What is happening to Pakistan’s edible oil market?

Soya Supreme has become the second edible oil company to plan an initial public offering (IPO) in recent days. On Friday the 8th of September, company officials announced that Soya Supreme will be getting listed on the Pakistan Stock Exchange (PSX) and conducted an IPO, allowing consumers of their product to own shares in the company. 

Soya Supreme was established in 1991, under the ownership of parent company Agro Processors and Atmospheric Gases (APAG). Thirty two years later, the company has become a popular consumer brand and is finally ready to go public. Ahmad Ghulamhussain, the CEO of APAG informed Profit that the IPO is expected to happen within the next six months. 

The exact timing of the company’s IPO will be determined based on prevailing market conditions, Ghulamhussain disclosed in an interview with Reuters. It was further informed that the company’s board has granted authorisation to the management to engage Habib Bank Limited (HBL) and KTrade, a brokerage firm, to commence the IPO process.

When inquired about the fundraising target and subsequent valuation of the IPO, Ghulamhussain told Profit that, “It is a premature time to quote an exact target and comment on the size of the public offering, as the company is still awaiting a board approval on the matter.” He did, however, emphasise that Soya Supreme would not be selling existing shares, rather offering additional shares. 

Soya Supreme’s reasons to opt for an IPO

One would imagine that any company going for an IPO has one main motivation to do so; Capital Injection. However, Soya Supreme’s reasons, even though including inflow of capital and its resultant expansion, go beyond just that.

Let’s break it down. 

The company is looking to access growth capital and plans to introduce more industrial fats to their portfolio. They recently diversified their offerings, adding specialised industrial fats, as well as other fats to the list, along with cooking oil, which the company is known to manufacture. 

With the import restrictions Pakistan tackled this year, importing raw materials became a challenge for the industry. Soya Supreme’s new additions can be seen as a solution to meet the increased demand from local food companies that rely on imports of soybean and palm oil, which were worth approximately $3.7 billion as of last year.

“The company plans to improve and expand the export of these specialised industrial fats to regions including the Middle East and North Africa,” Ghulamhussain shared with Profit. So, Soya Supreme dappling in specialised industrial oils will not only serve as a relief to Pakistan’s import difficulties, but also help the country improve its export portfolio. 

Moreover, the brand offers condiments that include a range of sauces, such as ketchup, mayo and chicken spread. According to Ghulamhussain, the IPO will be used to build this segment further. 

Lastly, and perhaps most interestingly, the company’s decision to do an IPO is an ideological one. “We are not simply doing this to raise funds. Soya Supreme is a celebrated brand that its consumers have grown to love. We are extending to our consumers the opportunity of owning a part of Soya Supreme,” said Ghulamhussain. According to him, the IPO will allow consumers to own the brand in an unprecedented way and to feel the pride of using a product that they own. 

The company expects this decision to enable them to not only expand their footprint and capture more of the market’s share, but also to open doors for their consumers to be a part of the brand.  

Is this a favourable time to go public? 

Well, despite the fact that the country has seen some of the toughest times, economically and politically, which might be a demotivator for investors, Soya Supreme is not the only company going for an IPO this year.

Dalda, which is another consumer staple company, popularly known for selling edible cooking oil is also planning to raise between Rs 3.3 billion to Rs 4.6 billion through an IPO expected to happen in the following months. 

Dalda delayed its decision to do a public offering earlier this year, due to reasons pertaining to economic instability and poor market conditions. However, the company might finally take the leap, now that there is a competitor in the game, who just so happens to have a little more optimistic approach. 

Profit asked Ghulamhussain to share his sentiments regarding Soya Supreme’s decision to do an IPO during a time of economic uncertainty, to which he said, “There will always be good and bad times and there is never enough certainty. However, I am quite optimistic and I believe that we are a very resilient society. It does not take long for the situation to improve, so we don’t know what might happen in the next six to eight months.”

He continued, “Pakistan has great potential and a promising future, so I am quite hopeful. Plus, I believe that it is always better to start something at a bad time, so that you can reap the results at a better, more favourable time.”

The year of IPOs 

It seems like the IPO is the new buzzword of 2023, what with all the public offerings we keep hearing about! 

During a gong ceremony commemorating the IPO of Symmetry Group Ltd, PSX Managing Director Farrukh H. Khan revealed that two other industrial sector companies are progressing with their IPO plans alongside Fast Cables Ltd, a manufacturer of electrical cables and conductors. 

The PSX has approved prospectuses for seven companies seeking to raise capital, including Pakistan Reinsurance Company Ltd, International Packaging Films Ltd, Regal Automobile Industries Ltd, Secure Logistics Group Ltd, Searle Pakistan Ltd, Dalda Foods Ltd, and Fast Cables Ltd. These approvals span from 2021 to 2023, with sponsors awaiting favourable market conditions to offer their shares at a premium, a race that has now been joined by Soya Supreme. 

Public listings were scarce in the FY 2022-23, with only one IPO, Globe Residency REIT, raising Rs1.4 billion. Symmetry Group Ltd’s listing is the only IPO so far in the current calendar year. 

Khan, while encouraging tech companies to seek public funding through the stock exchange, noted that tech companies in Pakistan often have multiples comparable to their regional and international counterparts, unlike old-economy stocks that usually trade at lower multiples. He urged tech companies to prioritise raising capital, even at lower valuations, to support long-term growth. 

It is safe to say that the next year might witness an abundance of IPOs. 

The future of Pakistan’s edible oils market

Pakistan’s edible oils sector is huge, and understandably so, considering the country’s population that currently stands at 231.4 million people, most of whom cook their food in some form of edible oil.

 According to Euromonitor’s 2022 country report on Edible Oils, the size of the market was more than Rs 400 billion in terms of retail value. The present market division within this multi-billion rupee sector is such that 75.7% of the market is controlled by 11 major brands, including the likes of Dalda, Mezan, Sufi, Habib, Kashmir, Eva, Kisan, Soy Supreme, Seasons, Bertolli and Pakwan. 

Based on data presented by the same source, Dalda takes the biggest market share in terms of retail value, with a whooping 19.9% retail value share, followed by Mezan, Sufi and Habib that take up to 9.1%, 8.7% and 7.7% of the retail share, respectively. 

Within this category, Soy Supreme had a 5.2% market share in 2022, with a promising 5-year trend of increasing market share. 

The report emphasises that in 2022, inflation led to a significant increase in prices, particularly affecting edible oils. This price surge placed a burden on the lower-middle-class and rural populations, forcing them to become more price-sensitive, consequently, prioritising affordability over quality. Small local companies responded to the demand for cheaper cooking oil options, particularly in informal retail channels. These budget-friendly products gained traction, especially in smaller cities where even a slight difference in price significantly influenced consumer purchasing decisions.

This shows that despite the ever growing size of the market, pricing is an important factor that might continue to influence the current market division. 

That being said, it is pertinent to note that there is growing awareness and concern for clean eating among upper-middle class consumers, making manufacturers more focused on the quality of edible oil. Consumers are making purchasing decisions based on health benefits and trustworthiness, aiming for products suitable for the whole family, which presents an opportunity for importers and high-end brands to establish strong, aspirational positions due to the high value these products hold and the relatively low price sensitivity of these consumers.