PACRA Maintains Entity Ratings of Al-Abbas Sugar Mills Limited
Pakistan’s sugar industry is the 2nd largest agro based segment, comprising 90 mills with annual crushing capacity ~ around 65–75 MMT. Previously, the industry was under pressure owing to a supply glut combined with a distortion in the support price mechanism. Additionally, a slowdown in international sugar prices made exports viable only through subsidy support. During MY19, sugar production fell by 16%, YoY, to 5.5 MMT due to lower crop availability. Sugar prices improved in local market as inventory levels reduced. The Federal Government allowed an export quota ~ upto 1 MMT, however, no subsidy was announced. In the FY20 budget, sales tax levied on sugar was increased to 17%, charged on the price of PKR 60/KG, leading to higher prices. Due to low crop availability in the crushing period ended Mar-20, sugar production is expected to be around 5-5.2 MMT. The Government increased sugarcane's support price to PKR190 per maund (previously PKR180). Actual realized sugarcane price at mill gate were even higher. Despite increase in costs, higher local sugar prices are expected to improve miller's profitability.
The ratings reflect the Company's diversified revenue stream, emanating from sugar, ethanol and storage facilities, supplementing robust margins and sustained profitability. This provides a competitive advantage to the Company mitigating volatility and industry specific risks. Relatively lower sugarcane availability in MY20 and higher procurement cost has resulted in rising sugar prices in local market resulting in better profits from sugar segment. 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. Ratings draw strength from the Company’s very strong financial profile represented by a modestly leveraged capital structure, very strong coverages and efficient management of working capital. The Company's strong governance structure adds comfort to ratings.
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.
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 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 has management control. Jahangir Siddiqui (JS) group (29%) 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.