The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Maintains Entity Ratings of Sadiq Oil Extraction (Pvt.) Limited

Rating Type Entity
(20-Mar-19 )
(18-Sep-18 )
Action Maintain Maintain
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan is a leading consumer of edible oils - a function of its population and eating habits. With ~ 4MMT annual demand, Pakistan is the 4th largest market for edible oil. This is met primarily through imports (~ 86% of total consumption), wherein ~80% (of total imports) is in the form of finished product and for the rest oil seed is imported that is crushed and refined locally. Pakistan’s edible oil refinery industry, currently producing ~1.2 MMT of oil and ~3MMT of meal for cattle/poultry feed industry, has seen steady demand. However, it has been slowing lately.

The ratings reflects Sadiq Oil’s association with an established poultry group, named Sadiq Group. The Group has significant presence along poultry supply chain and Sadiq Oil is supporting its vertical integration strategy. At present, Sadiq Oil is experiencing growth in sales, driven by volume. The margins are remain volatile, in line with international seed prices. The expected increase in extraction capacities will result in higher production volumes. However, being an importer of oilseeds (Soybean, Canola and Sunflower), there is an inherent risk of currency fluctuations and prices of raw material. Financial risk profile of the Company is characterized by high leveraging – both to fund increasing working capital needs and expansion activities and weak coverages signifying high risk. The working capital cycle remains stretched but comfort can by drawn by Groups presence and integration in the Poultry sector.
The ratings are dependent on the management's ability to prudently mange the liquidity and debt profile of the company, particularly working capital, while improving margins. Any prolonged deterioration in margins and/or coverages will impact the ratings. Envisaged improvement in business and financial profile along with effective changes in governance framework would be beneficial.

About the Entity
Sadiq Oil Extraction (Pvt.) Limited, was incorporated in 2013 and is primarily engaged in the process of seed filtering and crushing, oil extraction and refining by mechanical and chemical processes. For this, it imports 90-95% premium quality seeds. At present, the Company has two solvent extraction facilities with a crushing capacity of 600 MT/day. While the chemical refinery can semi-refine the edible oil up to 300 MT/day. The Company has recently set up a physical refinery with a refining capacity of 200 MT/day. The Company has set up a Ghee plant with a capacity of 250 MT/day. The Company's business line includes two different products (semi-refined edible oil and meal) in three variants (Soybean, Canola and Sunflower).

Sadiq Oil's present shareholding structure suggests that Dr. M. Sadiq, is the man at the last mile, as he holds the major shares. For the time being, remaining stake resides with his two sons Mr. Asif Zubair and Mr. Salman Sadiq. Sponsoring family dominates the board of Sadiq Oil and comprises three members. Board’s Chairman and company's CEO, Dr. Muhammad Sadiq, plays a pivotal role in strategic decisions.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.