The Pakistan Credit Rating Agency Limited
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Muhammad Zain Ayaz

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PACRA Maintains Entity Ratings of Awami Agro Commodities

Rating Type Entity
(13-Oct-23 )
(13-Oct-22 )
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% 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. The industry's overall margins and cashflows may become stretched. Industry poses a developing outlook for the ongoing year.
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. Awami Agro's profitability and margins improved due to better pricing in the local and international markets. A forecast of decelerated competition on the African side, particularly from Thailand and Vietnam, backs up a stable outlook for Irri/non-basmati exports. However, floods in the country have impacted the overall production of non-basmati rice leading to increased prices, both locally and internationally. Awami Agro's financial risk profile has reflected its sanguine debt servicing capacity. Despite the country's economic challenges and the aftermath of last year's floods, Awami Agro has maintained a track record of steady profitability. During FY23, the Company’s gross margin stood at 20.3% (FY22: 22.5%), whereas its net margin improved and stood at 5.9% during FY23 (FY22: 5.5%) due to better profits. The Company's capital structure remained adequate, as the Company remained dependent on short term borrowing (Export Refinance Facility - Part II) required to manage the working capital. During FY23, the Company remained leveraged at 61.6% (FY22: 63.8%). Going forward, rupee depreciation and recovery in prices globally is expected to hamper exports.
The ratings are dependent upon the 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 the 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.