Lahore, September 06, 2021 (PPI-OT):Pakistan’s sugar industry is the country’s 2nd largest agro-based industry, comprising 90 mills with an annual crushing capacity estimated ~65-70mln MT. The industry is trying to overcome the supply challenges. However, support price, set by considering the cost incurred by farmers, remains a constraint. During MY21, the overall sugar production increased by 15%, YoY, to 5.6mln MT (MY20: 4.9mln MT) due to better crop availability and an increase in area under cultivation. The recent surge in local sugar prices was registered by the demand-supply gap. Previously, the sales tax levied on sugar was increased to 17% (previously 8%,) charged on the PKR 60/KG price, which contributed to higher prices.
In the FY21 budget, a sales tax of 17% was proposed to be levied on the market retail price instead of PKR 60/kg. However, Government has allowed not to charge sales tax on market retail price till Nov-21. Moreover, in MY21 crushing season, the Government increased the support price of sugarcane to PKR 200 per maund (previously, it was increased to PKR 190 from PKR 180 per maund). Actual realized sugarcane prices at the mill gate were even higher. To meet the local demand and curb the hike in sugar prices, the Government planned to import 0.8mln MT of sugar. Out of this, 0.3mln MT has already been imported, till Jun-21. Lately, TCP approved to import another 0.1mln MT of sugar. Going forward, despite higher input costs, higher sugar prices are expected to remain favourable for millers.
The ratings reflect the Hunza Sugar Mills (Pvt.) Ltd (‘Hunza Sugar’ or ‘the Company’) diverse revenue stream (Sugar and Ethanol) and sponsors strong acumen. The Company remains exposed to volatility and ensuing challenges in the sugar sector. Higher cane prices resulted in rising sugar prices in the local market. Consequently, the Company earned significant profits from the sugar segment.
The Company has a stable business profile and healthy margins owing to diversification despite volatile market conditions. Hunza Sugar’s financial risk remains adequate owing to improved working capital management. However, capital structure remains significantly leveraged. Coverages have improved on the back of lower KIBOR. Moreover, sponsors’ firm commitment to provide financial support in a timely manner provides comfort to the ratings.
The ratings are dependent upon the Company’s ability to maintain its margins, improve coverage’s and rationalize short-term borrowings to avoid asset-liability mismatch. Any significant deterioration in margins and/or cash flows will impact the ratings negatively. Improvement in governance framework and internal controls will be favourable for 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