Press Release

VIS Reaffirms Entity Ratings of Servo Motor Oil (Private) Ltd.

Karachi, November 13, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Servo Motor Oil (Private) Limited (SMOPL) at ‘BBB/A-2’ (Triple B/A-Two). Medium to long-term rating of ‘BBB’ signifies adequate credit quality; protection factors are reasonable and sufficient. Short term rating of ‘A-2’ indicates good certainty of timely payment, liquidity factors and company fundamentals are sound and access to capital markets is good. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on September 09, 2022.

SMOPL is principally involved in manufacturing and sales of blended lubrication oil and greases. Incorporated in Pakistan on June 05, 2008, the Company operates 50 warehouses within the country. The Company forms part of the Chicago Group (GC) of Companies, which is based in Multan. CG has a diversified group portfolio across various sectors including Tracking Solution (TRAXX VTMS (Pvt) Limited), Food (Riverside Raw Material (Pvt) Limited & Sidra Foods (Pvt) Limited) and Spare parts (Chicago Metal Works (Pvt) Limited and Oil & Filter Company).

Assigned ratings reflect high to medium business risk profile of the lubricant industry marked by cyclicality, competitive pressures and limited pricing power. Ratings also incorporate sponsor support, which has been extended to the Company from time to time. Sponsor support is expected to continue, going forward.

Higher base oil and additive prices, compounded by currency depreciation, made it challenging to pass on expenses to customers, particularly amidst inflationary pressures. Import restrictions and supply chain disruptions during the year also impacted productivity. Together, this resulted in medium-term demand weakening, leading to volumetric reduction and causing a decline in SMOPL’s topline. While the company's gross margins improved in FY23, it faces ongoing pressure on net margins due to rising energy costs, exacerbated by increased interest rates. The company's liquidity profile remains sound, with a healthy current ratio and short-term debt coverage. Improvement in collection period has supported the working capital cycle. The capitalization profile of the Company depicts improvement with reduced gearing and leverage, aided by profit retention and sponsor injection. Going forward, improvement in net margins and maintenance of capitalization profile will remain important for ratings.

For further information on this rating announcement, please contact Ms. Gul Aina Sohail or the undersigned (Ext: 207) at (021) 35311861-4 or email at

Sara Ahmed

Applicable Rating Criteria:
Industrial Corporates (May 2023)

VIS Issue/Issuer Rating Scale:

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