PACRA Maintains Entity Ratings of Swat Agro Chemicals

The agricultural sector plays a pivotal role in Pakistan's economy, contributing ~23% to the GDP and serving as a crucial source of raw materials for various industries. To enhance crop protection and cultivation practices, the industry heavily relies on pesticides (Agro Chemicals). The pesticide sector is significantly dependent on imports as ~85-90% of raw material is imported from China. In FY22, the pesticide industry's estimated value stood at ~PKR 95.3bln, marking a significant YoY increase of ~30%. This growth is attributed to the overall expansion of the crops sector and the subsequent rise in demand. Additionally, increased prices have further contributed to this upward trend. In FY22, pesticide imports reached around ~PKR 30bln, reflecting a ~12% YoY increase. Among these imports, insecticides accounted for the majority at ~74%, followed by herbicides at ~14%, and fungicides at ~9%. The sector's overall leveraging remains adequate with stable coverage ratios. Going forward, sectors overall outlook is expected to remain stable.
The ratings incorporate Swat Agro Chemical’s ("Swat Agro" or "the Business") established industry presence. Swat Agro has a wide geographical reach in the domestic market, its strong operating efficiency, and extensive experience of sponsors in the pesticide business. The AoP caters to a wide portfolio of products; namely insecticides, fertilizers, micronutrients, fungicides, house-holds, weedicides, adjuvants, and agri-equipments. The Business holds considerable presence in the insecticides and fertilizer market. This supported Swat Agro’s overall scale of operations and profitability. The Business has maintained a manageable business risk profile supported by a robust sales network across the country. Margins and in turn profitability remains intact. Sponsors have strengthened the supply chain by building relationships with many multinational suppliers. In addition, the collaboration of BASF chemical company, Swat Agro has installed high standard SC & EC formulation plant. The financial risk is characterized by low leverages capital structure and an adequate working capital cycle. The Business meets use a mix of internal cash flows and short-term borrowings to fund its working capital requirements. However, coverages remain strong.
The ratings are dependent on sustained business and financial profile of the Business. Any deterioration in margins and/or cash flows remains may the impact the ratings. Improvement in the governance framework would benefit ratings

About the Entity
Swat Agro Chemicals ("Swat Agro" or "the Business") was incorporated in 1996 as a partnership concern under Partnership Act, 1932. Ownership resides among three partners, where major stake (~50%) lies with Mr. Barkat Ali Khan. While, the remaining stake of ~50 % is held equally by Ms. Fouzia Nazneen and Mr. Muhammad Alam Khan. Mr. Barkat Ali Khan heads the Business as the CEO. He is assisted by an experienced management team.