The Pakistan Credit Rating Agency Limited
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Ahmad Faraz Arif

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PACRA Assigns Entity Ratings to Asif Rice Mills

Rating Type Entity
(22-Apr-22 )
Action Initial
Long Term BBB+
Short Term A2
Outlook 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% in GDP. In Pakistan, rice is grown in most of the Sindh and Punjab Province. Sindh specializes in producing the long grains white rice IRRI-6 and IRRI-9, while Punjab produces world-class Basmati rice. Local consumption includes ~95% of basmati rice and ~5% non-basmati. The major players in rice exports include Pakistan, India, Thailand, and Vietnam. Pakistan is in direct competition with India, while Thailand and Vietnamese rice are considered premium. During FY21, rice crop area increased to ~3.3mln hec (FY20: ~3mln hec), reflecting an increase of ~10%. This led to an increased rice production by ~13%, standing at ~8.4mln MT (FY20: ~7.4mln MT). Out of this, around 3.5mln MT of rice is consumed locally, while, ~3.7mln MT is exported. The maximum contribution is from non-basmati rice (72%) exports, as basmati rice is locally consumed and minimal quantity (28%) is exported. During FY21, rice exports deteriorated to ~USD 2bln (FY20: ~USD 2.2bln) owing to stiff competition from India. Going forward, the industry's cashflows and in turn liquidity are expected to remain afloat due to the stability in demand for rice.
The ratings reflect Asif Rice Mill's ('the Business') prominent position in the rice exporter's market of the country with substantial business volumes. The Business enjoys a strong relative position. The Business has enhanced its capacity over the years leading to higher volumetric sales leading to improved financial performance by two-folds. Asif Rice strategizes on a diverse customer base across regions and therefore, has the comparative edge. Margins, and in turn profitability witnessed two-fold increase during FY21 as the Business benefited from economies of scale amidst shipping challenges to exporters. The ratings derive comfort from the progress in financial performance as indicated in adequate margins over the periods. The Business has also diversified its product base, lately, which is expected to remain beneficial in the long-term. Sponsors' invested efforts are reflected in the development of a corporate culture through enhanced business practices and direct involvement in key functions of the Business. Furthermore, the willingness of the sponsors' to ensure exponential growth in the Business provides comfort to the ratings. Envisoned improvements in qualitative factors, going forward, are expected to positively impact the performance of the Business.
The ratings are dependent upon sustenance of business volumes under the current challenging environment. 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.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.