PACRA Maintains Entity Ratings of Hi-Tech Edible Oils (Pvt.) Limited

Pakistan is a leading consumer of edible oils and the industry is heavily reliant on imports. Low domestic oil seed production caused by a distortion in support price mechanism for wheat and sugar cane has attracted farmers away from oil seed, further increasing dependence on imports. Annual demand, which stands at over ~4MMT, is tilted towards vegetable ghee (~80%). Production is met through a combination of imported oils and imported oil seed for extraction by solvent extraction units. Pakistan’s edible oil industry produced ~1.7 MMT of ghee and edible oil in FY19 following a stable growth pattern of ~3%. High dependence on imports and devaluation of Pakistani rupee and recent imposition of sales tax have impacted industry players. However, majority of the cost increase has been passed on to consumers.

The ratings reflect the Company’s association with Hi-Tech Group, one of the major integrated players in Pakistan’s poultry and allied industry. Expansion in domestic market, inter alia, enhanced production capacity and stable utilization levels led the topline to grow. However, high dependence on imported raw materials and rupee depreciation made the Company susceptible to price fluctuations. Timely passing on the increased cost led to better margins. However, high finance cost eroded the Company's profitability. The Company has a highly leveraged structure, though leveraging decreased slightly on YOY basis, with stressed coverages. Moreover, high inventory levels and its associated financing requirements further stretched the Company’s financial profile.
The ratings are dependent on the Company's ability to prudently manage liquidity and debt structure. Improvement in margins and ensuing coverages while, ensuring working capital discipline, remains critical for the ratings. Any further deterioration in Company's profits, subsequently coverages will adversely impact the Company's ratings.

About the Entity
Hi-Tech Edible Oils (Pvt.) Limited, is a venture of Hi-Tech Group, well-known player in Pakistan’s poultry industry. Hi-Tech Edible oil was incorporated in 2002 and commenced operations in 2006 as Private Limited Company. The Company is primarily engaged in seed filtering and crushing, selling edible oil and meal.

The overall control of group companies vests with four founding members with equal shareholding. All members are having executive roles in group companies. Dr. Anwar Mehmood Randhawa is the Chairman of all group companies. and possess experience of 44 years in Poultry and integrated businesses. Dr. Muhammad Arshad is the CEO of the Group and also Director on the Board. Both, Chairman and CEO, are Doctor of Veterinary Medicine. CEO is assisted by a team of professionals.