PACRA upgrades entity ratings of Olympia Chemicals to ‘A’

May 29, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has updated the entity ratings of Olympia Chemicals Limited from "A-" to "A" for the long-term and "A1" for the short-term with a stable outlook forecast.

Olympia Chemicals' ratings reflect a vigorous business profile represented by its prominent position in the manufacturing of Soda Ash light/dense (Sodium Carbonate) and Refined Sodium Bicarbonate.

The Company’s expansion of Soda ash unit with 250TPD has been recently completed, and now the current capacity stands at 1000TPD including 160TPD of Sodium Bi Carbonate.

As part of its diversification strategy, the company ventured into the value-added segment of soda ash, and targeted the detergent markets, however, the contribution from this segment is currently modest.

Currently, the local market exhibits a duopoly, with Lucky Core Industries holding a commanding ~60% market share, followed by Olympia Chemicals with approximately 30% market share, while the remaining 10% is supplied through imports.

A prominent, local business group has also got approval from the Special Economic Zone (SEZ) to set up a new soda ash manufacturing plant expected to come online within next two years.

The demand for Soda Ash is closely linked with the performance of the construction/glass industries, and prevailing macroeconomic factors, such as elevated inflation, high interest rates, and currency devaluation can dampen local demand.

Nonetheless, there exists an opportunity for exports to capitalize on existing production capacities, providing a potential avenue for industry growth despite domestic challenges.

The topline of the company registered a positive growth of 13% during 9MFY24 mainly due to an increase in volumes. However, margins posted a slight decline, due to cost-push inflation and soaring borrowing costs.

The company follows a comprehensive and prudent business plan, and the company’s performance is aligned with it which adds comfort to the ratings.

The group has a formidable business history, and its portfolio contains investments in the poultry sector & processed chicken, feeds, chemical manufacturing, edible oils extraction, agriculture crops, fruit orchards, carpets weaving, and textile products.

Some of the renowned brands are “Areej Banaspati & Cooking Oil” and “Olympia Carpets” etc. Operations are managed by a team of professionals, under the supervision of sponsors.

The board of the company is family-oriented where sponsors are close family members thus indicating room for improvement.

The company is benefitting from sound systems of internal controls. The financial profile of the company is considered good with comfortable coverages, cashflows, and working capital management.

Capital structure is moderately leveraged, and borrowings are mainly comprised of concessionary long-term loans (TERF). Going forward the company is expecting to increase its export sales to UAE, Qatar, KSA, South Africa, Afghanistan, Bangladesh, and Kuwait.

The ratings are dependent on upheld sustainable profits and market share while retaining sufficient cash flows and coverages. However, adherence to maintaining its debt metrics at an adequate level is a prerequisite.

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