Karachi, March 29, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A/A-2’ (Single A/ A-Two) to Biotech Energy (Private) Limited (Biotech). The medium to long-term rating of ‘A’ denotes good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ reflects good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.
Biotech Energy (Private) Limited (Biotech) is a private limited company that produces second generation biodiesel from organic wastes, residues and used cooking oil. Biodiesel is a clean-burning diesel replacement that can be used in existing diesel engines without replacement. The Company’s refinery is located in Sheikhupura and is part of the Shaikh family’s holding structure, which is involved in owning and operations of Biodiesel refineries, trading of non-ferrous metals and investments in liquid and semi-liquid asset classes.
The demand for the global biodiesel market is driven by a number of factors, including government policies and incentives to promote the use of renewable energy sources, increasing demand for biofuels in the transportation sector, and growing concerns over climate change and air pollution. European Union under Renewable Energy Directive (RED) has set strong renewable energy targets to be achieved by 2030 for the transport sector.
Assigned ratings take into account Company’s risk profile supported by export-based business with an off-take agreement and promising growth prospects. The Company produces standardized biodiesel that is exported to EU with a 3-year offtake agreement, ensuring a stable revenue stream. However, capacity utilization remains low with client concentration on the higher side.
Ratings factor in Company’s plan to ramp up its production capacity, which is expected to not only boost topline, but also at the same time result in margin uptick as fixed cost coverage improve. Historically, margins have remained stable, however with economies of scale and currency devaluation, margin improvement is expected.
Given the nature of the industry and stringent quality controls, the Company remains exposed to risk of non -compliance with international standards, resulting in revenue loss. In addition, maintaining consistent supply of raw materials from a highly unorganized sector remains a key challenge.
However, sponsors have implemented an extensive supervisory framework while maintaining active oversight over the operations. Ratings also incorporate sound capitalization indicators, with low gearing and sound liquidity metrics. While gearing is projected to increase in the medium term, potential profitability growth is expected to keep gearing within reasonable levels. Retention of profits to support balance sheet footing will remain important for ratings.
Ratings also draw support from sustainability impact of biodiesel business. Biodiesel being a renewal fuel source has a greater environmental impact through reduced greenhouse gas emissions and improved air quality. As required, Biotech has secured International Sustainability and Carbon Certification (ISCC), which entails an assessment of the entire biofuel supply chain and technical plant for calculation of all relevant emissions. Going forward, achievement of projected revenues and margins while maintaining gearing and leverage indicators will remain important for ratings.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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