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PACRA Upgrades Entity Ratings of Al-Khair Rice Mills (Pvt.) Limited

Rating Type Entity
(18-Jan-23 )
(18-Jan-22 )
Action Upgrade Initial
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% 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 Al-Khair Rice Mills association with well-established players in the oil marketing and distribution segments, namely Gas & Oil Petroleum and Sitara Petroleum. The Group also has presence in oil logistics, organic farming, and real estate segments of the economy. Being an establishing player in terms of volume, the Company mainly generates revenue from local Basmati sales, along with sizeable contribution from exports. Moreover, the Sponsors are further pursuing export avenues in the Middle East and European regions. To cater this, they have enhanced the rice processing capacity to 30MT/hr. Governance and management are still evolving, as the Group plans to integrate Al-Khair's systems and reporting alongside the other Group entities. Streamlined operations at Group level are anticipated to be beneficial for the Company and assist in improving the relative position in the rice segment of the country. Business risk profile portrays an improving topline, with modest margins due to low quantum of exports. However, the management anticipates improved financial performance emitting from growth in revenues and profitability, in the subsequent years. Financial risk profile of the Company remains stable owing to moderately leveraged capital structure; consisting majorly of long-term debt, obtained for acquisition of machinery and building. Coverage ratios remain adequate.
The ratings are dependent on the management's ability to remain consistent in improving the revenue stream along with business margins. Prudent management of expansion and related debt in order to meet financial obligations will remain important. Any significant decline in coverages and/or erosion of margins may adversely impact the ratings.

About the Entity
Al-Khair Rice Mills (Pvt.) Limited is a private limited company, incorporated in 2019. Core operation include the processing and sale of basmati rice, with a processing capacity of 30 MT/hour. The plant is located in Okara.
Ownership of the Company resides between Mr. Javed Iqbal (~90%) and his son, Mr. Siddique Javed (~10%). The Board is dominated by the Sponsoring family and includes, Mr. Javed Iqbal and Mr. Siddique Javed, only. They are assisted by a team of 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.