PACRA Maintains Entity Ratings of Mehran Sugar Mills Limited
The sugar industry of Pakistan has remained under pressure in recent times. A persistent supply glut negatively impacted players across the industry. Additionally, slowdown in international sugar prices rendered domestically manufactured sugar uncompetitive, making exports viable only through subsidy support. However, prices during the current season (MY19) have improved owing to lower sugar production and depletion of carryover stock. This has impacted profitability for industry players positively. Moreover, retirement of subsidy amount due by the government has eased the liquidity pressure to an extent.
The Ratings reflect Meharan Sugar Mills Limited's (the Company) strong business profile emanating from a diversified revenue stream, robust governance and ability to post high recovery rates consistently, averaging in excess of 11% over the past five years. To mitigate risks associated with seasonality and volatility in the sugar industry, the Company’s profitability is supported through a strategic joint venture investment in ‘Unicol Limited’, an ethanol production company, and sale of electricity generation. The Company has made strategic investments in the FMCG sector through a joint-venture ‘UniFoods Industries Limited’ and in the energy sector through its wholly-owned subsidiary, ‘Mehran Energy Limted’. However, income from these avenues is not expected anytime soon. The Ratings draw comfort from Mehran Sugar’s ability to maintain healthy margins despite volatility in the sugar industry and a sizable liquid investment portfolio. The investment portfolio remains exposed to market vicissitude, especially in current dynamics. The Company’s financial risk profile is characterized by a leveraged capital structure, strong coverage ratios and adequate working capital management.
The Ratings are dependent on the Company’s ability to maintain strong cashflows and coverages while adhering to strict financial discipline, with an increased emphasis on working capital management. Any significant deterioration in margins and/or coverages will have a negative impact on ratings.
Mehran Sugar Mills Limited, established in 1965, is the flagship entity of Hasham Family ('Hasham Group'). The Company is involved in the production and sale of sugar and ancillary products i.e molasses, bagasse and electricity. It is listed on Pakistan Stock Exchange. Majority shareholding rests with Individuals of Hasham Family (76%); through families of three brothers; Mr. M. Kasim Hasham (30%), Mr. M. Ebrahim Hasham (28%), and Mr. M. Hussain Hasham (18%).
The Company is headed by Mr. M. Ebrahim Hasham who acts as the Cheif Executive Officer, whereas, Mr. Ahmed Ebrahim serves as the Managing Director. The Board comprises eight members and is chaired by Mr. M. Kasim Hasham. There are two independent directors on the Board.