The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Maintains Entity Ratings of Awami Agro Commodities

Rating Type Entity
(14-Oct-21 )
(14-Oct-20 )
Action Maintain Upgrade
Long Term BBB- BBB-
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. Pakistan cultivates both basmati and non-basmati rice, most of which is exported. 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. Pakistan locally consumes Basmati Rice, which is a long, thin aromatic type of rice, considered premium and luxury category across the globe. 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. Thailand’s ‘Jasmine’ rice has emerged lately as high-price premium rice. During FY21, the rice cropped area increased to ~3.33MH (FY20: ~3.03MH), reflecting an increase of ~10%. Consequently, the production of rice witnessed an increase of ~13% and stood at ~8.4MT (FY20: ~7.4MT). Out of this, around 3.5mln MT of rice is consumed locally. While ~3.7mln MT is exported (Closing stock: 1.2mln MT) to generate ~ PKR 325bln of export revenue. 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 2,041mln (FY20: ~USD 2,175mln) owing to the Indian strategy of dumping the commodity in the international market at cheaper rates.
The ratings reflect the proficient background of the partners of Awami Agro Commodities ('Awami Agro'). Growth centric strategy encompasses maximizing returns through expansion in export destinations, which is achieved through entering the West African region leading to a stable revenue stream. However, lately, India adopted a dumping strategy after re-entering the international market following facing complete curtailment from Covid-19 imposed lockdown within. As a result, Awami Agro's profitability was impacted, while the margins remained stable due to better pricing in the local and international markets. As 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 same proxy is used to develop a comfort on the business sustainability of Awami Agro, as it only deals in Irri/non-basmati rice. Awami Agro's financial risk profile has reflected sanguine debt servicing capacity. Obligations are majorly short-term in nature (Export Refinance Facility), therefore, borrowing costs remain modest. Going forward, rupee depreciation and recovery in prices globally is expected to hamper exports.
The ratings are dependent upon improvement of business volumes under the current challenging environment. As rice exporters undergo distress, business sustainability emerges as the key challenge. Lack of governance framework remains a concern. Meanwhile, keeping up with a stable financial risk profile is imperative.

About the Entity
Awami Agro Commodities was established in 2012 as a partnership concern by two brothers; Mr. Bhagwan Das and Mr. Sanjesh Kumar. Its primarily engaged in rice exports and holds membership of Rice Export Association (REAP) and Karachi Chamber of Commerce & Industry (KCCI).
Mr. Bhagwan Das along with his three brothers, Mr. Sanjesh Kumar, Mr. Naresh Kumar and Mr. Govinda Kumar, are associated with Awami Agro. The sponsoring family has experience of three decades in rice industry. Moreover, Mr Vishnu Mal, father of Mr. Bhagwan Das, owns a rice mill in Sindh; named, Awami Rice Mills.

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.