PACRA Maintains Entity Ratings of K.K. Rice Mills (Pvt.) Limited

Rice is among the five major crops of Pakistan and is the second main staple food, after wheat. The segment contributes ~2.9% in agriculture value addition and ~0.3% (FY 2023: ~0.4%) to GDP. During FY23, due to floods, annual rice production decreased by ~21.5% (FY23: ~7.3mln MT, FY22: ~9.3mln MT). Around ~3.7mln MT of rice is consumed locally, while, the remaining is exported. Pakistan exported ~USD 2.1bln of rice in FY23 (FY22: ~USD 2.5bln). As during FY23, rice crop witnessed a decline. Thus, impacting the industry’s overall topline. However, rupee depreciation is providing some cushion. With an increase in the policy rate and resultantly, ERF, bottom line may marginalize. Thus, posing a developing outlook for the ongoing year.
K.K Rice Pvt. Ltd. faced a challenging year in FY23, as its top-line declined by ~146% due to lower production of rice. However, the Company managed to improve its gross and operating margins by optimizing its cost structure and enhancing its operational efficiency. The Company also diversified its product portfolio by adding sesame seed and increased its production capacity to capture future growth opportunities. The Company operates in the rice sector, which is one of the largest and most important agricultural commodities in Pakistan. The sector has shown resilience and potential in the past, and is expected to recover from the adverse effects of the pandemic and climate change in the medium to long term. The Company has a strong market position and a loyal customer base, which gives it a competitive edge over its peers. The Company has also maintained a good quality of its products and services, and has received positive feedback from its customers and stakeholders. Despite these positive developments, the Company’s bottom-line and net margins suffered from higher finance cost and exchange loss. The Company also faced liquidity constraints, as its working capital cycle lengthened and its borrowing capacity diminished. The Company’s coverages and capitalization ratios also deteriorated, indicating a high financial risk profile. However, the rating relies on the assumption that it will overcome temporary challenges and gain from its strategic plans and the favorable prospects of the sector.
The ratings are contingent upon the management’s efficacy in actualizing the envisaged strategies, optimizing the cost structure, and preserving the business margins. A material enhancement in the business and financial profile would be favorable for the ratings. The management’s pledge to augment the audit quality and financial transparency in the ensuing period is also a vital factor for the rating. Any substantial and/or protracted deterioration in the revenues and/or coverages will impinge negatively on the ratings.

About the Entity
K.K Rice Mills (Pvt) Ltd was incorporated in 2009 as a privately limited company. The Company is primarily involved in the business of exporting non-basmati rice. It has two rice processing plants located in Port Qasim and Nooriabad with a combined production capacity of 100 MT per hour.
KK Rice is majorly owned by Mr. Chela Ram (~55%), while, the remaining stake resides with his wife, Mrs. Khami Bai (~20%), nephew, Mr. Dileep Kumar (~20%), and son Mr. Jatindar Kumar (~5%). The Board comprises four members and is dominated by the Sponsoring family. Mr. Chela Ram, Chairman of the Board and CEO of the Company, holds an experience of over 2 decades in the rice business. He is assisted by team of experienced professionals.