The Pakistan Credit Rating Agency Limited
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Behrooz Fareed

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PACRA Maintains Entity Ratings of Jauharabad Sugar Mills Limited

Rating Type Entity
(05-Apr-22 )
(24-Sep-21 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

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, set by considering the cost incurred by farmers, remains a constraint. The Government increased the support price of sugarcane to PKR 225 per maund for mills operating in Punjab (previously, it was increased to PKR 200). Actual 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 proposed to levy 17% GST on market retail price instead of PKR 60/kg, after Nov-21. This led to 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 was imported till Nov-21. During the current crushing season (MY22), a surge of 10-15% is expected in sugarcane production resulting in an increased total sugar production of ~7mln MT. This along with high sugar prices are expected to remain favorable for the millers.
The ratings reflect an improved business profile of Jauharabad Sugar Mills Limited ('Jauharabad Sugar' or 'the Company) in line with the current dynamics of sugar industry. Relatively better sugarcane availability in MY21 resulted in higher sugar production. Despite high procurement costs, rising sugar prices has led to improved revenues. The Company has displayed improvement in margins on the back of relatively low conversion costs. Over the years, the Sponsors' business acumen and support (in the form of loan) have remained beneficial for the Company. The management pays continuous attention to enhance efficiencies through BMR. The financial profile of Jauharabad Sugar remains adequate, characterized by improved working capital management, adequate coverages and modestly leveraged capital structure.
The ratings are dependent upon the management’s ability to sustain business margins, while improving the financial risk profile. Any significant deterioration in the Company’s margins and/or coverages would have a negative impact.

About the Entity
Jauharabad Sugar Mills Limited is a public limited company, listed on Pakistan Stock Exchange since 1973. The Company was acquired from Saigol Group in Oct-13 by Cane Processing (Pvt.) Limited. The Company’s operational crushing unit, having sugarcane crushing capacity of 7,000 tons per day, is located in Jauharabad, Khushab District. The Company’s registered office is situated in Kot Lakhpat, Lahore. The Company is engaged in the manufacturing and sale of refined sugar and its by-products; molasses and bagasse.
The Company is majorly owned by a Holding Company - Cane Processing (Pvt.) Limited (64%) - and individuals of Latif family (10%). The family has an effective shareholding of ~74%, while the Company has a free float of more than 20%. The Company's Board is Chaired by Mr. M. Aamir Beg.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.