The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Upgrades Entity Ratings of Shujabad Agro Industries (Pvt.) Limited

Rating Type Entity
(04-Mar-21 )
(07-Aug-20 )
Action Upgrade Maintain
Long Term A- BBB+
Short Term A2 A2
Outlook Stable Positive
Rating Watch - -

The ratings reflect Shujabad Agro Industries (Pvt.) Limited's establishing brand equity for its premium (Eva Oil) and middle tier (Maan Ghee) brands. The Company's revenue witnessed growth supported by increasing prices. Lately, demand from commercial and household avenues have also picked up, further benefitting the Company's topline. On the industry's front, Pakistan's edible oil industry is heavily reliant on imports since key imported raw material - edible oilseed - accounts for ~80% of the cost of production. As the low domestic oilseed production and lower yields have pushed farmers away from oilseed cultivation, this has further increased dependence on imports. Oilseeds are primarily imported from USA and Brazil. Shujabad Agro has sufficient inventory to fulfill the stabilizing demand. Since Jul-20, soybean oilseed prices surged by ~51%, accompanied by rupee devaluation. However, the Company managed to improve its margins and profitability as it passed on the higher costs to customers. This is also supplemented by improved recovery from soy meal segment. Refined and branded edible oil segment remains competitive where volumes and margins are function of timeliness and prudence of raw materials procurement. The Company follows a cautious approach for its procurement and avoids inventory pile up. The demand is expected to remain stable along with improved margins and profitability for players in soybean oil segment. The Company has a leveraged capital structure supplemented by strong coverages. The coverages will further benefit from the low interest rate scenario and reduced overall quantum of borrowings leading to higher cashflows. The Company improved its working capital cycle with strong cushion for borrowings at the trade level. Lately, the Sponsors have executed a formal shareholding agreement providing clarity on succession and governance framework.
The ratings are dependent on the management's ability to maintain its growing business volumes, while sustaining margins and profitability. Prudent management of working capital and maintaining strong coverages is critical.

About the Entity
Shujabad Ago Industries (Pvt.) Limited is incorporated as a private limited company in Pakistan, since Feb 2000. The Company is primarily engaged in edible oilseed crushing/solvent extraction, refining, oil and ghee manufacturing and its packaging. It also sells soy meal in local and export markets. The Company is competing in premium edible oil segment with ‘Eva’ and middle tier edible oil segment with ‘Maan’. It manufactures two different products (refined edible oil and meal) in four variants (cottonseed, sunflower, soybean and canola). The combined seed crushing capacity of the Company's three solvent extraction units is 213,000 MT per annum. The Company’s edible oil refinery has an installed capacity of 69,000 MT per annum and ghee manufacturing plant has an installed capacity of 100,000 MT per annum. Packaging section has an installed capacity of 144,000 MT per annum for cooking oil and ghee.

Shujabad Agro is owned by two families. The majority shareholding (60%) lies with the family members of Mr. Shakil Ashfaq, of which Mrs. Ambreen Shakil holds 45% shares. The remaining 40% of the shareholding resides with Mr. Abdul Wahid.

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.