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The Pakistan Credit Rating Agency Limited
Press Release

Date
01-Jun-23

Analyst
Iqra Toqeer
iqra.toqeer@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

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

Rating Type Entity
Current
(01-Jun-23 )
Previous
(03-Jun-22 )
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

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 United Arab Emirates. The ratings reflect Reem Rice’s strong sponsorship background underpinned by their commitment of continuing support to the Company. Pakistan has two major rice-producing regions; Punjab and Sindh due to water availability, agro-climatic and soil conditions. The rice sector contributes ~3.5% in agriculture value addition and ~0.7% to GDP. During FY22, the country’s milled rice production ramped up by ~3% led by growing area under cultivation, from ~8.4mln MT to ~8.9mln MT. New higher-yielding hybrid rice varieties is another factor driving the increased production. Pakistan’s basmati rice is considered high grade premium quality rice in the market overseas, particularly in the EU and Middle East. The sector is significant in terms of export proceeds; average rice exports are expected to rise by ~11% on back of larger crop, ample supplies and continued competitive prices. In Pakistan, local consumption of rice increases by ~8%. Around 4.0mln MT of rice is consumed locally, while, the remaining is exported. During FY22, Pakistan’s rice exports increased to ~USD 2.5bln (FY21: ~USD 2bln). Similarly, Reem Rice has been exporting premium quality rice to the Middle East countries along with new clients added in the portfolio from other European countries. As per management accounts for the first eight months of FY23, ~78.7% of the Company’s revenue was drawn from exports. Over the years, Reem Rice has suffered losses on account of plant inefficiencies, toll manufacturing, unreasonable distribution agreements, high concentration (supplier & customer), inefficient financial management, and weak systems. Nevertheless, with new management induction, the Company is moving towards factory overhauling, value-added benefits, and channeling local sales. Going forward, Reem Rice is envisaged to materialize the strategies through tapping new export markets, thoughtful expansion in local market, better pricing model, efficient utilization of funds, optimal plant operations, peak season procurement, inhouse processing, and improve liquidity profile. Financial risk of the Company is high with stretched cash cycle, disturbed coverages, and inadequate capital structure. Though, the same is covered by way of direct comfort drawn from foreign sponsors.
The ratings are dependent on rationalization of the management’s strategies to gain position in global market under challenging business environment. With growth in revenue; profit margins and stable financial risk profile shall remain imperative.

About the Entity
Reem Rice Mills (Pvt.) Limited was incorporated in 1994, as a joint venture between Al Muhaidib Group and Al Ghurair Group. The entire ownership resides with the parent companies. The Company is involved in the manufacture & export of premium quality rice. It has 10 MT/Hour milling plant capacity and 5 MT/Hour reprocessing plant capacity. The board comprises five members – three from Al Ghurair whilst two represents Al Muhaidib. Currently, Mr. Khalid Farooqi is the CEO of Reem Rice. Previously, he was associated with Mayar Foods (Al Muhaidib’s flagship Co.) and holds 25+ years of experience. He is assisted by a team of highly qualified 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.