The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Maintains Entity Ratings of Al-Abbas Sugar Mills Limited

Rating Type Entity
(11-Apr-22 )
(12-Apr-21 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
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 250 per maund for mills operating in Sindh (previously, it was increased to PKR 202). 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 minimum 17% GST on PKR 72.22/kg instead of PKR 60/kg. 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 the Company's diversified revenue stream, emanating from sugar, ethanol and storage facilities, supplementing margins and sustaining profitability. This provides competitive advantage to the Company mitigating volatility and industry specific risks. Relatively lower sugarcane availability in MY21 has resulted in lower volumetric sales. However, rising sugar and ethanol prices has sustained profitability. The Company has maintained decent margins over the years owing to efficient operations and diversification despite volatile market conditions. Storage tank terminals provide an additional cushion to cashflows. Ratings draw strength from the Company’s strong financial profile represented by a modestly leveraged capital structure, strong coverages, efficient management of working capital, and strong governance.
The ratings are dependent on the Company's ability to sustain its margins and healthy coverages while maintaining necessary cushion and discipline in working capital management. Significant deterioration of relationship among shareholders leading to adverse impact on the Company's profile and/or excessive borrowings resulting in declining coverages will have a negative impact on ratings.

About the Entity
Al-Abbas Sugar Mills Limited was incorporated in May 1991 and is listed on the Pakistan Stock Exchange. The Company has diversified businesses of sugar, ethanol and storage tank terminal. These include a) Sugar capacity of 8,500 M.T per day, b) Ethanol-capacity of 170,000 liters per day, and c) Storage tank terminal-capacity of 22,850 M.T per month. It operates in three different locations at Mirpurkhas, Dhabeji and Karachi in Sindh.
Majority (~58%) of Al-Abbas Sugar's shareholding lies with Haji Ghani Group, which enjoys strong presence on the Board and has management control. Jahangir Siddiqui (JS) Group (~29%) is the other major shareholder. Mr. Zakaria Usman acts as the Chairman of the Board, whereas, Mr. Asim Ghani serves as the Company's Chief Executive Officer.

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.