. The sponsors derive substantial support from the diversity through construction and terminal business.
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. Brand reputation and customer retention provide support to the ratings.

About the Entity
Khadija Edible Oil Refinery (Pvt.) Limited was incorporated in Dec-2005 as a Private Limited Company under the Companies Ordinance 1984. The Company is primarily engaged in the process of refining crude palm oil; producing and selling cooking oil/ghee along with shortening. The Company’s majority ownership resides with group company, Waheed Hafeez Ghee Industries (Pvt.) Limited (~87%). The remaining shareholding resides with Mr. Abdul Waheed (~13%). The Company is headed by Mr. Abdul Waheed, the CEO. He is ably supported by a team of experienced professionals.