Lahore, October 15, 2021 (PPI-OT):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 incorporate the strength of the sponsors of Hassan Ali Rice Export Company (‘Hassan Ali’ or ‘the business’) as reflected in the business structure of the group (Hashwani Group of Companies) and its overall governance principles. With a prominent presence in the market, Hassan Ali holds a stable position among the biggest rice exporters of the country, with customers spreading over multiple countries. During FY20, rice industry observed a subtle growth, wherein rupee devaluation slightly favoured the rice exporters.

However, post Covid-19, relatively lower quantum of rice exports plunged the revenues. While, gross margins remain stable supported by effective cost management. Bottomline, however, remained thin. There is no long-term debt on the Hassan Ali’s balance sheet. Working capital borrowings are aligned with the business cycle, whilst timely repayments remain crucial as coverages became thin. Hassan Ali is a sole proprietorship hence, room for improvement in its governance structure continues to be significant.

The ratings are dependent upon the business ability to improve its volumes, margins and, in turn, profitability. Meanwhile, rationalizing short-term borrowings to avoid asset liability mismatch and adherence to sound financial discipline including debt servicing capacity, remains imperative for ratings. Strengthening of governance structure will benefit the ratings.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com