The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Assigns Initial Entity Ratings to Sadiq Oil Extraction (Pvt.) Limited

Rating Type Entity
(22-Mar-18 )
Action Initial
Long Term BBB
Short Term A2
Outlook 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 primary 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 refined locally. Pakistan’s edible oil refinery industry, currently producing ~1.2 MMT of oil and ~3MMT of meal for cattle/poultry feed industry, is on a good growth path.
The rating reflects Sadiq Oil’s association with an established poultry group, named SB 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, on the back of capacity expansion. Although margins are currently squeezed, these are expected to improve once expansion in extraction capacities will be streamlined. This would also result in the rise of production volumes. Inventory management system and related efficiencies would require the company’s attention to keep its working capital costs low. Rising topline on account of bulk semi-refined oil sale as well as management’s focus on meal sale within group would enhance the profitability prospects. However, being an importer of oilseeds (Soybean, Canola and Sunflower) in Pakistan, there is an inherent risk involved of currency fluctuations and prices of raw material, leading to reductions in margins. Financial risk profile of the company is characterized by high leveraging – both to fund increasing working capital needs and expansion cost.
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 business margins. Comfort is drawn from the company’s commitment to reduce reliance on external funding. Envisaged improvement in business and financial profile along with effective changes in governance framework would be good.

About the Entity
Sadiq Oil Extraction (Pvt.) Limited, is a vertically integrated venture of SB Group; well-known player of Pakistan’s poultry industry. It 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. Sadiq Oil at present has two solvent extraction facilities having a crushing capacity of 500 tons per day. While the chemical refinery can semi-refine the edible oil up to 300 tons per day. Company's business line includes two different products (semi-refined edible oil and meal) in three variants (Soybean, Canola and Sunflower). Sadiq Oil is planning to tap into the refined edible oil market by putting relevant plants.
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.