The Pakistan Credit Rating Agency Limited
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Ahmad Faraz Arif

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PACRA Maintains Entity Ratings of Engro Eximp Agriproducts (Pvt.) Limited

Rating Type Entity
(14-Oct-22 )
(14-Oct-21 )
Action Maintain Maintain
Long Term A- A-
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% in 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 cropped 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, rupee depreciation is expected to compensate the players for reduction in export volumes.
The ratings reflect the strength of the ownership structure of Engro Eximp Agriproducts (Pvt.) Ltd. ('Engro Eximp' or 'the Company"), a wholly owned subsidiary of Engro Corp Ltd., one of the largest conglomerates in Pakistan (rated AA+ by PACRA). The CEO of Engro Corp Ltd. is also the Chairman of Engro Eximp. Ratings take comfort from the strong corporate governance framework inherited from the parent company. The Company’s revenue continues to hold its position after successfully achieving its break even in CY18. Profits have sustained since then, after suffering from huge losses in the past. The Company faces stiff competition in the international markets in the basmati segment. However, the Company managed to sustain its profitability in CY21. The Company anticipates considerable improvement in its revenues during CY22; Margins have witnessed slight improvement and continued profitability will bode well for the Company. Rupee devaluation came in favorable, as dealing in a product – basmati - a high priced commodity assisted the Company in increasing its revenues. Engro Eximp's financial risk profile has also recovered adequately, while, slightly dwindling due to high-end debt profile. Moreover, coverages remain stressed. Going forward, the management anticipates that the Company will be able to improve its financial performance and position.
The ratings are dependent upon growth in business volume and redemption of profits. Adherence to sound financial discipline while strengthening debt servicing capacity through improved cash position is vital for the ratings. Positive outcome of future projects and sustainability of profits remains imperative for the sustenance of ratings.

About the Entity
Engro Eximp Agriproduct (Pvt.) Ltd. was incorporated in 2010 as a wholly owned subsidiary of Engro Corp Ltd. The principal activity of the Company is processing, export and trade of rice and The Company operates with an advanced integrated processing plant having a design capacity of 144,000 tons for milling and 3 months design capacity of 270,000 tons for drying. The Company's Board is Chaired by the CEO of Engro Corp, Mr. Ghias Khan. Mr. Mohsin Hassan, CEO of the Company, is an experienced professional and has been at Engro Fertilizers, previously.

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.