Press Release

VIS Credit Rating Company Assigns Initial Ratings to Agro Processors & Atmospheric Gases (Private) Limited

Karachi, August 22, 2019: VIS Credit Rating Company Limited (VIS) has assigned initial long term entity rating of ‘BBB-’ (Triple B Minus) and short term rating of ‘A-2’ (A-Two) to Agro Processors & Atmospheric Gases (Private) Limited (APAG). Outlook on the assigned ratings is ‘Stable’.

APAG is involved in the manufacture and sale of edible oil, banaspati & related products for both B2B (business-to-business) and B2C (business-to-consumer) markets for more than three decades. The company is owned and managed by the Ghulam Hussain Family and is based in Karachi. In January 2018, sponsors completed an investment in APAG Oil (Pvt.) Limited (AOL), which is a fully owned subsidiary of APAG.

The assigned ratings derive strength from established track record of sponsors in edible oil business, significant brand recognition of products including ‘Soya Supreme’, steady growth in topline over the years with improving gross margins and positive demand prospects for edible oil in the domestic market. However, ratings are constrained by elevated leverage indicators while existing debt coverage metrics remain under stress due to limited cash flows. Nevertheless, ratings draw comfort from availability of 100% tax credit over the ratings horizon, which is projected to support improvement in cash flows and financial profile post backward integration into extraction for cost efficiencies, going forward.

Pakistani edible oil industry is divided into two segments with a few large players in the organized sector having sizeable individual capacities targeting the upper middle and high income groups and enjoying strong brand equity by quality and advertisement campaign. The other but larger segment is highly fragmented and caters to middle and lower income groups. Given the relative inelasticity of demand in edible oil, the risks relate to managing of foreign exchange risks in imported raw material procurement and ability to maintain margins.

APAG’s net sales have depicted growth over the past five fiscal years while Soya Supreme and Malta brand constitute major portion of the revenue stream. However, growth in revenues has not translated in to net profitability due to unfavorable tax regime, increase in marketing expenses and higher financial charges. On account of the same, equity base has remained largely stagnant. In order to fund AOL’s acquisition, the company obtained long-term debt facility from three banks repayable from FY20 onwards. Borrowing levels have increased on a timeline basis due to higher stock levels and increase in trade debts. This along with a largely stagnant equity base resulted in significantly higher leverage indicators. Limited cash flows and increase in debt levels translated into weakening debt servicing ability. However, given projected reduction in tax burden post expansion, cash flows and debt servicing ability are expected to improve over the rating horizon. Going forward, realization of projected financial indicators would be the key rating factor.

For further information on this rating announcement, please contact the undersigned (Ext: 207) or Mr. Javed Callea (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.

Jamal Abbas Zaidi

Applicable Rating Criteria: Industrial Corporates (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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited