Lahore, October 15, 2020 (PPI-OT):Rice is among the five major crops of Pakistan and is the second main staple food, after wheat. Both basmati (long, thin and aromatic rice) and non-basmati (long grain white rice – IRRI 6 and IRRI 9) rice are cultivated in Punjab and Sindh, respectively. In Pakistan, ~85% of basmati rice is consumed locally and only ~15% is exported. While, ~90% of non-basmati or IRRI rice is exported and only ~10% is consumed locally. During FY20, rice production grew by ~3%, standing at ~7.4MT (FY19: ~7.2MT).
Out of this, ~3 to 4MT of rice is exported to generate ~PKR 300bln of export revenue. During 2MFY21, rice exports deteriorated to ~PKR 41bln or USD 248mln (2MFY20: ~PKR 53bln or USD 333mln) owing to higher prices at the mill-gate and shortage of exportable non-basmati rice in Jul-20 to Aug-20.
The ratings reflect the proficient background of the partners of Awami Agro Commodies (‘Awami Agro’). The partners are well equipped with the related sector knowledge. Growth centric strategy of the partnership encompasses maximizing returns through expansion in export destinations, which is achieved through entering the West African region in FY20. As a result, revenues have increased more than two-folds during the past two years, along with slightly improving its share in non-basmati rice exports to 1.3% (FY19: 1.2%).
Awami Agro is a partnership, consequently governance structure which is observed in corporates is missing. Currently, Awami Agro’s entire export of non-basmati rice vests in African countries. Awami Agro’s associated concerns, in Madagascar and Benin, has augmented its revenue growth. The country’s rice sector remained well performing in FY20, reflecting on the performance of the rice sector players. The outbreak of Covid-19 pandemic across the globe and domestically, is impacting various economic sectors at different levels. This being said, the susceptibility of influence on crop-linked businesses is impliedly low, owing to their inescapable demand at all times and their exceptional treatment under the lockdown situation.
Comfort is also drawn from the fact that Pakistan’s non-basmati/Irri export revenues are largely concentrated in the African Regions, where the pandemic spread is relatively moderate, thus not creating an export hindrance. Additionally, a forecast of decelerated competition on the African side, particularly from Thailand and Vietnam, backs up a stable outlook for Irri/non-basmati export. The same proxy is used to develop a comfort on the business sustainability of Awami Agro, as it only deals in Irri/non-basmati rice.
On the flip side, as crisis in the European countries have heightened, the export demand for basmati rice brinks on a blurred outlook and is expected to absorb an impact in the days to come. Awami Agro’s profitability has remained strong, further enhancing the equity base resultantly. Historically, Awami Agro’s financial risk profile has reflected sanguine debt servicing capacity. Obligations are majorly short term in nature; Export Refinance Facilities, therefore, borrowing costs remain modest. Amidst the current challenging environment, SBP’s Relief Packages to Exporters availing Refinancing Facilities benefitted rice players.
The ratings are dependent upon sustenance of business volumes under the current challenging environment. As global economy undergoes distress, business sustainability emerges as the key challenge for the exporters. Lack of governance framework remains a concern. Meanwhile, keeping up with a stable financial risk profile is imperative.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425