Press Release

VIS Credit Rating Company Reaffirms Entity Ratings of Habib Oil Mills Limited

Karachi, August 26, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Habib Oil Mills Limited (HOM) at ‘BBB/A-3’ (Triple B/A-Three). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on May 29, 2018.

The reaffirmation of ratings incorporates improvement in overall financial profile on the back of higher gross margins and efficient working capital management resulting in reduction in short term borrowings. Moreover, leverage indicators have depicted improvement on a timeline basis. However, liquidity profile remains constrained due to limited funds generated from operations. Ratings also reflect established track record of sponsors in edible oil business, strong market position, significant brand recognition of products including ‘Habib Cooking Oil’ and positive demand prospects for edible oil in the domestic market. Ratings remain dependent on timely completion of ongoing project and realization of tax benefits post expansion to ensure sound debt servicing ability.

High business risk characterized by the edible oil industry in Pakistan is key rating driver. Pakistani edible oil industry is divided into two segments; a few large players in the organized sector having sizeable individual capacities targeting the 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. Edible oil industry is highly fragmented and characterized by intense competition and low margins. Business risk relates to managing of foreign exchange and price volatility risks in imported raw material procurement.

As part of a deliberate strategy, senior management of the company during FY18 decided to shift their focus on enhancing premium segment revenues. Resultantly, high margin segment (Mega and Handi) now contributes around four-fifth to total sales revenue and achieving volumetric growth in this segment is the core focus area of the company. HOM is currently in process of setting up an oil seed crushing and solvent extraction plant to produce crude oil at Port Qasim Karachi. Project cost is being funded through a mix of debt and equity. The project is envisaged to improve liquidity and financial profile of HOM through backward integration, lower transportation cost and tax benefits (under Section 65E of Income Tax Ordinance) resulting in improved margins.

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

Javed Callea

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