Press Release

JCR-VIS assigns Initial Ratings to Faisalabad Oil Refinery (Pvt.) Limited

Karachi, June 29, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B-Plus/A-Two) to Faisalabad Oil Refinery (Pvt.) Limited (FORL). Outlook on the assigned ratings is ‘Stable’.

The assigned ratings take into account moderate business risk profile of the company owing to its presence in edible oil market; demand dynamics of the sector remain favorable on account of growing population. The sponsors have over three decades of experience in the industry, resulting in long-standing relationships with the distributors and an established procurement network. Ratings drive strength from a well-recognized brand name and adequate debt service coverage ratio since there is no long-term debt on the company’s balance sheet. However, ratings remained constrained on account of declining sales, high competition in branded edible oil retail market, significant accumulation of advance income tax and sales tax refundable due from the government and weak corporate governance framework.

Sales have exhibited a considerable decline primarily due to a downtrend in production activity over the past three years. The volumetric sales of both vegetable ghee and cooking oil declined at a CAGR of 21% over the last three years resulting in a reduced capacity utilization. Nonetheless, concentration risk has remained on the lower side as top ten customers account for less than 20% of total sales. Gross margins have reflected stability as the company was able to pass incremental input costs onto consumers. However, overall profitability remains confined to limited value-addition in existing product line. As a consequence of reduced sales, funds from operations (FFO) have decreased considerably in recent years, resulting in a weak FFO to total debt ratio. Continuous accumulation of both advance income tax and sales tax refundable has put a drag on liquidity position of the company.

Total equity has increased on account of internal capital generation. Debt profile of the company comprises short-term borrowings; the same have been procured to support working capital-intensive operations of the company. In line with current business model of the company coupled with no equity injection planned by the sponsors leverage and gearing indicators are likely to remain around the current levels, going forward.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.

Javed Callea

Applicable rating criterion: Industrial Corporate (May, 2016)

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 not an NRSRO and its credit ratings are not NRSRO credit ratings.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 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited