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

Rating Type Entity
(09-Feb-21 )
(10-Feb-20 )
Action Maintain Maintain
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan's edible oil industry is heavily reliant on imports since key imported raw materials account for ~80% of the cost of production. Additionally, low domestic oil seed production and lower yields have pushed farmers away from oil seed, further increasing dependence on imports. Demand for edible oil along with sales and recovery of soy meal was impacted during lockdown in the later half of FY20 due to Covid outbreak. However, being a staple food item, edible oil demand from household did not drop. Lately, demand from all avenues for edible oil has picked up. Also, soy meal recovery has improved supported by increase in demand, in turn prices of poultry products. On the supply side, the key raw materials – oil seed – are imported primarily from USA and Brazil. Industry players have sufficient inventories to fulfill demand. International prices of soybean oil seed have picked up (~51%), during FY21, while the rupee has depreciated around 9% since Jan-20. Sales are expected to remain stable. Margins and profitability will improve for players in soybean oil segment. This along with interest rate cut and SBP initiatives like restructuring/deferment of loans will provide sufficient respite to the industry players.

The ratings reflect the Company’s association with Hi-Tech Group, one of the major integrated players in Pakistan’s poultry and allied industry. Topline was supported by improved semi-refined oil and meal prices. However, high dependence on imported oilseeds made the Company susceptible to inherent risk of currency fluctuations and prices of key raw material. Timely passing on the increased cost led to better margins. Meanwhile, high finance cost eroded the Company's profitability. The Company has a highly leveraged structure, though leveraging decreased slightly on YOY basis. 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 deterioration in profits, diluting coverages, is likely to have adverse impact on 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.

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.