Lahore, April 06, 2022 (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 has overcome the raw material supply challenges. However, support price of sugarcane, incurred by farmers, remains a constraint. The Government increased the support price of sugarcane from PKR 202 to 250 per maund for mills operating in Sindh in the current crushing season. Realized sugarcane prices at the mill gate were even higher. During MY21, the overall sugar production increased by 15%, YoY, to 5.7mln MT (MY20: 4.9mln MT) due to better crop availability and an increase in area under cultivation.
Moreover, in FY21’s budget, the Government levied 17% GST on price of PKR 72.22/kg instead of PKR 60/kg. Therefore, an increase in sugar prices in the local market. To curb this, the Government planned to import 0.8mln MT of sugar. Out of this, 0.3mln MT was imported till Jun-21, whereas, 0.3mln MT till Nov-21. During the current crushing season (MY22), a further surge of 20% is expected in sugarcane production resulting in an increased total sugar production of ~7mln MT. Also, due to high production anticipated, sugar prices are already showing a downward trend and are expected to improve once the crushing season of MY22 ends.
The ratings demonstrate the Company’s established position and its association with a leading group – Ghulam Faruque Group. The ratings incorporate diversified revenue stream of the Company emerging from sale of sugar, molasses and bagasse and strategic investments in Paper and Board project, a separate division being established under the Company. Investment in an associate; Unicol Limited, a leading ethanol producer, was also considered. This mitigates the impact of volatile nature of sugar industry and supplements the Company’s profitability.
High competition for sugarcane procurement amongst mills and increased support price of Sugarcane result in relatively higher input costs. Topline growth posted a declining trajectory, however, net profit margins remained stable due to profit share from associate. The Company’s financial profile is characterized by moderately leveraged capital structure and adequate working capital management. Coverages remain stretched. Likely group support, in case need arises, remains one of the key ratings factor.
The ratings are dependent on the Company’s ability to improve profitability while strengthening coverage ratios. Prudent management of debt structure and efficient working capital management to eliminate any mismatch, is critical. Continued negative trade, total leverage and deterioration in coverages would negatively impact ratings in future.
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