PACRA Maintains Entity Ratings of Unicol Limited

Pakistan’s ethanol industry is export based due to limited domestic consumption. The annual export of ethanol decreased and stood at 442,000 MT during FY23 (FY22: 592,000 MT). This decrease is mainly due to low production of ethanol that stood 475,000 MT during FY23 (FY22: 637,000 MT). Global prices of ethanol increased and stood at USD 951 /MT during FY23 (FY22: USD 936 /MT). The average export price of ethanol in Pakistan hovered around USD ~ 890/MT, while average local prices remained PKR ~ 161,000/MT during FY19 - FY23. Whereas, Production of sugarcane during MY23 is 91.1mln MT. Production of sugarcane is expected to be decreased in MY24 by ~13.7% due to decrease in sugarcane area by ~5.3% as well as reduction of crop yield by ~3.8% as scarcity of water is forecasted by on the backdrop of lack of adequate rainfall.
The ratings are indicative of Unicol’s strong business profile emanating from strong and consistent margins coupled with the export-driven dynamics inherent to the ethanol industry. Also, the ratings draw attention from the Companies affiliation with three strong business groups : Ghulam Faruque Group, Amin Bawany Group, and Hasham Group. During the period, Unicol acquired the assets of M/S Popular Sugar Mills Ltd against the consideration amount for PKR 6.5bln for which PKR 5bln was financed through banks. Due to this transaction, Company's leverage has increased to 62.4%, during MY23 (MY22: 46.9%). The said unit having a crushing capacity of 8,000 TCD, located at Jan Muhammad Wala, near Sial More, Sargodha. It is engaged in the manufacturing and sale of refined sugar and its by-products; molasses and bagasse. Furthermore, the Company has produced ~24,000MT sugar, during 1QMY24. The diversification of revenue streams will result in increased stability, enhanced resilience against market fluctuations, and improved long-term growth prospects. During MY23, the Company posted the growth of 69%. The gross profit margin of the Company increased and stood at 33% during MY23 (MY22: 28%). Also, the net profit margin also increased and stood at 18% during MY23 ( MY22: 15%). The Company maintains an adequate working capital cycle coupled with improved inventory days. The average inventory days improved and stood at 85 days during MY23 (MY22: 88 days). Whereas, net working capital days also improved and stood at 83 days (96 days).
The ratings are dependent on the Company's ability to sustain its margins and healthy coverages while maintaining the necessary cushion and discipline in working capital management. The diversification of revenue streams has fortified the rating, although the sustainability of the rating will continue to hinge on the output derived from those streams. Significant deterioration in coverages will have a negative impact on ratings.

About the Entity
Unicol Limited ('Unicol' or 'the Company') was incorporated in 2003 as a public unlisted company. Unicol is a joint venture among three public listed sugar mills: Faran Sugar Mills Ltd., Mehran Sugar Mills Ltd., and Mirpurkhas Sugar Mills Ltd., each holding an equal stake of ~33.33%. The Company's Board is chaired by Mr. Asif Qadir. Mr. Aslam Faruque heads the Company as the Chief Executive Officer. He is supported by a team of experienced professionals. The Company's formal operations begun in 2007 and since then its primarily involved in the manufacturing and sale of ethanol and liquid carbon dioxide (LCo2). Furthermore, during the period, Unicol acquired the assets of M/S Popular Sugar Mills Ltd against the consideration amount for PKR 6.5bln for which PKR 5bln was financed through banks. The company's annual capacities include 56,000MT for ethanol, 18,000MT for LCo2, and 8,000 TCD for sugar production.