The Pakistan Credit Rating Agency Limited
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Silwat Malik

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PACRA Maintains Entity Ratings of Punjab Oil Mills Limited

Rating Type Entity
(30-Aug-19 )
(01-Mar-19 )
Action Maintain Initial
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The edible oil industry of Pakistan, largely dependent on imports, has been impacted by the devaluation of Pakistani Rupee. This has inflated the cost of production and has eroded profitability for industry players. Moreover, challenging industry dynamics represented by stiff competition, low domestic supply for oil seed and increased taxes levied on imports by incumbent government are likely to keep the industry under pressure.

The ratings reflect Punjab Oil Mills Limited's established presence in the cooking oil industry through its flagship brands Canolive and Zaiqa. The Company's premium brand (Canolive) has helped in posting solid gross margins. However, recent macro-economic challenges have suppressed profitability, leading to a slight decline in gross margins. A cutback in selling and distribution costs resulted in maintained operating margin. Nonetheless, higher taxes and finance costs led to a decline in net profit margin. Going forward, profitability is expected to remain under stress amid challenges arising from stern market competition. Moreover, the Company is expected to engage in high marketing and promotional activities for the development of new products while maintaining existing share during 4QFY19. The ratings draw strength from the Company's strong financial profile, only consisting of minimal short-term borrowings. Punjab Oil Mills enjoys a minimally leveraged capital structure, strong coverages and efficient working capital management.
The ratings are dependent on the management’s ability to improve profitability and gaining market share, while maintaining prudent working capital management. Substantial increase in debt profile may impact ratings.

About the Entity
Punjab Oil Mills Limited, most famous for its flagship brands Canolive and Zaiqa, is a public limited company. The Company was incorporated in 1981 and commenced operations in 1984. The primary business activity of the Company involves the manufacture and sale of ghee, cooking oil, specialty fats, laundry soap, mushrooms and coffee. The Company has its production facility located at Industrial Triangle in Islamabad. The Company employs ~269 employees and has the production capacity to process 14,000 M.T of Ghee/Specialty fats and 16,000 M.T of Cooking Oil.

Three families, namely, Jahangir Family, Mailk Family and Batla Family have shareholding in the Company. Other shareholders include NIT, Mutual Funds, Financial Institutions and the general public.

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.