PACRA Assigns Initial Entity Ratings to Sabirs' Vegetable Oils (Pvt.) Limited

Pakistan's edible oil industry is heavily reliant on imports since oilseeds account for ~80% of the cost of production. Edible oil is the country’s 2nd largest import after petroleum. Pakistan’s total oil and fats consumption is ~ 5mln MT per annum. Consumption is met by 70% (~3.3 MMT) of edible oil import. The remaining 30% (~1.7 MMT) of edible oil is produced from oilseeds (local ~ 3.5MMT, imported ~ 3.1 MMT). Additionally, low domestic oilseed production in Pakistan caused by a distortion in support price mechanism and lower yields have pushed farmers away from oilseed, further increasing dependence on imports. Demand for edible has picked up due to the reopening of demand avenues. On the supply side, the key raw materials – oilseed and RBD palm oil – are imported primarily from USA, Brazil, and Malaysia. Raw material prices have continued to inflate amid supply uncertainties and historically low global inventory levels, along with rupee devaluation impacting importers. Subsequently, prices of cooking oil and vegetable ghee have remained on the higher side. Going forward, sales are expected to remain stable. Margins and profitability are expected to improve for players and costs will be offset by the increased demand and in turn prices.
The rating reflects Sabirs' Vegetable Oils (Pvt.) Limited’s (‘Sabirs' Oil’ or ‘the Company’) association with Sabirs' Group, which has significant presence along poultry supply chain. Sabirs' Oil is primarily engaged in the process of seed filtering, seed crushing, oil extraction and refining of soybean seed. The Company's business line includes two main products: soybean meal and semi-refined soybean edible oil. The topline remains dominated by soybean meal, sold only to Group Companies, while semi-refined edible oil is sold in bulk. Uptick in topline is supported by significant demand for soy meal. However, high input cost led to stretched margins. Being an importer of soybean oilseed, the Company remains exposed to the inherent risk related to currency fluctuations and prices of raw materials. The Company's financial risk profile is characterized by high borrowings used to finance high inventory levels. The working capital cycle remains stretched but drives comfort from Group's integrated presence in the poultry sector. Interest cover remains strong due to rationalized finance costs.
The ratings are dependent on the management's ability to prudently manage the liquidity and debt profile of the Company while improving sales and margins. Envisaged improvement in business and financial profile along with effective changes in governance framework would be necessary. Any significant and/or prolonged deterioration in revenues and/or coverages will adversely impact the ratings.

About the Entity
Sabirs’ Oil was incorporated in Oct-17 as a private limited concern. Sabirs’ Oil is primarily engaged in the process of seed filtering, crushing, oil extraction and refining by mechanical and chemical process. At present, Sabirs' Oil has a crushing capacity of 121,986 MT per year and is utilized 83%.
The Company's majority ownership resides with Dr. Faqir M. Sabir (∼23%). ∼68% holding resides among Dr. Sabir’s five sons, ∼12-14% held by each son. The remaining stake resides with two associated companies Sabirs’ Poultry (Pvt.) Limited (∼6%) and Shahzor Feeds (Pvt.) Limited (∼4%). The BoD is dominated by the sponsoring family. Board’s Chairman and the Company's CEO, Dr. Faqir M. Sabir plays a pivotal role in making strategic decisions.