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The Pakistan Credit Rating Agency Limited
Press Release

Date
29-Oct-20

Analyst
Faiqa Qamar
faiqa.qamar@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 Upgrades Entity Ratings of Kangore Traders

Rating Type Entity
Current
(29-Oct-20)
Previous
(30-Nov-19)
Action Upgrade Maintain
Long Term BBB BB+
Short Term A2 A3
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 of export revenue. During 2MFY21, rice exports deteriorated to ~PKR 41bln(USD 248mln) (2MFY20: ~PKR 53bln) (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 Kangore Trader’s ('Kangore')relative position in the country's rice export market. Over the couple of years, Kangore has augmented its position. The sponsor is associated with the related business for long. Attributed to agricultural nature of its product - non-basmati rice, business risk is low, yet bears a cyclicality. Over the years, Kangore has emerged as one of the prominent rice exporters of the country, therefore, strength is derived from its strong and growing topline. During FY20, the country’s rice industry observed a subtle growth, whereas rupee devaluation favored the rice exporters to enhance their revenue base, including Kangore. Profitability margins remained stable supported by higher selling expenses, while operating costs remained high during Covid-19. Kangore bears the status of a sole proprietorship with a single owner being the man of the last mile therefore, the corporate structure is limited and lacks on basic grounds. Financial risk profile is reflected by a topline centric approach with a moderately leveraged capital structure; debt book majorly constitutes export related short term funding needs. The sizable equity base of the firm provides it comfortable position among the peer group having same entity ratings. With major focus of business towards African markets, working capital cycles have enlarged gradually, creating need for short term borrowing over a relatively longer horizon.
The ratings are dependent upon sustained business growth and profitability margins. Meanwhile, improved governance practices, including financial veracity, remain imperative to the ratings.

About the Entity
Kangore Traders is a sole proprietorship established in 1996, 100% owned by Mr. Nawal Rai. The Chairman and Chief Executive, Mr. Nawal is a graduate from Sindh University. Kangore’s core business involves processing and trading of rice in locally and international markets. Kangore has five processing units, with a total capacity of 40 M.Tons per hour and a storage area of ~ 4 acres, located in Landhi, Karachi.

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.