Analyst
Shujat Ehsanullah Wasim
Shujat.Ehsan@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Maintains Entity Ratings of Asif Rice Mills
Rating Type | Entity | |
Current (20-Apr-23 ) |
Previous (22-Apr-22 ) |
|
Action | Maintain | Initial |
Long Term | BBB+ | BBB+ |
Short Term | A2 | A2 |
Outlook | Stable | Stable |
Rating Watch | - | - |
Rice is among the five major crops of Pakistan and is the second main staple food, after wheat. The segment contributes about 3.5% in agriculture value addition and 0.7% to GDP. Local consumption includes ~95% of basmati rice and ~5% non-basmati. During FY22, rice crop area increased to ~3.4mln Hec (FY21: ~3.3mln Hec), reflecting an increase of ~3%. Rice production increased by ~6%, standing at ~8.9mln MT in FY22 (FY21: ~8.4mln MT). New higher-yielding hybrid rice varieties, improved agronomic practices, and increased planting area, as farmers shift out of cotton, are factors driving the increased production. Around ~4mln MT of rice is consumed locally, while, the remaining is exported. During FY22, Pakistan exports increased to ~USD 2.5bln (FY21: ~USD 2bln). Moreover, 2022 floods have caused an average of ~20% - 25% total crop loss. Thus, impacting the industry’s overall topline. However, rupee depreciation may provide some cushion. With an increase in the policy rate and resultantly, ERF, bottom line may also erode. Industry's overall margins and cashflows may become stretched. Industry poses a developing outlook for the ongoing year.
The ratings reflect Asif Rice Mill's ('the Business') prominent position in the rice exporter's segment of the country. The Business has enhanced its capacity over the years leading to improved financial performance. Asif Rice strategizes on a diverse customer base across regions and therefore, has the comparative edge. Revenues posted a sluggish trend; while, margins and profitability remains adequate. The Business benefited from its strong relative position amidst lower crop availability and shipping challenges to exporters. The Business has also diversified its product base, which is expected to remain beneficial in the long-term. The Business financial risk profile is characterized by adequate working capital management support by considerable borrowing cushion, along with strong debt cover and capital structure braced by revaluation surplus. Sponsors' invested efforts reflecting in the development of corporate culture through enhanced business practices and direct involvement in key functions of the Business would be beneficial for the ratings.
The ratings are dependent upon sustenance of business volumes under the current challenges in the local economy. Moreover, as global economy undergoes distress, business sustainability emerges as the key challenge for the exporters. Meanwhile, keeping up with a stable financial risk profile, particularly debt servicing capacity, remains imperative for ratings.
About
the Entity
Asif Rice Mills (‘Asif Rice’ or ‘the Business’) was incorporated in 2006 as an Association of Persons (AoP). Major ownership of the Business resides with the sons of Mr. Mumtaz Ali. Mr. Asif Ali Shaikh holds ~34% shareholding, while Mr. Hanif Shaikh and Mr. Kashif Mumtaz hold ~33% each. Asif Rice is primarily engaged in processing semi-processed variants of non-basmati rice and limited quantities of basmati rice and exporting it to China, Far-east Asia, Europe, and Africa. The Business has a processing capacity of 60MT per hour, currently. Mr. Asif Ali Shaikh is the CEO, while the other sponsoring individuals Mr. Kashif Mumtaz and Mr. Hanif Shaikh serve as Directors of Sales and Procurement respectively.