Press Release

VIS Assigns Initial Ratings to Madina Oil Refinery Limited

Karachi, February 20, 2023: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘BBB-/A-2’ (Triple B Minus/A-Two) to Madina Oil Refinery Limited (MORL). The medium to long-term rating of ‘BBB-’ denotes adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes 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’.

MORL is associated with ‘Madinah Group’ having diversified business interests including sugar, ethanol, edible oil & vanaspati ghee, power generation, steel and mass media. MORL is relatively a new venture of the group, with shareholding entirely vested within the family. The ratings incorporate extensive experience of the sponsors in the related industry, that leads to long-standing relationship with the distributors and an established procurement network. The company started commercial operations of its refinery with per day capacity of 200 MT in 2021 and has recently installed a solvent extraction plant with a capacity of 300 MT per day for backward integration, which is expected to come online by end-February’23.

The topline almost doubled in the outgoing year and largely constituted vanaspati ghee. The company sells its products under the brands of ‘Zaavi’ and ‘Khushroz’ through dealers across Punjab and KPK. The growth in revenue was driven by higher average selling prices and quantity sold during FY22. However, gross margins decreased amidst the impact of sharp currency devaluation on raw material prices and overall increase in cost of production due to inflationary pressure. Net margins also declined owing to surge in operating expenses and finance cost. Liquidity profile is underpinned by manageable working capital cycle. Leverage indicators increased on account of higher short-term borrowings amidst elevated working capital requirements at end-FY22. Meanwhile, the same have receded in line with offtake of inventory by end-1Q’23. The debt profile of the company comprised only short-term borrowings while the recent capex has entirely been executed through own sources. Nonetheless, high gearing and relatively smaller equity size vis-à-vis peers lead to enhanced financial risk profile.

Given synergies at the group level, MORL has been able to address the current issue related to import of raw material as LC payments are being settled against export proceeds. The demand outlook for consumer goods industry including edible oil, though quite inelastic, may get impacted amidst all time high inflation suppressing purchasing power of the masses in the country. In addition, higher markup rates, unstable forex parity and depleting foreign exchange reserves will remain major challenges. Further, VIS classifies edible oil industry as ‘High’ business risk given its heavy reliance on imported raw material, fragmented market, low value addition and switching cost along with thin sector margins. The ratings will remain sensitive to achieving projected growth in sales and profitability, maintaining margins and improving capitalization and liquidity indicators, going forward.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-13 (Ext. 8005) and/or the undersigned at 021-35311861-66 (Ext. 201) or email at

Javed A. Callea

VIS Entity Rating Criteria: 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 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited