PACRA Maintains Entity Ratings of Reem Rice Mills (Private) Limited

Reem Rice Mills (Private) Limited (‘Reem Rice’ or ‘the Company’) is primarily engaged in the milling, reprocessing, & sale of rice catering to national and international clientele base. It is a joint venture between two prominent groups from the Middle East - Al Muhaidib Group of Saudi Arabia and Al Ghurair of the United Arab Emirates. The ratings reflect Reem Rice’s strong sponsorship background underpinned by their commitment of continuing support to the Company. The company processes raw rice into finished goods. Pakistan, a major rice producer, primarily grows rice in Punjab (52%) and Sindh (38%). For FY24, rice production is estimated at ~9.0 million MT, with exports projected at ~5.5 million MT, driven by favorable conditions and high demand. In 8MFY24, exports reached ~4.0 million MT, exceeding FY23's ~3.6 million MT. Similarly, Reem Rice has been exporting premium quality rice to Middle East countries along with new clients added to the portfolio from other European countries and recently America. During FY23, Reem Rice witnessed a significant growth in topline by 7.6 times to PKR 3.1bln (FY22: PKR 1.3bln), driven by volume and price increase. Improved production efficiencies translated into significantly higher margins to 13% (FY22: 6%). Operating performance turnaround to post a profit of PKR 337.9mln (FY22: Loss PKR 51.2 mln) backed by stringent expenses rationalization and improved systems & controls. However, mark up rates exorbitantly increased by 47% YoY. Nevertheless, efficient financial management resulted in net loss reduction by 43% to PKR 127mln (FY22: PKR 223mln). Continuing the improving trend, during 6MFY24, the company’s topline grew by ~23.4%, while gross profit margin kept stride up to ~17.8% (FY23: ~13.3%) and the operating profit margin improved to 10.2% (FY23: ~5.1%). However, finance cost increased YoY due to inflated buying requirements coupled with rising markup rates. However, company managed to sustain loss at PKR 120mln. Going forward, Reem Rice plans to implement several strategic initiatives. While diversification on the cards, the company has launched in FY24 value added products, including Nutri-grain flour and premium health range of rice. The company targets geographical expansion into export regions of Europe, America & Middle East and tapping profitable segments in local markets. The business revival plan is progressing, and the company's actual performance is closely aligned with the objectives outlined in the plan, although some targets are yet to be achieved. Additionally, the company aims to improve its liquidity profile as evidenced by its current assets exceeding current liabilities. The financial risk of the Company is high with a stretched cash cycle, low coverages, and high-leveraged capital structure. However, the same is covered by way of direct comfort drawn from foreign sponsors.
The ratings are dependent on the rationalization of the management’s strategies to gain a position in global market under challenging business environment. With revenue growth; profit margins and a stable financial risk profile shall remain imperative.

About the Entity
The Company was founded in 1994 as a joint venture between Al Muhaidib Group and Al Ghurair Group, manufactures and exports premium rice. The board includes 5 members. CEO, Khalid Farooqi, having three decades of notable experience of leading multinationals in FMCG sector, spearheads a team of skilled professionals.