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

Rating Type Entity
(19-Feb-21 )
(19-Feb-20 )
Action Maintain Upgrade
Long Term BBB BBB
Short Term A2 A2
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. During FY20, rice production grew by ~3%, standing at ~7.4mln MT (FY19: ~7.2mln MT). Out of this, ~4.3mln MT of rice is exported to generate ~PKR 320bln of export revenue. Exports constitute of ~82% non-basmati and ~18% basmati rice. Local consumption includes ~95% of basmati rice and ~5% non-basmati. During 2QFY21, rice exports deteriorated to ~PKR 41bln(USD 248mln) (2QFY20: ~PKR 53bln) (USD 333mln) owing to higher prices at the mill-gate and shortage of exportable non-basmati rice. Post Jul-20, IRRI exports remained stable due to stable demand from African regions - being a necessity grade rice.
The ratings incorporate K.K Rice Mills strong presence in the rice exporting market with a sizable business volume. K.K Rice Mills strategizes on adopting a top-line centric approach mainly targeting the Middle East and African region to explore growth avenues. Competitiveness in the international market in terms of pricing and branding remain a key challenge for the rice exporters in FY20. The Company's growth centric strategy encompasses maximizing returns through expansion; which comprises addition of a new plant which became operational by the end of 1QCY21. The ratings derive comfort from the progress in financial performance as indicated in better margins trajectory over the periods. Sponsor's invested efforts are reflected in the development of a corporate culture through enhanced business practices & clarity on the succession to the next generations.
The ratings are dependent upon sustained business volumes and growing profitability margins. Meanwhile, rationalizing short-term borrowings and adherence to sound financial discipline remains imperative for ratings. Strengthening governance structure will benefit the ratings.

About the Entity
K.K Rice Mills (Pvt) Ltd, incorporated in 2009, as a privately limited company. The Company obtained the exporter’s license in Sept-09 from the Rice Exporters Association of Pakistan (REAP). 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. The combined production capacity of the plants stands at 56 MT per hour. Lately, the processing capacity is enhanced to 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, is an experienced entrepreneur with over 2 decades of experience in the rice business. He is assisted by team of experienced professionals.

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.