Karachi, December 29, 2014: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Matco Rice Processing (Pvt.) Limited (Matco) at ‘A-/A-2’ (Single A-Minus/ A-Two). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on November 29, 2013.
Rice exports from Pakistan increased by 3.3% in FY14 to USD 1.9b. Matco was able to capture a larger share of the same as the company’s exports increased from USD 52.41m in FY13 to USD 65.15m in FY14. Growth in exports has been achieved on the back of increased volumes of basmati rice, having a much higher price point compared to IRRI. During the year the company enhanced vertical integration and strengthened the rice procurement procedures.
Despite substantial increase in price of key product, gross profit margin came under pressure in FY14 on account of rise in input costs. In view of this, core earnings came under pressure; profitability was driven by foreign exchange gains on export proceeds. In order to augment margins, management will continue to pursue increased export volumes of basmati rice; recovery in margins has been observed in 1Q15. Local sales comprise about one-fifth of total sales and are limited to large retailers, where the company has placed significant emphasis on branding.
In view of the reduction in gross margins, Funds from Operations (FFO) declined notably in FY14. The company’s debt profile is largely short term in nature. JCR-VIS expects the company to be able to meet its long term debt obligations through internal cash generation while inventory balances are higher than the outstanding short-term debt. If the company is able to sustain the gross margins reported in 1Q15, improvement in cash flows may be expected during the on-going year.
In 2012, International Finance Corporation (IFC) had acquired some shareholding in the company while major sponsors continue to be the Ghori family, who have long standing experience in the sector. In line with IFC’s recommendations for transition to a public listed entity, the management has taken steps to improve the governance framework. This includes the recent engagement of services of Ernst & Young as the internal auditor of the company.
For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 510) at 021-35311861-70 or fax to 021-35311873.
Jamal Abbas Zaidi
Applicable Rating Criteria: Industrial Corporate (Oct 2003)
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