PACRA Maintains Entity Ratings of Al-Khair Rice Mills (Pvt.) Limited

Rice is among the five major crops of Pakistan and is the second maia n 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 FY23, rice crop area decreased to ~3.2mln Hec (FY22: ~3.4mln Hec), reflecting a decrease of ~6%. Rice production decreased by ~17%, standing at ~7.4mln MT in FY23 (FY22: ~8.9mln MT). Floods during Aug-22 razed rice crops, causing an average crop loss of ~20-25%. New higher-yielding hybrid rice varieties and improved agronomic practices are factors minimizing the production loss. Around ~4mln MT of rice is consumed locally, while, the remaining is exported. During FY23, Pakistan exports decreased to ~USD 2.1bln (FY22: ~USD 2.5bln). Thus, impacting the industry’s overall topline. However, rupee depreciation provided some cushion to the export players. The industry's overall margins and cashflows may become stretched. Industry poses a developing outlook for the ongoing year.
The ratings reflect Al-Khair Rice Mills association with well-established players in the oil marketing and distribution segments, namely Gas & Oil Petroleum and Sitara Petroleum. The Group also has presence in oil logistics, organic farming, and real estate segments of the economy. Being an establishing player in terms of volume, the Company mainly generates (66%) of revenue from local Basmati sales, along with sizeable contribution (33%) from exports. Moreover, the Sponsors are further pursuing export avenues in the Middle East and European regions. To cater this, they have enhanced the rice processing capacity to 30MT/hr. Governance and management are still evolving, as the Group plans to integrate Al-Khair's systems and reporting alongside the other Group entities. Streamlined operations at group level are anticipated to be beneficial for the Company and assist in improving the relative position in the rice segment of the country. Business risk profile portrays a stability through improving topline, with modest net margins. A slight dip in profitability (FY23: PKR 81mln, FY22: PKR 95mln) resulted from low quantum of exports and high finance cost. However, the management anticipates improved financial performance emitting from growth in revenues in the subsequent years. Financial risk profile of the Company remains stable owing to moderately leveraged capital structure, consisting majorly of short-term debt, obtained for working capital management. Coverages remain stable due to better cost management.
The ratings are dependent on the management's ability to improve the revenue streams through better distribution channels. Prudent management of expansion and related debt in order to meet financial obligations will remain important. Any significant decline in coverages and/or erosion of margins may adversely impact the ratings.

About the Entity
Al-Khair Rice Mills (Pvt.) Limited is a private limited company, incorporated in 2019. Core operations include the processing and sale of basmati rice, with a processing capacity of 30 MT/hour. The plant is located in Okara. Ownership of the Company resides between Mr. Javed Iqbal (~90%) and his son, Mr. Siddique Javed (~10%). The Board is dominated by the Sponsoring family and includes, Mr. Javed Iqbal and Mr. Siddique Javed, only. They are assisted by a team of professionals.