Lahore, December 28, 2021 (PPI-OT):Pakistan’s ethanol industry is largely export based owing to meagre domestic consumption. The Country’s ethanol exports stood at 183,856 MT in MY21 (MY20: 229,639 MT), dipping by ~20% due to higher molasses exports. Prices in the global market have been high, on the back of spike in ethanol demand, despite unsteady economic conditions worldwide. Impact of high international ethanol prices was supplemented by devaluation of the Pakistani Rupee. Sugarcane production in Pakistan during MY21 improved, as domestic distilleries posted stable profits. Going forward, the industry’s margin are expected to remain stable owing to increased ethanol prices, though raw material prices have also increased from high cost of molasses.
The ratings reflect United Ethanol’s strong business profile emanating from robust margins and export-oriented nature of ethanol industry. Strong margins at gross and operating level were a result of price appreciation and better volumes. Moreover, reduced borrowing costs further augmented profitability. The ratings draw strength from the Company’s association with United Group, which has an established presence in the Country’s sugar and allied industry. The Company’s revenue comprises primarily of exports. United Ethanol has been able to enhance efficiency through effective BMR implementation, yielding positive results.
The Company has a moderately leveraged capital structure supplemented by strong coverages and effective working capital management. This keeps financial risk manageable. Ratings are dependent on the management’s ability to effectively maintain margins. Prudent debt and liquidity management is critical for ratings. Any significant increase in debt, deterioration in coverages and/or drag of high advances extended to group concerns, if any, will impact the ratings negatively. Meanwhile, strengthening governance framework remains critical for 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