The Pakistan Credit Rating Agency Limited
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Muhammad Usman

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PACRA Maintains Entity Ratings of Jhulay Lal Parboiled Rice Mill

Rating Type Entity
Action Maintain Maintain
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect Jhulay Lal's emerging position in the rice export market. Jhulay Lal (JL) has expanded its capacity over the last few years; the two new lines have been commissioned which have strengthened the business profile of the company. The company's topline has increased significantly, though net profit margins declined in percentage terms due to the higher cost of sales. The company witnessed an enormous increase in equity due to an internal generation of funds. The company has a good track record of building sales volume and the sponsors have a good understanding of the business. The second generation is playing a vital role in the growth of Jhulay Lal. The CEO has built expertise in international trade by virtue of his business in Hong Kong. The challenge is the cyclical nature of the rice business. The global trade market is gradually being dominated by Thai rice exports, posing tough competition for the regional players. Pakistan exports relatively small volume, which shows a reduction, now recently has improved capacity in basmati. The corporate structure of the company is limited as the business is family-owned and the management of the company is supervised by the family members. The working capital cycle is long, creating a need for short term borrowing over a relatively long horizon. During FY19, the rice crop area stood at 2.8 million hectares. The production stood at 7.2 million tonnes as against 7.5 million tonnes last year, short by ~3.3%. Pakistan exported ~4 million metric tons of rice, almost the same as FY18, though the amount in rupee terms was significantly high due to currency depreciation against USD.
The ratings are dependent on sustained business and financial profile of the rated entity. Any dilution in business volume and profits would be considered negative. The financial disciplines including coverages need to be upheld.

About the Entity
Jhulay Lal Parboiled Rice Mills is a partnership firm run by Mr. Gurmukh Das and Mr. Ramesh Kumar. The two partners share an equal stake in the company. Mr. Gurmukh Das, is an experienced entrepreneur. He is an MBA in Marketing from SZABIST University. Mr. Das was formerly working in Faysal Bank before being involved in the Rice Business and now is the main face of Jhulay Lal. Syed Hassan & Co. Chartered Accountants are the auditor for Jhulay Lal.

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.