The Pakistan Credit Rating Agency Limited
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Ahmad Faraz Arif

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PACRA Assigns Entity Ratings to Irfan Noman Brothers (Private) Limited

Rating Type Entity
(10-Oct-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% to GDP. 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 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). Going forward, 2022 floods are anticipated to cause ~12% loss to the forecasted rice production for FY23. However, the rupee depreciation is anticipated to compensate for reduction in export volumes.
The ratings reflect Irfan Noman Brothers (Pvt.) Limited's ('Irfan Noman' or 'the Company') leading position in the rice exporter's market of the country with substantial business volumes. The Company enjoys a strong relative position. The Company has enhanced its production over the years leading to higher volumetric sales resulting in improved financial performance by two-folds during FY22. The Company strategizes on customer retention and maintaining the market share. The Company has a comparative edge and benefits from economies of scale amidst increase in costs. Subsequently, margins, and in turn profitability witnessed a significant increase during FY22. The ratings derive comfort from the Company's relatively high market share over the years. The Company has also plans to diversify its product base, lately by adding volumes of basmati rice to its exports and the move towards value-added rice products, which is expected to be 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 Company. Furthermore, the willingness of the sponsors' to ensure exponential growth in the Company provides comfort to the ratings.
The ratings are dependent upon the sustenance of business volumes under the current challenging environment. As the global economy undergoes distress, business sustainability emerges as the key challenge for exporters, along with the floods leading to agricultural losses. Meanwhile, keeping up with a stable financial risk profile, particularly debt servicing capacity, remains imperative for ratings. Further envisioned improvements in qualitative factors, going forward, remain imperative for the ratings.

About the Entity
Irfan Noman Brothers (Private) Limited (‘the Company’) was incorporated in Feb-98 as a Private Limited Company. The Company is primarily engaged in the process of processing semi-processed non-basmati rice, and basmati rice and exporting it Malaysia and other 40+ countries. The Company has processing capacity of 360,000MT of rice per annum. The sponsors, Mr. Irfan Ahmad Sheikh and Mr. Noman Ahmad Sheikh, serve as the Chairman of the Board and CEO of the Company, 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.