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

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% to GDP. Local consumption includes ~95% of basmati rice and ~5% non-basmati. During FY22, rice crop area increased to ~3.4mln Hec (FY21: ~3.3mln Hec), reflecting an increase of ~3%. Rice production increased by ~6%, standing at ~8.9mln MT in FY22 (FY21: ~8.4mln MT). New higher-yielding hybrid rice varieties, improved agronomic practices, and increased planting area, as farmers shift out of cotton, are factors driving the increased production. Around ~4mln MT of rice is consumed locally, while, the remaining is exported. During FY22, Pakistan exports increased to ~USD 2.5bln (FY21: ~USD 2bln). Going forward, 2022 floods are anticipated to cause ~12% loss to the forecasted rice production for FY23. The rupee depreciation is anticipated to compensate for the reduction in export volumes. However, with an increase in the policy rate and lately, in ERF rate, the interest cost is likely to be impacted. Cashflows and coverages of the industry may become stretched. Due to the current economic scenario, the outlook of the industry seems to be developing, going forward.
The ratings incorporate K.K Rice Mills (Pvt.) Ltd. (KK Rice) strong presence in the rice exporting market with a sizable business volume. K.K Rice 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. The Company's growth centric strategy encompasses maximizing returns through expansion; which comprises addition of a new plant which became operational, lately. 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 was incorporated in 2009 as a privately limited company. 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 with a combined production capacity of 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, holds an experience of over 2 decades in the rice business. He is assisted by team of experienced professionals.