PACRA Maintains Entity Ratings of Punjab Oil 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 one of the highest imported commodities in Pakistan. The Genetically Engineered (GE) import ban is removed by third quarter FY23, total oilseed imports are forecasted to reach 2.6 million tons in FY24, which would be 71% higher than the estimated use for FY23. The price of Soybean oilseed stood at 750 USD/MT in Jun-23, whereas the price of Palm Oil stood at 800 USD/MT in Jun-23, forecasted to ease further. Due to the rise in input costs, especially raw material cost, many companies have experienced a reduction in their profit margins and faced working capital shortages. Total oilseed production in FY24 is projected to increase to 2.95mln Tons. Higher selling prices have increased revenues substantially for the refineries; despite the rise in input costs could not be fully covered and gross profit margins have also been reduced Future outlook of the industry is developing due to price volatility and PKR depreciation.
The ratings reflect Punjab Oil Mills Limited's ('Punjab Oil' or 'the Company') established presence in the cooking oil industry through its flagship brands Canolive and Zaiqa. The Company's revenue witnessed growth supported by increasing prices, however, the net income has decreased as a result of high finance cost. 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, gross profit margin remain intact as it passed on the higher costs to the end consumers. At FY23, the net profit margin has decreased to 0.4% (FY22: 0.8%), due to increase in finance cost. Moreover, stable demand for meal remains beneficial. Working capital cycle remained intact due to the fact that the Company follows a cautious approach for its procurement and avoids inventory pile up. The Company's capital structure is majorly based on short term borrowing for the working capital requirements. 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 improve profitability and gain market share, while maintaining prudent working capital management. Substantial increase in leveraging may impact ratings.

About the Entity
Punjab Oil Mills Limited, most famous for its flagship brands Canolive and Zaiqa, is a public listed company. The Company was incorporated in 1983 and commenced operations in 1984. The primary business activity of the Company involves manufacturing and sale of ghee, cooking oil, specialty fats, laundry soap, mushrooms, and coffee. The Company has its production facility located at Industrial Triangle in Islamabad. The Company has the production capacity to process 14,000 M.T of Ghee/Specialty fats and 19,000 M.T of Cooking Oil.
Three families, namely, Jahangir Family, Malik Family, and Batla Family have a shareholding in the Company. Other shareholders include NIT, Mutual Funds, Financial Institutions and the general public. Mr. Usman Ilahi Malik is the CEO of the Company and is assisted by a team of experienced professionals