The Pakistan Credit Rating Agency Limited
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Muhammad Zain Ayaz

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PACRA Maintains Rating of Irfan Noman Brothers (Pvt.) Limited

Rating Type Entity
(10-Oct-23 )
(10-Oct-22 )
Action Maintain 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 FY23, rice crop area decreased to ~3.2mln Hec (FY22: ~3.4mln Hec), reflecting a decrease of ~6%. Rice production decreased by ~17%, standing at ~7.4mln MT in FY23 (FY22: ~8.9mln MT). Floods during Aug-22 razed rice crops, causing an average crop loss of ~20-25%. New higher yielding hybrid rice varieties, and improved agronomic practices are factors minimizing the production loss. Around ~4mln MT of rice is consumed locally, while, the remaining is exported. During FY23, Pakistan exports decreased to ~USD 2.1bln (FY22: ~USD 2.5bln). Thus, impacting the industry’s overall topline. However, PKR depreciation provided some cushion to the export players. Industry's overall margins and cashflows may become stretched. Industry poses a developing outlook for the ongoing year.
The credit ratings find comfort in Irfan Noman Brothers (Private) Limited (‘the Company’) consistent market share through the years with it being amongst the top exporters of rice in Pakistan. The Company's strategy focuses on retaining customers and has successfully implemented this strategy through its marketing offices and warehouses in Dubai and Canada. The Company plans to broaden its product portfolio, such as the recent inclusion of significant quantities of basmati rice in its export lineup, as well as a shift towards the development of value-added rice products. These strategic moves are anticipated to yield long-term benefits. Moreover, given India's limitations on rice exports which accounts for estimated ~40% of the global supply of rice, the potential for Pakistan's basmati exports has risen. INB's opportunity in this scenario is timely, particularly with its basmati processing and storage facility in Faisalabad currently under development. Despite the country's economic challenges and the aftermath of last year's floods, Irfan Noman Brother's has maintained a track record of steady profitability. During FY23, the Company’s gross margin stood at 13% (FY22:12.2%), whereas its net margin deteriorated and stood at 0.7% during FY23 (FY22: 1.4%) due to a surge in the finance cost as a result of tightening of the monetary policy. The Company's capital structure remained adequate, as the Company remained dependent on short term borrowing required to manage the working capital. During FY23, the Company remained leveraged at 59% (FY22: 68.1%). Furthermore, the sponsors' experience and commitment to fostering exponential growth within the Company offers reassurance to the ratings.
Prudent management and maintenance of a stable financial risk profile, especially in terms of the working capital, cash flows, and coverages is imperative for the ratings. Additionally, debt servicing, capitalizing international demands, and envisioned improvements in qualitative factors, going forward, remain crucial for the ratings.

About the Entity
Irfan Noman Brothers (Private) Limited (‘the Company’) was incorporated in 1998 as a Private Limited Company. The Company is primarily engaged in the process of processing semi-processed non-basmati rice and basmati rice, exporting it to Malaysia and 40+ other countries including those in Middle East, Africa, Europe, North America, and Asia. The Company has processing capacity of 360,000MT of rice per annum. The sponsors, Mr. Irfan Ahmad Sheikh and Mr. Noman Ahmad Sheikh, serve as the Chairman of the Board and CEO of the Company, respectively.

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