The Pakistan Credit Rating Agency Limited
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Behrooz Fareed

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PACRA Maintains Entity Ratings of Mirpurkhas Sugar Mills Limited

Rating Type Entity
(05-Apr-22 )
(07-Apr-21 )
Action Maintain Maintain
Long Term A- A-
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, incurred by farmers, remains a constraint. The Government increased the support price of sugarcane from PKR 202 to 250 per maund for mills operating in Sindh in the current crushing season. 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 levied 17% GST on price of PKR 72.22/kg instead of PKR 60/kg. Therefore 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 till Nov-21. During the current crushing season (MY22), a further surge of 20% is expected in sugarcane production resulting in an increased total sugar production of ~7mln MT. Also, due to high production anticipated, sugar prices are already showing a downward trend and are expected to improve once the crushing season of MY22 ends.
The ratings demonstrate the Company’s established position and its association with a leading group – Ghulam Faruque Group. The ratings incorporate diversified revenue stream of the Company emerging from sale of sugar, molasses & bagasse and strategic investments in Paper & Board project, a separate division being established under the Company. Investment in an associate; Unicol Limited, a leading ethanol producer, was also considered. This mitigates the impact of volatile nature of sugar industry and supplements the Company's profitability. High competition for sugarcane procurement amongst mills and increased support price of Sugarcane result in relatively higher input costs. Topline growth posted a declining trajectory, however, net profit margins remained stable due to profit share from associate. The Company’s financial profile is characterized by moderately leveraged capital structure and adequate working capital management. Coverages remain stretched. Likely group support, in case need arises, remains one of the key ratings factor.
The ratings are dependent on the Company’s ability to improve profitability while strengthening coverage ratios. Prudent management of debt structure and efficient working capital management to eliminate any mismatch, is critical. Continued negative trade, total leverage and deterioration in coverages would negatively impact ratings in future.

About the Entity
Mirpurkhas Sugar Mills Limited, incorporated in 1964, is a public listed company. It is among the first ventures of Ghulam Faruque Group. The Group holds a notable position in cement, sugar, packaging, ethanol, IT solutions, industrial equipments and air conditioning among others. Primary business activity of the Company involves manufacturing and sale of sugar, along with its byproducts. The Company has a crushing capacity of 12,500 TCD with its mill located in Mirpurkhas, Sindh.
Major shareholding (~57.6%) of the Company vests with Faruque Family, through associated companies/employees funds (~51.9%) and individuals (~5.7%). Remaining shareholding resides with General Public and others (~28.9%), NIT (~9%) and Public Sector Companies & Corporations (~4%) and Banks & DFIs (~0.5%).

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.