KK Rice Mills (Pvt.) Ltd. ('KK Rice' or 'the Company') was incorporated as a private limited company in 2009.

The Sponsors were in the business of commodity trading for three decades, formally named as Meskay & Femtee (Pvt.) Ltd. In 2005, the Sponsors decided to separate their businesses. In 2006, KK Rice Commodities was setup by Mr Chela Ram as a sole proprietorship concern. In 2009, the Company was registered as a private limited concern and was renamed as KK Rice (Pvt.) Ltd. The Company received the license to export from Rice Export Association (REAP) in Sept-09.

The Company is primarily involved in the business of exporting non-basmati rice. KK Rice has Four rice processing plants located at Port Qasim and Nooriabad. The Company utilized up to ~35% of its production capacity. The Company’s registered office is situated at Beamount Road, Karachi.

The Company’s major ownership resides with Mr. Chela Ram (~55%). The remaining stake resides with his wife, Mrs. Khami Bai (~20%), nephew Mr. Dileep Kumar (~20%), and son Mr. Jatindar Kumar (~5%).

The company's sole ownership by the founding family provides inherent stability. Despite this, a formal succession plan has not been established, although the second generation has been progressively integrated into business operations.

Mr. Chela Ram, CEO and founder, is an experienced professional. He is the Chairman of National Commission for Minorities and Rice Exporters Association of Pakistan (REAP). Mr. Chela Ram comes from an entrepreneurial background and has been in commodity trading since last three generations. His family is well known veterans in trading of rice, wheat and sugar

The company's sponsors maintain a substantial net worth, providing a strong financial foundation for the business. This financial capacity ensures the company has access to the necessary resources to support its current operations, pursue strategic initiatives, and weather potential economic downturns. It also signals a commitment from the sponsors to the long-term viability and success of the enterprise.

The Company’s Board comprises three Executive Directors and One non-Executive Director. All four Directors are from the sponsoring family.

Mr. Chela Ram, the CEO, is an experienced professional. He is supported by experienced professionals from diverse backgrounds.

The company currently lacks formal board committees. This, combined with active involvement of directors in management, highlights the need for improved governance. Establishing board committees would enhance oversight and structure decision-making. This would promote accountability and long-term sustainability.

A.M. Laliawala & Co., Chartered Accountants, serves as the company's independent auditor. While the firm possesses a Quality Control Review (QCR) rating, it is not currently empaneled with the State Bank of Pakistan (SBP). For the fiscal year ended June 2024, the auditors issued an unqualified opinion on the company's financial statements. This signifies that, in the auditors' professional judgment, the financial statements are fairly presented, in all material respects, in accordance with applicable accounting standards.

The company's organizational structure has been aligned with its operational requirements. It operates across three core functions: Export, Finance, and Administration & Human Resources. Each functional manager reports directly to the Chief Executive Officer (CEO), who holds ultimate decision-making authority for the group. This centralized leadership structure, with the CEO responsible for all aspects of the business, presents a significant key man risk. The company's performance and strategic direction are heavily reliant on the CEO, creating potential vulnerability should the CEO become unavailable or incapacitated. This concentration of authority underscores the need for succession planning and risk mitigation strategies to ensure business continuity.

Mr. Chela Ram, CEO of the Company, is assisted by a team of experienced professionals. Mr. Dileep Kumar has been overseeing the affairs of theCompany for the past 14 years. Mr. Anil Kumar, Director Finance, manages the Company's finances.

The company currently lacks formally constituted management committees. While management engages in informal discussions regarding relevant operational matters, this ad-hoc approach may not provide the same level of structure and documented decision-making as formalized committees. The absence of established committees could potentially limit the effectiveness of strategic planning, risk oversight, and performance evaluation. Formal management committees, with clearly defined roles and responsibilities, would facilitate more structured discussions, improve documentation of decisions, and enhance accountability within the management team.

The company utilizes a customized Enterprise Resource Planning (ERP) software solution tailored to its specific business needs. This system was implemented by Sidat Hyder, a technology consulting and implementation firm. The customized nature of the ERP allows the company to generate reports on demand, providing flexibility and access to relevant data for decision-making. This suggests the company has invested in a system designed to support its unique operational processes and information requirements, rather than relying on a generic, off-the-shelf solution. The involvement of Sidat Hyder further indicates a professional approach to the implementation and customization of this critical system.

The company maintains an internal audit function to provide independent assurance over the effectiveness of its policies and procedures. This function plays a crucial role in evaluating and improving the company's internal controls, risk management processes, and governance framework. By systematically reviewing operations and identifying potential areas for improvement, the internal audit function helps ensure compliance with regulations, promotes operational efficiency, and safeguards company assets. It acts as an independent check within the organization, providing valuable insights to management and the board.

The rice sector, a significant contributor to Pakistan's agricultural economy, representing approximately 3.5% of agricultural value addition and 0.7% of the nation's Gross Domestic Product (GDP), experienced a substantial surge in production during the fiscal year 2024 (FY24). This surge, coupled with heightened global demand and a temporary export ban imposed by India, propelled a remarkable 35% increase in rice production. Consequently, basmati rice exports experienced a significant boost, soaring from $650 million to $876 million in FY24. Whereas non - basmati exports surged from $ 1,498mln to $3,954mln. KK’s contribution to these exports was 155,722 metric tons, generating $ 85 million in revenue.

In the 2023-2024 fiscal year, Pakistan's total rice exports reached 6 million metric tons, valued at USD 3 billion. KK’s contribution to these exports was 155,722 metric tons, generating USD 85 million in revenue. According to the above working the Company holds market share of 2.8% in Pakistan in rice exports.

The company derives its revenue primarily from the export of non-basmati rice. Approximately 80% of the company's revenue is generated by its top 10 export destinations, while the remaining 20% is directed towards the Middle East and Europe. In a bid to expand its product portfolio, the company is strategically considering the inclusion of sesame seeds as part of its offerings and it is still on hold. During FY24, the Company posted a topline of PKR 25bln. Out of which 96% consists of exports. During FY24, exports of the Company stood at PKR 24bln. Whereas local sales of the Company stood at PKR 847mln.

The company's financial performance in FY24 reveals a concerning trend of declining profitability. The sharp drop in gross profit margin, from 19% to just 8.9%, signals a major problem with the cost of goods sold. This is primarily attributed to a substantial increase in raw material expenses, more than tripling from PKR 6 billion in FY23 to PKR 21 billion in FY24.  The operating profit margin also suffered a significant decline, falling from 10.2% to 4.5%. This indicates that even after accounting for direct production costs, the company's operational expenses are eating into profits. The jump in operating expenses, from PKR 633 million to PKR 1 billion, points to potential issues with overhead, administrative costs, marketing expenses, or other operational inefficiencies. Finally, while the net profit margin only saw a slight dip from 0.7% to 0.5%, it's important to note that this is after the company has already absorbed the significant hits to gross and operating profits. The increased finance costs (FY24: PKR 644 million, FY23: PKR 317 million) further contribute to this squeeze, suggesting a higher debt load or increased interest rates. In short, the company's FY24 performance highlights a worrying combination of rising input costs, increasing operational expenses, and higher finance charges, all converging to compress profit margins and raise questions about the company's long-term financial health.

The Company is planning to diversify its revenue stream by adding sesame seed to its list. Moreover, the Company also plans to increase its production capacity by around 20-30%.

Working capital, a crucial metric reflecting a company's ability to meet short-term obligations and sustain operations, is significantly influenced by the management of current assets, particularly inventory. In FY24, the Company demonstrated substantial improvements in its working capital cycle. Inventory days, a measure of how efficiently a company manages its inventory, decreased significantly to 40 days in FY24 from 184 days in FY23. This indicates a much faster turnover of inventory, suggesting improved demand forecasting, streamlined production processes, and/or more effective inventory management practices. Similarly, trade receivable days, representing the time it takes to collect payments from customers, improved considerably, falling to 9 days in FY24 from 36 days in FY23. This signifies enhanced credit management, quicker collections, and potentially a higher quality of customers. Consequently, gross working capital days, which combine inventory and receivable days, decreased dramatically to 49 days in FY24 from 220 days in FY23. This overall improvement in the cash conversion cycle indicates that the company is converting its investments in inventory and receivables into cash much more quickly. Trade payable days, reflecting the time taken to pay suppliers, also improved, decreasing to 6 days in FY24 from 17 days in FY23. While a decrease in payable days can sometimes indicate improved supplier relationships and access to better terms, it's important to analyze this in conjunction with other factors to ensure it's not straining liquidity. Finally, net working capital days, which consider payables in addition to inventory and receivables, decreased significantly to 42 days in FY24 from 203 days in FY23. This overall improvement in net working capital demonstrates a significant enhancement in the company's short-term liquidity position and its ability to efficiently manage its working capital.

The debt coverage ratio analysis assesses the Company's ability to meet its debt obligations using its Free Cash Flow from Operations (FCFO), providing insights into its financial stability and creditworthiness. In FY24, the Company's FCFO increased to PKR 945 million from PKR 738 million in FY23, indicating improved cash generation from its core operations. However, despite this increase in FCFO, the Company's finance costs also rose significantly to PKR 644 million in FY24 from PKR 317 million in FY23. This doubling of finance costs has negatively impacted the Company's debt coverage ratios. Specifically, the Company's total debt coverage ratio deteriorated to 1.5x in FY24 from 2.3x in FY23. This decline indicates a reduced capacity to cover debt obligations with operating cash flows.

The Capitalization Ratio analysis evaluates the proportion of a company’s capital structure financed through debt, offering insights into its long-term financial leverage and risk profile. The Company's capitalization ratio analysis reveals a significant improvement in financial leverage during FY24. Total debt decreased substantially to PKR 1.6 billion from PKR 3.2 billion in FY23, leading to a lower leverage ratio of 52% compared to 69% in the previous fiscal year. This indicates a reduced reliance on debt financing and a stronger equity position. However, it's important to note that 95% of the company's debt is short-term, which while potentially offering lower initial interest rates, introduces refinancing risk and requires careful monitoring of liquidity. Overall, the reduced debt burden and improved leverage are positive indicators, but the reliance on short-term financing requires further scrutiny.