The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Upgrades Entity Ratings of Reliance International Commodities Exports (Pvt.) Limited (formerly Reliance International Commodities Export (Pvt.) Limited)

Rating Type Entity
Action Upgrade Maintain
Long Term BB+ BB
Short Term A3 B
Outlook Stable Stable
Rating Watch - -

Rice is among the five major crops of Pakistan and is the second main staple food, after wheat. Both basmati (long, thin and aromatic rice) and non-basmati (long grain white rice - IRRI 6 and IRRI 9) rice are cultivated in Punjab and Sindh, respectively. In Pakistan, ~85% of basmati rice is consumed locally and only 15% is exported. While, ~90% of non-basmati or IRRI rice is exported and only 10% is consumed locally. During FY20, rice production grew by ~3%, standing at ~7.4MT (FY19: ~7.2MT). Out of this, ~3 to 4MT of rice is exported to generate ~PKR 300bln export revenue. During 2MFY21, rice exports deteriorated to ~ PKR 41bln or USD 248ml (2MFY20: ~ PKR 53bln or USD 333mln) owing to higher prices at the mill-gate and shortage of exportable non-basmati rice in Jul-20 to Aug-20.

The ratings reflect emergence of Reliance International Commodities (Pvt.) Ltd. ('Reliance' or 'the Company') as a growing rice exporter. In line with the overall industry and its changing trend, the Company has shifted its export sales mix from China to African countries in the recent past. Reliance has marked its presence in African regions through two distribution entities and is committed to increase its foreign footing. Presence in local market remains indifferent. Profitability margins, that have a perceptible impact on the ratings, are low as compared to peers. Coverages improved on the backdrop of lower finance costs in FY20. The trend is expected to improve, going forward. The Company's debt book solely comprises Export Refinancing Facility availed to fund its working capital needs. The susceptibility of influence on crop-linked businesses, due to Covid-19, is impliedly low, owing to their inescapable demand at all times. Comfort is also drawn from the fact that the country’s non-basmati/Irri export revenues are largely concentrated in the African Regions, where the pandemic spread is relatively moderate, thus not creating an export hindrance. Additionally, a forecast of decelerated competition on the African side, particularly from Thailand and Vietnam, backs up a stable outlook for Irri/non-basmati export. On the flip side, as crisis in the European countries have heightened, the export demand for basmati rice brinks on a blurred outlook and is expected to absorb an impact in the days to come. Reliance has recently changed its legal structure from sole proprietorship to a Private Limited Company. The CEO, Mr. Arif Hussain is the key man behind the entity. The country's rice sector remained stable reflecting on the performance of the rice sector players.
The ratings are dependent upon sustenance of business volumes while improving margins, in turn profitability. As global economy undergoes distress, business sustainability emerges as the key challenge for the exporters. Meanwhile, keeping up with a stable financial risk profile remains imperative for ratings.

About the Entity
Reliance International Commodity Exports is a Private Limited Company. In Feb-19, the business was incorporated as a private limited concern and was named as Reliance International Commodities Export (Pvt.) Limited. Later, in Oct-19, the Company was renamed as Reliance International Commodities Exports (Pvt.) Limited.The Company is equally owned by two brothers Mr. Arif Hussain and Mr. Irshad Hussain. The CEO of the Company, Mr. Arif Hussain, is a seasoned professional with an experience of more than two decades.

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.