The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Maintains Entity Ratings of Engro Eximp Agriproducts (Pvt.) Limited

Rating Type Entity
Action Maintain Maintain
Long Term A- A-
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. The segment contributes about 3.5% in agriculture value addition and 0.7% in GDP. Pakistan cultivates both basmati and non-basmati rice, most of which is exported. In Pakistan, rice is grown in most of the Sindh and Punjab Province. Sindh specializes in producing the long grains white rice IRRI-6 and IRRI-9, while Punjab produces world-class Basmati rice. Pakistan locally consumes Basmati Rice, which is a long, thin aromatic type of rice, considered premium and luxury category across the globe. Local consumption includes ~95% of basmati rice and ~5% non-basmati. The major players in rice exports include Pakistan, India, Thailand, and Vietnam. Pakistan is in direct competition with India, while Thailand and Vietnamese rice are considered premium. Thailand’s ‘Jasmine’ rice has emerged lately as high-price premium rice. During FY21, the rice cropped area increased to ~3.33MH (FY20: ~3.03MH), reflecting an increase of ~10%. Consequently, the production of rice witnessed an increase of ~13% and stood at ~8.4MT (FY20: ~7.4MT). Out of this, around 3.5mln MT of rice is consumed locally. While ~3.7mln MT is exported (Closing stock: 1.2mln MT) to generate ~ PKR 325bln of export revenue. The maximum contribution is from non-basmati rice (72%) exports, as basmati rice is locally consumed and minimal quantity (28%) is exported. During FY21, rice exports deteriorated to ~USD 2,041mln (FY20: ~USD 2,175mln) owing to the Indian strategy of dumping the commodity in the international market at cheaper rates.
The ratings reflect the strength of ownership structure of Engro Eximp Agriproducts (Pvt.) Ltd. ('Engro Eximp' or 'the Company'), a wholly owned subsidiary of Engro Corp Ltd., one of the largest conglomerate in Pakistan (rated AA+ by PACRA). The CEO of Engro Corp Ltd. is also the Chairman of Engro Eximp. Ratings take comfort from the strong corporate governance framework of the parent company. The Company’s revenue continue to hold its position after successfully achieving its break even in CY18. Profits have sustained since then, after suffering from huge losses in the past. The Company faces stiff competition in the international markets in the basmati segment. However, the Company managed to sustain its profitability in CY20; Margins have witnessed slight improvement and continued profitability will bode well for the Company. Rupee devaluation came in favorable, as dealing in a product – basmati - a high priced commodity assisted the Company in sustaining its revenues. Engro Eximp's financial risk profile has also recovered adequately, while, slightly dwindling due to high end debt profile.
The ratings are dependent upon growth in business volume and redemption of profits. Adherence to sound financial discipline while strengthening debt servicing capacity through improved cash position is vital for the ratings. Positive outcome of the future projects and sustainability of profits remain a catalyst for the business.

About the Entity
Engro Eximp Agriproduct (Pvt.) Ltd. was incorporated in 2010 as a wholly owned subsidiary of Engro Corp Ltd. The Company's Board, comprising two members, is Chaired by the CEO of Engro Corp, Mr. Ghias Khan. Mr. Khusrau Nadir Gilani, CEO of the Company, is an experienced professional and has deployed his services at Director level in Engro Eximp, previously.

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.