The Pakistan Credit Rating Agency Limited
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Silwat Malik

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PACRA Assigns Initial Entity Ratings to Sindh Abadgars Sugar Mills Limited

Rating Type Entity
(16-Sep-19 )
Action Initial
Long Term BBB
Short Term A2
Outlook Stable
Rating Watch -

The Sugar industry of Pakistan is the 2nd largest agro based industry comprising ~90 sugar mills with annual crushing capacity estimated between 65 – 70 mln MT. During MY19, sugar production dropped by 20% to ~5.5mln MT amid low crop cultivation from two consecutively high crushing season. The decrease in piled up sugar stocks rallied up retail prices by ~20%, providing relief to sugar producers.

The ratings reflect the Company's association with an established group in the agri chain and demonstrated support of it's sponsors. Sindh Abadgars Sugar Mills (Sindh Abadgars) has a modest business profile and relatively lower margins in the Sugar industry. The Company generates its revenue from the sale of refined sugar and it's ensuing by-products, molasses and bagasse. The mill, located in Sindh, has a relatively small capacity of 8,000 TCD. Timely BMR activities to enhance efficiency yielded positive results in the form of increased recovery rates of ~10.8%. However, lower crop cultivation and high concentration of mills in adjoining areas led to lower production levels and remains a challenge for the Company. Sindh Abadgars held on to stock during 9MMY19 to gain from rising sugar prices. This is expected to bode well for the Comapany's profitability as sugar prices have increased significantly. Lack of diversification exposes the Company to volatility inherent in the sugar industry. The financial risk profile is characterized by a high working capital cycle, dominated by sugar stocks and moderate leveraging, to finance working capital requirements. Coverages, a function of the Comany's business activity and leveraging, remain adequate.
The ratings are dependent upon increasing utilization, while improving margins and strict working capital discipline. Any significant deterioration in margins and/or cashflows will negatively impact the ratings.

About the Entity
Sindh Abadgars is a public listed company. Primary business activity of the Company involves manufacturing and sale of food and industrial grade ethanol. The Company was incorporated in 1984, and was formerly owned by the Effendi Group. The Essarani Family acquired the Company in 2005. Major shareholding of the Company rests with Essarani Family (79%). The Company is headed by Dr. Tara Chand, as 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.