PACRA Upgrades Entity Ratings of Sabirs' Vegetable Oils (Pvt.) Limited

The edible oil industry in Pakistan heavily relies on imports, with oilseeds and edible oil constituting ~80% of the production cost. Edible oil stands out as 2nd largest imported commodity in the country. It is projected that total oilseed imports will reach 2.6mln tons in FY23, marking a 71% increase. Aligned with the growth in population, the demand for edible oil is forecasted to increase by ~5%, leading to a corresponding growth in palm oil imports, expected to reach 3.6mln tons in FY24. As of June 2023, the price of Soybean oilseed was recorded at 650 USD/MT, while Palm Oil was priced at 800 USD/MT. Higher selling prices have significantly boosted revenues for refineries. However, the surge in input cost, particularly raw material, has reduced profit margins for companies, coupled with challenges related to working capital shortages. With optimistic expectations regarding improved cottonseed production, the overall oilseed production in FY24 is anticipated to rise to 2.95mln tons, reflecting a 24% increase from FY23. This development has instilled hope among local extraction units and refineries, as they will facilitate seamless operations.
Assigned Ratings to Sabirs' Vegetable Oils (Pvt.) Ltd. (referred to as 'Sabirs' Oil' or 'the Company') reflects its affiliation with the Sabirs' Group, a prominent player in the poultry industry the Company derives strength and synergies from its association with Sabroso one of the largest frozen food brand in Pakistan. The Company's key product line includes soybean meal and semi-refined oil. Soybean meal, is sold to group companies, whereas semi-refined oil is distributed in bulk. The Company operates via integrated strategy ultimately reducing customers-based risk. The company demonstrated resilience during FY23 and have shown growth in profit of ~74% YOY. This reflects the Company's ability to navigate obstacles and maintain operational efficiency. Noteworthy is the positive trend in margins observed during FY23 net margin increased by 81%. As an importer of soybean oilseed, the Company faces exposure to inherent risk associated with raw material prices and currency fluctuation. The financial risk profile of the Company showed positive trend with soaring debt. There is a notable decline of ~31% in borrowings during FY23, resulting in a decreased leverage ratio by ~18%. The working capital cycle stretched further in FY23.
The assigned ratings hinge upon the management's adept handling of the Company's liquidity and debt structure, coupled with efforts to enhance sales. A prospective enhancement in both the business and financial profiles is deemed essential. Any substantial or prolonged decline in revenues and/or coverage ratios would exert adverse effects on the assigned ratings.

About the Entity
Sabirs’ Oil was incorporated in 2017 as a private limited concern. Company is primarily engaged in the process of seed filtering, crushing, oil extraction and refining by mechanical and chemical process. Sabirs' Oil has a crushing capacity of 127,968 MT/year and utilized up to ~45%. Sabirs’ Oils majority ownership resides with Dr. F.M Sabir (22.7%). Mr. F.M Sabir have five sons which collectively hold ~70.65% of the Shareholding. The remaining stake resides with two associated companies Sabirs’ Poultry (Pvt.) Ltd. (3.76%) and Shahzor Feeds (Pvt.) Ltd. (2.89%). The BoD is dominated by the sponsoring family. Dr. F.M Sabir serves as Board’s Chairman and Company's CEO.