VIS upgrades Madina Oil Refinery's rating to 'BBB'

April 11, 2024 (MLN): VIS Credit Rating Company (VIS) has upgraded the entity ratings of Madina Oil Refinery Limited (MORL) to 'BBB/A-2' from ‘BBB-/A’ with a stable outlook forecast, latest press release issued by VIS showed.

A medium to long-term rating of 'BBB' indicates adequate credit quality; protection factors are reasonable and sufficient.

While a short-term rating of 'A-2' indicates good certainty of timely payment.

To recall, the previous Rating action was announced on February 20, 2023.

MORL is involved in the edible oil refining business. It is part of the ‘Madinah Group’ having diversified business interests including sugar, ethanol, edible oil & vanaspati ghee, power generation, steel and mass media.

The company has recently expanded its operations by installing a solvent extraction plant with the installed capacity of crushing seed 300 MT per day.

In addition, the company has set up a refining capacity of 160MT/per day for canola oil that became operational in the current year. The company sells its products under the brands of ‘Zaavi’, ‘Khushroz’, and ‘Kaif’.

Assigned ratings incorporate the high business risk profile of the edible oil sector, characterized by heavy reliance on imported raw materials, fragmented market, low-value addition and switching costs along thin sector margins.

Rating revision takes into account improvement in profitability and capitalization profile.

During the year, while volumes registered a decline year over year, price increases largely compensated for the volume loss, thereby keeping revenues fairly stable.

However, with the backward integration into the crushing plant and higher meal prices in the market, the gross margins of the company recorded a notable improvement, boosting the overall profitability profile.

Consequently, the capitalization profile also noted favorable metrics on the back of improved profitability and profit retention.

Gearing and leverage indicators depicted a decline. Coverages also remained comfortable. However, liquidity metrics remain adequate.

Diversion of operational flows towards a sizeable investment in related party shares during the year has constrained the company's liquidity profile, leading to reliance on short-term borrowings to bridge the gap.

Going forward, the recoupment of these funds will remain important for the company's overall liquidity and capitalization profile.

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