The Pakistan Credit Rating Agency Limited
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Muhammad Zain Ayaz

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PACRA Maintains Entity Ratings of Engro Eximp Agriproducts (Pvt.) Limited

Rating Type Entity
(13-Oct-23 )
(14-Oct-22 )
Action Maintain Maintain
Long Term A- A-
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, the 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). During Aug-22, floods 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 strength of the ownership structure of Engro Eximp Agriproducts (Pvt.) Ltd. ('Engro Eximp' or 'the Company"), a wholly owned subsidiary of Engro Corp Ltd., one of the largest conglomerates in Pakistan (rated AA+ by PACRA). In terms of financial strength Group total assets, total equity, revenue and profit stood at PKR 801bln, PKR 221bln, PKR 105bln, and PKR 12bln respectively. The CEO of Engro Corp Ltd. is also the Chairman of Engro Eximp. Ratings take comfort from the strong corporate governance framework inherited from the parent company. The Company faces stiff competition in the international markets in the basmati segment. However, the Company managed to sustain its profitability in 6MCY23. The Company anticipates decline in its revenues during 6MCY23 as compared to 6MCY22. Despite the country's economic challenges and the aftermath of last year's floods, Engro Eximp has maintained a track record of steady profitability. During 6MCY23, the Company’s gross margin improved and stood at 26.3% (6MCY22: 15.7%), whereas its net margin stood at 8.2% during 6MCY23 (6MCY22: 4.9%) due to improved profits. The Company's capital structure remained adequate, as the Company remained dependent on short term borrowing required to manage the working capital. During 6MCY23, the Company remained leveraged at 76.5% (6MCY22: 76.4%). Rupee devaluation came in favorable, as dealing in a product – basmati - a high priced commodity assisted the Company in increasing its revenues. Engro Eximp's financial risk profile has also recovered adequately, while, slightly dwindling due to high-end debt profile. Moreover, coverages remain stressed. Going forward, the management anticipates that the Company will be able to improve its financial performance and position.
The ratings are dependent upon growth in business volume and redemption of profits. Adherence to sound financial discipline while strengthening debt servicing capacity through improved cash position is vital for the ratings. Positive outcome of future projects and sustainability of profits remains imperative for the sustenance of ratings.

About the Entity
Engro Eximp Agriproduct (Pvt.) Ltd. was incorporated in 2009 as a wholly owned subsidiary of Engro Corp Ltd. The principal activity of the Company is processing, export and trade of rice and The Company operates with an advanced integrated processing plant having a design capacity of 144,000 tons for milling and 3 months design capacity of 270,000 tons for drying. The Company's Board is Chaired by the CEO of Engro Corp, Mr. Ghias Khan. Mr. Mohsin Hassan, CEO of the Company, is an experienced professional and has been at Engro Fertilizers, previously.

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.