The move is widely seen as City Group’s strategic intervention to utilise idle assets at Rahima Food and gradually restore its operations after months of complete shutdown.
City Group has extended a lifeline to its struggling listed subsidiary Rahima Food Corporation Ltd by bringing it back into operational activity through a contract manufacturing arrangement with City Edible Oil, offering fresh hope for the long-idle company and its shareholders.
In a price-sensitive disclosure, Rahima Food said its board approved a five-year contract manufacturing agreement with City Edible Oil, a sister concern of City Group, at a meeting held on 18 December. Under the agreement, Rahima Food will use its existing bottling capacity to manufacture bottles for City Edible Oil products. The contract may be extended after the initial five-year term, subject to mutual agreement.
The move is widely seen as City Group’s strategic intervention to utilise idle assets at Rahima Food and gradually restore its operations after months of complete shutdown. Rahima Food’s factory, located in Narayanganj, has remained non-operational following the suspension of its cashew nut processing plant in August and the closure of its coconut oil plant in July.
Investors appeared to anticipate the turnaround well before the official disclosure. Rahima Food’s share price surged by about 53% between 14 November and 15 December, rising to Tk144.8 amid market speculation over potential support from the sponsor group, according to the market insiders.
On Thursday, the stock closed at Tk138.30 on the Dhaka Stock Exchange (DSE).
City Edible Oil, which was incorporated in 2019, is part of City Group’s fast-moving consumer goods portfolio. By outsourcing bottle manufacturing to Rahima Food, the group is effectively internalising part of its supply chain while helping a listed group company resume revenue-generating activity without fresh capital expenditure.
Rahima Food has a long operating history but has struggled in recent years to stabilise its business lines. Incorporated in 1990 and listed on the stock exchanges in 1997, the company came under City Group’s ownership in 2017.
In 2022, it ventured into new segments by introducing coconut oil and cashew nut processing plants, aiming to diversify beyond its legacy food operations.
Those expansion plans, however, ran into difficulties. The coconut oil plant, which started production and marketing in February 2022, failed to achieve the desired market penetration over the following three years. In a disclosure issued earlier, the company said production was temporarily paused on 1 July to reassess strategies for optimising both production and marketing, describing the initiative as a learning experience rather than a failure.
The cashew nut processing plant initially performed better, generating what the company described as “encouraging profits” over the past three years.
But in August, Rahima Food announced the suspension of production with immediate effect after unfavourable climatic conditions disrupted raw material supply from local growers. With stocks depleted and procurement constrained, the company said it had no option but to halt operations temporarily while exploring alternative sourcing channels.
Following these closures, Rahima Food effectively became non-operational. The developments triggered sharp volatility in its share price. Before the factory closure announcements, the stock had jumped by about 160% between June and August, reaching Tk168.9. After disclosures about the shutdowns, the price corrected sharply, falling by roughly 44% to Tk94.5, reflecting investor concerns over the company’s future.
Against this backdrop, the new contract manufacturing deal marks a critical turning point. Market insiders say City Group’s decision to route part of its bottling work through Rahima Food allows the company to generate steady operational income using existing facilities, without the risks associated with launching new consumer brands or sourcing volatile raw materials.
The arrangement also aligns with Rahima Food’s earlier plans. In 2022, the company had announced its intention to build a bottling plant for soybean oil and mustard oil, signalling a strategic focus on bottling and packaging. Commercial operations from that bottling setup are now expected to commence very soon, supported by assured demand from City Edible Oil under the contract.
Financially, Rahima Food has been under pressure. In the July–September quarter, its revenue plunged by 77% year-on-year to Tk0.67 crore, while it incurred a loss of Tk0.10 crore due to the lack of operational activity.
For the full FY25, the company reported a 40% drop in revenue to Tk9.26 crore, while profit fell 48% to Tk1.11 crore. Despite the downturn, the board recommended a 2% cash dividend for FY25, a move that analysts interpret as an effort to maintain investor confidence.
Analysts say the contract manufacturing deal could help stabilise cash flows and gradually improve financial performance, though a full turnaround will depend on execution and scale. “This is a classic example of sponsor support in a stressed listed company,” said a market analyst. “City Group is not injecting cash directly, but by providing business, it is ensuring capacity utilisation and operational continuity.”
Source: The Business Standard
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