Analyst
Silwat Malik
silwat.malik@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of Sadiq Oil Extraction (Pvt.) Limited
Rating Type | Entity | |
Current (10-Aug-19 ) |
Previous (20-Mar-19 ) |
|
Action | Maintain | Maintain |
Long Term | BBB | BBB |
Short Term | A2 | A2 |
Outlook | Stable | Stable |
Rating Watch | - | - |
Pakistan is a leading consumer of edible oils and the industry is heavily reliant on imports. Additionally, 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 ~4MMT, is primarily met through imports, wherein, ~80% (of total imports) is in the form of finished product. Remaining production is met through import oil seed for extraction by solvent extraction units. Pakistan’s edible oil refinery industry, currently produces ~1.6 MMT of oil and is on a stable growth path. However, owing to devaluation of Pakistani rupee, industry players have been impacted.
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 supports its vertical integration strategy. After tapping in the branded oil segment, the expected increase in utilization levels of extraction plants resulted in higher production volumes, inturn, sales. Margins improved, however, remain volatile due to international oilseed prices. The Company imports oilseeds (Soybean, Canola and Sunflower), thus is exposed to the inherent risk of currency fluctuations and prices of raw material. Financial risk profile of the Company is characterized by high leveraging – both to fund the increasing working capital needs and expansion activities. Coverages have improved, however, remain on the lower side. Working capital cycle remains stretched but drives comfort from Groups integrated presence in 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 oilseed filtering and crushing, oil extraction and refining by mechanical and chemical processes. For this, it imports 90-95% premium quality oilseeds. 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 three different products (semi-refined edible oil, refined and branded 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 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 the Company's CEO, Dr. Muhammad Sadiq, plays a pivotal role in making strategic decisions.