Press Release

VIS Credit Rating Company Reaffirms Entity Ratings of Habib Oil Mills Limited

Karachi, December 21, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Habib Oil Mills Limited (HOM) at ‘BBB/A-3’ (Triple B/A-Three). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on August 26, 2019.

High business risk characterized by the edible oil industry in Pakistan is key rating driver. Pakistani edible oil industry is divided into two segments; a few large players in the organized sector having sizeable individual capacities targeting the middle and high income groups and enjoying strong brand equity by quality and advertisement campaign. The other but larger segment is highly fragmented and caters to middle and lower income groups. Pakistani edible oil industry is characterized by high competitive intensity due to fragmentation and low barriers of entry which results in limited pricing power and thin profitability margins. Key business risks include managing of foreign exchange and price volatility risks in imported raw material procurement.

Profitability profile is constrained by sizeable finance cost and high effective tax rate. Change in tax regime in the ongoing year is expected to result in lower effective tax rates. This along with higher revenues post completion of expansion and improvement in margins is expected to support profitability profile over the rating horizon. Overall liquidity profile remains constrained due to limited funds generated from operations and extended working capital cycle which requires utilization of short-term borrowing. Comfort is drawn from sizeable tax refunds in the ongoing year which will support in meeting short-term liquidity requirements. Although equity base has increased on the back of capital injections, leverage indicators are high and are expected to escalate on account of higher working capital requirements post expansion. Management expects commencement of seed crushing and solvent extraction plant in 1QCY2021 to improve financial profile of HOM through backward integration, improved margins and tax benefits (under Section 65E of Income Tax Ordinance).

HOM is involved in the manufacture and sale of vegetable banaspati, cooking oil and related products for over six decades. The company is owned by the Hassan Family and based in Karachi. The assigned ratings incorporate established track record of sponsors in the edible oil business, strong market position, significant brand recognition of products, projected improvement in financial profile post expansion and favorable demand prospects for edible oil in the domestic market.

For further information on this rating announcement, please contact the undersigned at (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Industrial Corporates (May 2019)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited