Ahmad Faraz Arif
PACRA Maintains Entity Ratings to Jasons Commodities
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. 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. The rupee depreciation is anticipated to compensate for the reduction in export volumes. However, with an increase in the policy rate and lately, in ERF rate, the interest cost is likely to be impacted. Cashflows and coverages of the industry may become stretched. Due to the current economic scenario, the outlook of the industry seems to be developing, going forward.
The ratings reflect the emergence of Jasons Commodities ('the Business') as a growing rice exporter. In line with the overall industry and its changing trend, the Business has expanded its export sales mix to China along with African countries in the recent past. The Business has marked its presence in African regions through strategic relationships and is committed to increase its foreign footing. 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. On the flip side, as crisis in the European countries have heightened, the export demand for basmati rice brinks on a blurred outlook and is expected to absorb an impact in the days to come. Currently, the Business has stable presence in the local market with adequate profits. However, revenue and in turns margins are expected to grow as envisioned expansion may streamline till FY23. Financial profile characterized by strong coverages on the back of minimal finance costs. The debt book of the Business solely comprises Export Refinancing Facility availed to fund its working capital needs. The financial risk profile of the Business is adequate, however, qualitative factors indicate room for improvement.
The ratings are dependent on the management's ability to materialize the envisioned strategies keeping costs in control and maintaining business margins. Significant improvement in business and financial profile would be good. Any significant and/or prolonged deterioration in revenues and/or coverages will adversely impact the ratings.
Jasons Commodities (‘the Business’) was incorporated in Dec-2012 as a Sole Proprietorship. The Business has witnessed exponential growth since inception owing to the streamlined vison of the management. The production facility of the Business includes a rice mill with a capacity of processing 20MT of rice per hour. The Business’s ownership resides with the CEO, Mr. Danish Jessani.