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PACRA Assigns Initial Entity Ratings to Al-Khair Rice Mills (Pvt.) Limited

Rating Type Entity
(18-Jan-22 )
Action Initial
Long Term BBB-
Short Term A2
Outlook 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. During FY21, rice cropped area increased to ~3.3mln hec (FY20: ~3mln hec), reflecting an increase of ~10%. This led to an increased rice production by ~13%, standing at ~8.4mln MT (FY20: ~7.4mln MT). Out of this, around 3.5mln MT of rice is consumed locally. While, ~3.7mln MT is exported 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 2bln (FY20: ~USD 2.2bln) owing to the Indian strategy of dumping the commodity in international market at cheaper rates. Going forward, the depreciating rupee is expected to supplement the export volumes for rice.
The ratings reflect Al-Khair Rice Mills association with well-established players in the oil marketing and distribution segments, namely Gas & Oil Petroleum and Sitara Petroleum. The Group also has presence in oil logistics, organic farming, and real estate segments of the economy. Being an establishing player in terms of volume, the Company mainly generates revenue from local basmati sales, along with sizeable contribution from exports. Moreover, the Sponsors are further pursuing export avenues in the Middle East and European regions. To cater this, they have lately enhanced the rice processing capacity to 25MT/hr from 15MT/hr. Governance and management are in their initial gestation phase, as the Group is in the process of integrating Al-Khair's systems and reporting alongside the other Group entities. Business risk profile portrays an improving topline, with modest margins due to low quantum of exports. Financial risk profile of the Company remains stable owing to moderately leveraged capital structure; consisting majorly of short-term debt, obtained to finance the working capital requirement. Coverage ratios are adequate.
The ratings are dependent on the management's ability to materialize the projected revenue stream, while maintaining business margins. Prudent management of expansion and investment-related debt in order to meet financial obligations will be important. Any significant decline in coverages and/or erosion of margins may adversely impact the ratings.

About the Entity
Al-Khair Rice Mills (Pvt.) Limited is a private limited company, incorporated in 2019. Core operation include the processing and sale of basmati rice, with a processing capacity of 25 MT per hour. The plant is located in Okara.
Ownership of the Company resides between Mr. Javed Iqbal (90%) and his son, Mr. Siddique Javed (10%). The Board is dominated by the Sponsoring family and includes, Mr. Javed Iqbal and Mr. Siddique Javed only. They are assisted by a team of 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.