The Pakistan Credit Rating Agency Limited
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Ayesha Malik

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PACRA Maintains Entity Ratings of Al-Abbas Sugar Mills Limited

Rating Type Entity
(28-Oct-19 )
(08-May-19 )
Action Maintain Upgrade
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

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 the Company's diversified revenue stream, emanating from sugar, ethanol and storage facilities strong margins and sustained profitability mitigating volatility and industry specific risks. Margins in the sugar industry were depressed due to persistent supply glut and substantial carry over stock. However, a shorter crop during MY19 has inflated sugar prices, providing relief to mills across the country. The Company has successfully maintained healthy margins over the years owing to efficient operations and diversification despite volatile market conditions. Well thought investment in storage tank terminals provides an additional cushion to cashflows throughout the year. Ratings draw strength from the Company’s robust governance framework and strong financial profile represented by a modestly leveraged capital structure, strong coverages and efficient management of working capital.
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 between 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. The business include a) Sugar capacity of 7,500 M.T per day, b) Ethanol-capacity of 172,500 liters per day, and c) Storage tank terminal-capacity of 22,850 M.T per month. It operates in two different locations at Mirpurkhas and Dhabeji in Sindh. Majority (58%) of Al-Abbas Sugar's shareholding lies with Haji Ghani Group, which enjoys strong presence on the Board and management control. Jahangir Siddiqui (JS) group (27%) is the other major shareholder. Mr. Zakria 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.