Press Release

JCR-VIS Assigns Initial Entity Ratings to Pan Asia Food Products (Private) Limited

Karachi, July 12, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘BBB/A-2’ (Triple B/A-Two) to Pan Asia Food Products (Private) Limited (PFPL). Outlook on the assigned ratings is ‘Stable’.

PFPL has been involved in the manufacture and sale of vegetable banaspati and cooking oil for over two decades. The assigned ratings incorporate established track record of sponsors in the edible oil business, good market position in northern region of the country and favorable demand prospects for edible oil in the domestic market. Assigned ratings also reflect adequate financial risk profile of the company as indicated by moderate capitalization and liquidity indicators along with improving profitability. The ratings are, however, constrained by high business risk profile of the edible oil industry; room for improvement also exists in the governance structure of the company.

Pakistani edible oil industry is characterized by high competitive intensity due to fragmentation and low barriers of entry which result in limited pricing power and thin profitability. Demand is segmented into high end brand franchises, middle tier and low end brands, with growth prospects in all segments. Changes in regulatory regime may have an adverse impact on the sector. Moreover, variation in raw material and foreign exchange rate fluctuations are key risk factors resulting in volatility in margins. Ability to manage the same depends on pass through of final product prices to consumers, which in turn, is linked to degree of competition and operational efficiency.

PFPL’s turnover has depicted growth over past three fiscal years. Despite sizeable tax burden, profitability has increased on the back of improvement in gross margins. Equity base of the company has grown on account of profit retention. Debt profile is conservative in nature, comprising low quantum of short term borrowings only. Accordingly, gearing levels have remained below 0.5(x). Moreover, the company has no plans for mobilizing fresh long term borrowings in near future. Currently, PFPL is in process of expanding its aggregate capacity from 140 metric tonnes per day (MTPD) to 250 MTPD, funded through equity injection. The project is expected to reach completion in December 2018. Accordingly, management expects tax benefits and growth in profitability from expansion project to materialize from FY19 onwards. Going forward, timely project completion, improvement in profitability post expansion, maintenance of margins in the backdrop of competitive market dynamics and enhancement in governance framework would be key rating sensitivities.

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

Atiq Anwar Mahmudi

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited JCR-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.JCR-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.JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.JCR-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 2018 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited