JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of South Asian agribusiness giant, Matco Foods Limited (MFL) at ‘A-/A-2’ (Single A-Minus/ A-Two). Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on April 4, 2017. Current ratings reflect MFL’s adequate liquidity profile and capitalization levels. The rating incorporates MFL’s position as one of the leading rice exporters in the country. In the past few years, rice exports remained highly competitive amidst availability of subsidized Indian rice in international markets making it relatively difficult for Pakistani exporters to retain market share. Nonetheless, as per the latest regulation imposed by European Union (EU), import of Basmati rice containing Tricyclazole above a specified threshold level will not be accepted. Given this recent development in the international market, MFL expects to capitalize on this opportunity resulting in higher exports. 

During FY17, overall sales of the company grew by 10.5% and reached Rs.6b mark; growth in sales was largely a function of higher international prices. Although majority sales of MFL comprise exports, local sales have also contributed a significant proportion to the topline. Nevertheless, country wise concentration in sales of MFL is on the higher side. Given recovery in international prices, the company is projecting improvement in margins and overall profitability, going forward. MFL also anticipates higher profitability levels supported by its recent rice glucose venture.

With improved margins, fund flow from operations (FFO) was notably higher in FY17 translating into improved debt servicing coverage levels. With borrowings primarily short term in nature and the company carrying a sizeable amount of inventory/receivables, its ability to retire debt in a timely manner is considered adequate. However, future trend in this respect will be closely tracked. In order to fund expansion of its rice glucose plant and installation of its new rice mill, MFL plans to raise additional equity through issuance of shares by Initial Public Offering (IPO) for which book building dates have been allocated on January 23 and 24, 2018.

Matco Foods is a leading agribusiness in South Asia, with over 50 years of experience in the rice industry and a global portfolio of more than 150 corporate customers. It is the only agro processing company in Pakistan in which the International Finance Corporation (IFC) (World Bank Group) has invested equity.