Qadir Agro Industries (Pvt.) Limited

CREDIT RATING REPORT | Mar-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
27-Mar-25 BB+ A3 Stable Maintain -
27-Mar-24 BB+ A3 Stable Maintain -
27-Mar-23 BB+ A3 Stable Maintain -
18-Mar-22 BB+ A3 Stable Initial -
About the Entity

Qadir Agro Industries (Pvt.) Limited (‘the Company’) was incorporated in July, 1987 as a Private Limited Company. The Company is primarily engaged in the process of seed filtering, crushing and solvent extraction. The Company primarily sells soybean oil/meal, canola oil/meal and poultry feed. The Company has seed crushing capacity of 250MT per day. The capacity of the poultry feed mill, currently, stands at 30MT per hour. The Company’s major ownership resides with Khawaja Mehr Baksh (~34%) and his sons, Khawaja Muhammad Shehzad (~33%) and Khawaja Muhammad Omer (~33%). Mr. Mehr Baksh is the Chairman of the Board, while Mr. Shehzad serves as the CEO of the Company.

Rating Rationale

The ratings indicate the Qadir Agro Industries (Pvt.) Limited’s (‘the Company’) evolving presence in both the edible oil and poultry feed sectors within the country. The ratings are underpinned by the substantial experience and strategic management of the sponsors, which remain crucial to the Company's operational effectiveness. The sponsors maintains a diversified business portfolio, with strategic investments in textile manufacturing, edible oil processing, and animal feed production, including the operations of Roomi Poultry. In FY24, the total imports of edible oil, including oil extracted from imported oilseeds, clocked in at ~2.717mln metric tons, with a cumulative value of PKR 794bln. Due to the rise in input costs, especially raw material cost, many Companies have experienced a reduction in their profit margins and faced working capital shortages. The industry's future outlook is developing due to price volatility and PKR depreciation. With this, Qadir Agro Industries (Pvt.) Limited experienced a modest 5% contraction in topline revenue during the reporting period. The Company's revenue stream is primarily concentrated in the poultry feed segment, accounted for 94% of total sales, followed by others (6%). The Company exhibited stable gross profit margins, supported by a marginal decrease in the cost of goods sold. Concurrently, net profit margins experienced a slight improvement, largely driven by a reduction in finance expenses. The Company maintains a conservative capital structure characterized by low leverage, primarily funded through internally generated cash flows. This strategic maneuver significantly strengthened the Company's financial profile. Furthermore, Qadir Agro Industries significantly improved its Cash Conversion Cycle (CCC) by optimizing inventory, receivables, and payables management. This resulted in a notable improvement in net working capital efficiency, directly enhancing the organization's liquidity. It is pertinent to note that, as an importer of oilseeds, the Company remains exposed to fluctuations in foreign exchange rates, presenting a potential source of financial risk.

Key Rating Drivers

The ratings are dependent on the management's ability to prudently improve margins, profitability, and financial profile of the Company. Meanwhile, strengthening governance practices will have a positive impact on the ratings. Any deterioration in debt coverages leading to higher financial risk or substantial losses will adversely impact ratings.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Qadir Agro Industries (Pvt.) Limited

rating analysis

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Profile
Legal Structure

Qadir Agro Industries (Pvt.) Limited (‘the Company’) was incorporated in July, 1987 as a Private Limited Company


Background

Mr. Khawaja Mehr Baksh and his son, Mr. Khawaja Muhammad Shehzad laid the foundations of the Company by setting up a small crushing unit in the 1980s. Over the years the Company has been able to enhance its capacity and also venture into poultry feed by setting up a feed mill in Jul-2018.


Operations

The Company is primarily engaged in the process of seed filtering, crushing and solvent extraction. The Company primarily sells soybean oil/meal, canola oil/meal and poultry feed. The Company has seed crushing capacity of 250 MT per day. The capacity of the poultry feed mill currently stands at 30MT per hour.


Ownership
Ownership Structure

The Company’s major ownership resides with Khawaja Mehr Baksh (~34%) and his sons, Khawaja Muhammad Shehzad (~33%) and Khawaja Muhammad Omer (~33%)


Stability

The Company holds a stable structure as it is completely owned by the sponsoring family.


Business Acumen

The sponsors have been involved in multiple businesses in textile, edible oil and poultry feed. The sponsors have ventured into textile by purchasing a cotton factory. The sponsors also own Roomi Industries (Pvt.) Limited, a solvent extraction unit.


Financial Strength

The sponsors hold adequate net worth to support the Company in times of distress.


Governance
Board Structure

The Company’s BoD comprises three Executive Directors. All three directors are from the sponsoring family. Lack of independent oversight and diversity indicates a room for improvement in the Company’s governance structure. The overall control of the Company vests with the Board’s Chairman


Members’ Profile

The Board’s Chairman, Mr. Khawaja Mehr Baksh, has been associated with the Company since 1987 and has an overall experience of 5 decades in textile, edible oil, and poultry feed.


Board Effectiveness

The Board lacks formal sub-committees. The minutes of Board meetings are adequately documented.


Financial Transparency

The external auditors of the Company, Waqas & Co. Chartered Accountants, have expressed an unqualified opinion on the financial statements of the Company for the year ended Jun-23. The firm is not QCR rated and not on SBP’s panel of auditors.


Management
Organizational Structure

The Company has a linear organization structure. The Company operates through three functions: Production, Finance, Sales & Marketing. All functional managers’ report to the Company’s CEO. The CEO makes all pertinent decisions of the Company. As the Company’s CEO is responsible for the whole unit, thus highlighting the key man risk of management.


Management Team

Mr. Khawaja Muhammad Shehzad, the CEO of the Company, has over 30 years of experience in the edible oil and textile segment. He is an MBA and also looks over the Company’s procurement and import of edible oil seeds.


Effectiveness

There are no management committees in place. Management meets on need basis to ensure efficiency of the Company’s operations.


MIS

The Company’s reports are mostly excel based for the management to review.


Control Environment

The internal audit function of Company needs improvement.


Business Risk
Industry Dynamics

Edible oil is one of the highest imported commodities in Pakistan. During the year, 2.717mln MT of edible oil (including oil extracted from imported oilseed) of value Rs 794 billion was imported. Local edible oil production remains at 0.471mln MT. In line with population growth, edible oil demand is forecast to grow about 5% and palm oil imports grew accordingly, reaching 3.6mln MT in FY24. The price of Soybean oilseed stood at 479 USD/MT in Jun-24 as compared to 591 USD/MT in the comparative year, showcasing a decrease of ~18%. On the other hand, the price of palm oil stood at  873 USD/MT in Jun-24 and 816 USD/MT in Jun-23, which is forecasted to ease further. Comparatively, reductions in selling prices have impacted the revenues substantially for the refineries. Due to the rise in input costs, especially raw material cost, many companies have experienced a reduction in their profit margins and faced working capital shortages. With expectations for better cottonseed production, Total oilseed production in 2024/25 is projected to decrease marginally to 3.43mln MT, due to an expected minor decline in cottonseed production, and no growth in rapeseed and sunflower seed output. The industry's future outlook is developing due to price volatility and PKR depreciation.


Relative Position

The Company has a market share of less than 1% in terms of revenue and production in edible oil segment.



Revenues

The Company primarily generates revenue from the sale of poultry feed, which accounts for approximately 97% of total revenue, with the remaining 3% derived from the sale of canola, soybean, and rapeseed oil and meal. During the financial year 2024 (FY24), the Company’s overall sales remained stable, amounting to PKR 5.3 billion, compared to PKR 5.6 billion in the previous financial year (FY23). Following the imposition of a ban on genetically modified organism (GMO) seeds, the Company strategically shifted its focus towards expanding its poultry feed segment. This strategic decision led to a significant increase in poultry feed sales, which surged to PKR 5 billion in FY24, up from PKR 3.2 billion in FY23, representing a remarkable growth of 56% in this segment.


Margins

During FY24, the company maintained stable profitability margins, with a gross profit margin of 4.0% (FY23: 4.1%) and an operating profit margin of 3.1% (FY23: 3.1%), demonstrating consistent operational efficiency, particularly within its core poultry feed segment, which constitutes approximately 97% of total sales; however, a significant improvement was observed in the net profit margin, rising to 1.3% from 0.1% in FY23, primarily driven by a substantial reduction in finance costs from PKR 74 million to PKR 49 million, resulting from the successful retirement of company borrowings, which indicates improved financial health.


Sustainability

The sponsors have increased the capacity of the poultry feed to 30MT per hour during FY24.


Financial Risk
Working capital

Working capital needs arise from the Company’s import of raw materials. This indicates faster inventory turnover and minimizing holding costs. Average inventory days improved and stood at 40 days during FY24 (FY23: 62 days), signifies quicker collection of payments from customers, improving cash flow. Trade receivable days improved and stood at 8 days during FY24 (FY23: 14 days), signifies quicker collection of payments from customers, improving cash flow. Gross working capital days of the Company stood at 48 days during FY24 (FY23: 77 days). Trade payable days stood at 28 days during FY24 (FY23: 7 days), which demonstrates the company's ability to leverage supplier credit, effectively delaying cash outflows. The combined effect of these improvements is a dramatic reduction in net working capital days from 70 to 20, reflecting a substantial release of tied-up capital and a marked enhancement in the company's liquidity position. This indicates a more efficient use of short-term assets and liabilities, and a much shorter cash conversion cycle.


Coverages

The company's Free Cash Flow from Operations (FCFO) experienced a marginal decrease in FY24, registering PKR 146 million compared to PKR 161 million in FY23. However, this slight decline was counterbalanced by a significant strengthening of debt coverage metrics. Notably, the company successfully eliminated its finance costs, leading to an improved debt service coverage ratio of 3.0x in FY24, up from 2.9x in FY23. Furthermore, the EBITDA/Finance Cost ratio demonstrated a substantial enhancement, increasing from 2.9x in FY23 to 4.1x in FY24. This improvement underscores the company's enhanced capacity to service its financial obligations through operating earnings, reflecting a more robust financial position despite a minor reduction in FCFO.


Capitalization

The company's financial structure underwent a significant transformation in FY24, characterized by the complete elimination of its leverage position, a stark contrast to the PKR 758 million in borrowings held in FY23. This debt retirement, coupled with a simultaneous increase in equity from PKR 556 million to PKR 622 million, signifies a substantial strengthening of the company's balance sheet. The transition to a debt-free status enhances financial stability, reduces financial risk, and provides increased flexibility for future strategic initiatives, while the growth in equity further reinforces the company's financial resilience.
 
 

Mar-25

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Qadir Agro Industries (Pvt.) Limited

financial summary

(PKR mln)

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Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 471 458 461
2. Investments 0 0 0
3. Related Party Exposure 0 0 0
4. Current Assets 938 1,161 1,597
a. Inventories 451 727 1,191
b. Trade Receivables 6 221 225
5. Total Assets 1,409 1,619 2,058
6. Current Liabilities 742 257 169
a. Trade Payables 678 144 65
7. Borrowings 0 758 1,328
8. Related Party Exposure 0 0 0
9. Non-Current Liabilities 45 47 11
10. Net Assets 622 556 550
11. Shareholders' Equity 622 556 550
B. INCOME STATEMENT
1. Sales 5,322 5,626 4,146
a. Cost of Good Sold (5,108) (5,398) (3,955)
2. Gross Profit 214 228 191
a. Operating Expenses (52) (51) (44)
3. Operating Profit 162 177 147
a. Non Operating Income or (Expense) (8) (7) (7)
4. Profit or (Loss) before Interest and Tax 155 170 140
a. Total Finance Cost (49) (74) (53)
b. Taxation (36) (90) (63)
6. Net Income Or (Loss) 69 6 24
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 146 161 130
b. Net Cash from Operating Activities before Working Capital Changes 97 86 78
c. Changes in Working Capital 9 (8) (315)
1. Net Cash provided by Operating Activities 106 79 (237)
2. Net Cash (Used in) or Available From Investing Activities (58) (39) (78)
3. Net Cash (Used in) or Available From Financing Activities 0 0 351
4. Net Cash generated or (Used) during the period 48 40 37
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -5.4% 35.7% -8.3%
b. Gross Profit Margin 4.0% 4.1% 4.6%
c. Net Profit Margin 1.3% 0.1% 0.6%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 2.9% 2.7% -4.4%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 11.8% 1.2% 4.5%
2. Working Capital Management
a. Gross Working Capital (Average Days) 48 77 105
b. Net Working Capital (Average Days) 20 70 97
c. Current Ratio (Current Assets / Current Liabilities) 1.3 4.5 9.4
3. Coverages
a. EBITDA / Finance Cost 4.1 2.9 3.7
b. FCFO / Finance Cost+CMLTB+Excess STB 3.0 2.2 2.5
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 0.0 0.0 0.0
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 0.0% 57.7% 70.7%
b. Interest or Markup Payable (Days) 0.0 0.0 0.0
c. Entity Average Borrowing Rate 6.5% 7.0% 6.7%

Mar-25

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Qadir Agro Industries (Pvt.) Limited

rating scale

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Mar-25

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Qadir Agro Industries (Pvt.) Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
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    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
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    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
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    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
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  6. Probability of Default
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Mar-25

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