The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Maintains Entity Ratings of Popular Sugar Mills Limited

Rating Type Entity
(05-Apr-22 )
(30-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 Popular Sugar Mills Limited's ('Popular Sugar' or 'the Company') adequate business profile. The Company posted a positive trend in revenues along with improved margins. Relatively higher sugar production along with increased sugar prices in the local market resulted in better profits. However, the cane procurement cost remain relatively high. Moreover, the Company’s profitability is supported through the sale of by-products. Financial profile of the Company remains adequate with modestly leveraged capital structure and improved coverages. However, mismatch in the debt mix persisted as the Company increased its reliance on short-term borrowings to fund its working capital needs. The rating incorporates Group support for the Company, if needs be.
The ratings are dependent upon the Company’s ability to maintain its margins, improve coverage's and rationalize short-term borrowings to avoid asset-liability mismatch. Any significant deterioration in margins and/or cashflows will impact the ratings negatively. Meanwhile, strengthening governance framework and internal controls will have a favorable impact on ratings.

About the Entity
Popular Sugar Mills Limited is a public limited company. Popular Sugar acquired 100% shareholding of National Sugar Industries Limited in 2013. The Company operates a unit located at Jan Muhammad Wala, near Sargodha, having a crushing capacity of 8,000 tons per day. The Company is engaged in the manufacturing and sale of refined sugar and its by-products; molasses and bagasse. The total sugar production in MY21 stood at ~58,298MT with a recovery rate of ~9.6%.
Popular Sugar is a wholly owned company of the Popular Group of Industries (‘Popular Group’). Around 87% of the shares reside with other Group companies. While, remaining 13% of the stake vests with the individuals of Roshan and Malik family. The Company's Board is chaired by Mr. Imamuddin Shouqeen, whereas, Mr. Shahbaz Ali Malik heads the Company as Managing Director. He is aided by a team of experienced professionals.

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.