Press Release

VIS Maintains Rating of Faisalabad Oil Refinery (Pvt.) Limited

Karachi, June 29, 2022: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of Faisalabad Oil Refinery (Pvt.) Limited (FORL) at ‘BBB+/A-2’ (Triple B Plus/A-Two). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality with reasonable protection factors. Moreover, risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Positive’. The previous rating action was announced on April 12, 2021.
FORL’ or ‘the Company was incorporated in 1984-1985. The principal business of FORL is manufacturing and sale of banaspati ghee, cooking oil, spices, water, and by-products. The Company has numerous brands under its umbrella, with ‘Kisan’ being the flagship brand. FORL is associated with the Madinah Group, which has business stake in various sectors including sugar, ethanol, power generation, steel, and mass media.

The assigned rating incorporates business risk profile of the edible oil industry, which VIS classifies as ‘High’ given heavy reliance on imported raw material, fragmented market, low value addition & switching cost and thin sector margins. Given the recent trend in international edible oil market, the topline of edible oil companies posted strong growth, albeit profitability margins have remained volatile as is also incorporated in the business risk profile of the sector. In case of FORL, net sales increased by 20% YoY in FY21, mainly being driven by pricing increase. Given continuation of the commodity super cycle and significant increase in edible oil pricing, FORL’s net revenues were up 59% in H1’FY22, vis-à-vis SPLY. Gross margins inched down in FY21; however, given upswing in the international market pricing in H1’FY22, FORL’s gross margin posted improvement.

FORL’s equity base continues to grow on the back of prudent profit retention. The Company has not made any dividend payments historically, as per review of the last 5-year period. However, FORL’s financial risk indicators have depicted an increase, particularly on account of the significant increase in raw material prices lately, as a result of which running finance requirement is higher on a timeline. Resultantly, gearing and leverage of the Company was elevated as at Dec’21. Ratings incorporate cash flow coverage indicators of the entity. DSCR is expected to remain under stress in FY22 due to comparatively higher repayments, albeit is expected to improve subsequently. Current ratio of the Company historically remained above 1x, while stock of trade debts and inventory have historically covered the short term debt, which bodes well for the short term rating of the Company. Ratings remain dependent on maintaining business and financial risk metrics in line with threshold for the assigned rating.

For further information on this rating announcement, please contact Mr. Arsal Ayub, CFA (Ext. 215) and/or the undersigned at 021-35311861-66 or email at .

Sara Ahmed

Applicable rating criterion: Corporates - August 2021

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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .