Lahore, 11 Oct 2023:PACRA has maintained the credit rating of Irfan Noman Brothers (Private) Limited amidst multifaceted challenges faced by Pakistan's rice industry, such as a significant decrease in rice crop area and production, a downfall in exports, and economic repercussions from the Aug-22 floods. The Company, established as one of Pakistan’s top rice exporters, has navigated through the vicissitudes with consistent market share retention and a steady profitability track record. Notwithstanding the broader industry tribulations, which saw a 6% and 17% decrease in rice crop area and production respectively in FY23 and export revenues plunging to ~USD 2.1bln from ~USD 2.5bln in FY22, Irfan Noman Brothers has exhibited strategic foresight by expanding its product portfolio and developing infrastructure conducive to capitalizing on emergent opportunities in the basmati export market.
The rice industry, contributing approximately 3.5% in agricultural value addition and 0.7% to Pakistan’s GDP, experienced a staggering 20-25% average crop loss due to the floods in August 2022. Counteracting the production losses were the introduction of higher-yielding hybrid rice varieties and the implementation of improved agronomic practices. Local consumption demonstrates a pronounced preference for basmati rice (~95%), with the remainder consisting of non-basmati varieties. However, the industry's overall margins and cash flows are anticipated to experience constriction, notwithstanding the modest cushion provided to export players through PKR depreciation.
Irfan Noman Brothers have persisted in maintaining a robust presence in the industry by embedding a customer retention-focused strategy and developing an export lineup enriched with significant quantities of basmati rice. Furthermore, a foray into the development of value-added rice products and the strategic construction of a basmati processing and storage facility in Faisalabad position the Company favourably to harness the increased potential for Pakistan's basmati exports, especially considering India’s curtailed rice exports which formerly constituted ~40% of global rice supply.
Despite the turbulence, the Company’s gross margin improved, standing at 13% in FY23 (FY22:12.2%), even as its net margin saw a downturn, positioned at 0.7% during FY23 (FY22: 1.4%), attributable to an uptick in finance cost due to the tightening monetary policy. Irfan Noman Brothers reduced its leverage to 59% during FY23, down from 68.1% in FY22, while sustaining a reliance on short-term borrowing for managing working capital. The pacification to the ratings is further supplied by the sponsors’ enduring experience and a committed vision towards propelling the Company’s growth, even amidst the sector's challenges.
For the future, a cautious management strategy, stabilized financial risk profile, especially pertaining to working capital, cash flows, and coverages, will remain pivotal for the ratings. In addition, debt servicing, leveraging international demands, and envisioned enhancements in qualitative factors will be essential in preserving the company’s rating and market stance amidst the ongoing industry and economic challenges.