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PACRA Maintains Entity Ratings of K.K. Rice Mills (Pvt.) Limited

Rating Type Entity
(19-Feb-22 )
(19-Feb-21 )
Action Maintain Maintain
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 ~95% of Basmati Rice (~95%), which is a long, thin aromatic type of rice that's considered to be the premium and luxury category across the globe, and ~5% of Non-Basmati Rice. 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 FY21, rice crop area increased to ~3.3mln hec (FY20: ~3mln hec), reflecting an increase of ~10%. This led to an increased rice production by ~13%, standing at ~8.4mln MT (FY20: ~7.4mln MT). Out of this, around 3.5mln MT of rice is consumed locally. While ~3.7mln MT is exported 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 2bln (FY20: ~USD 2.2bln) owing to the Indian strategy of dumping the commodity in the international market at cheaper rates. Going forward, the depreciating rupee is expected to supplement the export volumes for rice.
The ratings incorporate K.K Rice Mills' strong presence in the rice exporting market with a sizable business volume. K.K Rice Mills strategizes on adopting a top-line centric approach mainly targeting the Middle East and African region to explore growth avenues. Competitiveness in the international market in terms of pricing and branding remains a key challenge for rice exporters in FY21. An uptick in topline is supported by increased prices. Being an exporter, the Company remains exposed to the inherent risk related to currency fluctuations which led to exchange loss, contributing to a slight dip in bottom-line. The ratings derive comfort from the progress in business performance as indicated in a stable growth trajectory in revenues over the periods. Sponsor's invested efforts are reflected in the development of corporate culture through enhanced business practices and clarity on the succession to the next generations.
The ratings are dependent upon sustained business volumes and growing profitability margins. Meanwhile, rationalizing short-term borrowings and adherence to sound financial discipline remain imperative for ratings. Strengthening governance structure will benefit the ratings.

About the Entity
K.K Rice Mills (Pvt) Ltd, incorporated in 2009, as a privately limited company. The Company obtained the exporter’s license in Sept-09 from the Rice Exporters Association of Pakistan (REAP). The Company is primarily involved in the business of exporting non-basmati rice. It has two rice processing plants located in Port Qasim and Nooriabad. The combined production capacity of the plants stands at 100 MT per hour and is utilized 35% in FY21.
KK Rice is majorly owned by Mr. Chela Ram (55%), while, the remaining stake resides with his wife, Mrs. Khami Bai (20%), nephew, Mr. Dileep Kumar (20%), and son Mr. Jatindar Kumar (5%). The Board comprises four members and is dominated by the Sponsoring family. Mr. Chela Ram, Chairman of the Board and CEO of the Company, is an experienced entrepreneur with over 2 decades of experience in the rice business. He is assisted by team of experienced professionals.

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.