The Pakistan Credit Rating Agency Limited
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Ahmad Faraz Arif

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PACRA Upgrades Entity Ratings of Reliance International Commodities Exports (Pvt.) Limited

Rating Type Entity
(13-Oct-22 )
(14-Oct-21 )
Action Upgrade Maintain
Long Term BBB- BB+
Short Term A2 A3
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 emergence of Reliance International Commodities (Pvt.) Ltd. ('Reliance' or 'the Company') as a growing rice exporter. In line with the overall industry and its changing trend, the Company has shifted its export sales mix from China to African countries in the recent past. Reliance has marked its presence in African regions through two distribution entities and is committed to increase its foreign footing. Presence in the local market remains indifferent. The Company has managed to remain profitable during FY22 exhibiting its resilience, despite facing competition from local players, hike in freight costs, and lack of economies of scale. Coverage ratios dipped on the backdrop of higher finance costs in FY22 but still remain adequate. The Company's debt book solely comprises Export Refinancing Facility availed to fund its working capital needs. The Company benefits from the demand for non-basmati rice from the African region. Additionally, a forecast of decelerated competition on the African side, particularly from Thailand and Vietnam, backs up a stable outlook for IRRI/non-basmati export.
The ratings are dependent upon sustenance of business volumes while improving margins, in turn, profitability. As global economy undergoes distress, business sustainability emerges as the key challenge for the exporters, along with the floods causing agricultural losses. Meanwhile, keeping up with a stable financial risk profile remains imperative for ratings.

About the Entity
Reliance International Commodities Exports (Pvt.) Limited is a Private Limited Company. Primary business includes export of IRRI rice to African countries and China. The Company is equally owned by two brothers Mr. Arif Hussain and Mr. Irshad Hussain. The Managing Director of the Company, Mr. Arif Hussain, is a seasoned professional with an experience of more than two decades.

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.