Press Release

VIS Assigns Entity Ratings to Ittefaq Agro Industries (Pvt.) Limited

Karachi, May 02, 2024: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of 'A-/A-2' (Single A Minus/A-Two) to Ittefaq Agro Industries (Pvt.) Limited (IAIPL). Medium to long term rating of 'A-' indicates good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. Short term rating of 'A-2' indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.

Ittefaq Agro Industries (Pvt) Limited was incorporated in 2009 with the principal business of extraction, refining and selling of edible oils and meals including Soyabean, Canola and Mustard. IAIPL has a Solvent extraction plant located at Port Qasim, Karachi while the Corporate office is located at Business Centre, PECHS, Karachi. The Company is privately owned by three partners who have been involved in the feed business.

Assigned ratings incorporate the business risk profile of the edible oil industry characterized by given its heavy reliance on imported raw material, fragmented market, low value addition & switching cost and thin sector margins. IAIPL experienced a decline in revenues in FY22 and FY23, primarily due to a decrease in sales volume, although commodity price increases partially offset the decline. The Company's product portfolio includes Soyabean, Canola, and Mustard oils and meals, with soyabean products historically dominating sales. However, the ban on GMO-based seeds last year severely impacted soyabean imports, leading to lower capacity utilization and sales volumes. To mitigate this, IAIPL is exploring alternate markets for sourcing non-GMO soyabean and Canola seeds, but faces constraints such as quantity availability and documentation. Client concentration is high, with the top clients accounting for a significant portion of total turnover. In the current year, operating and net margins are impacted primarily due to lower soyabean volumes and declining prices of Canola products. As a result, profitability metrics are expected to remain under pressure in the medium term.

Ratings take into account the financial risk profile of the Company reflective in steady equity growth and maintenance of conservative capital structure over the years. Capitalization indicators, including gearing and leverage have remained low with no long-term debt on the books. Furthermore, comfort is drawn from time to time sponsor support received by the Company for working capital. Ratings also reflect adequate liquidity profile of the Company and comfortable cash flow coverages. Going forward, maintaining profitability metrics in the face of declining volumes remains a key challenge for the Company.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.



Applicable Rating Criteria: Industrial Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale:
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .