PACRA Maintains Entity Ratings of Al-Abbas Sugar Mills Limited
Pakistan’s sugar industry is the 2nd largest agro based industry, comprising 90 mills with annual crushing capacity estimated around 65 – 70mln MT. The industry has overcome the oversupply challenge. However, support price, set by considering the cost incurred by farmers, remains a constraint. During MY20, the overall sugar production fell by 6%, YoY, to 4.9mln MT on the back of lower crop availability. Surge in local sugar prices was witnessed due to low inventory levels. Increased sales tax of 17% (previously 8%) levied on sugar, contributed to higher prices. International sugar prices remain attractive but the Government has prohibited exports. In the current crushing season, the Government increased support price to PKR 200 per maund (crushing season of MY20: PKR 190 per maund) but sugarcane price at mill gate was even higher. Lately, the Government has decided to import 0.3mln MT of sugar to curb the increase in sugar prices. Out of which, around 0.15mln MT of sugar has already been imported till Oct-20. Local sugar production in MY21 is expected to be ~ 12 to 15% higher than MY20. Margins are expected to remain stable and the players will have adequate cash flows, going forward.
The ratings reflect the Company's diversified revenue stream, emanating from sugar, ethanol and storage facilities, supplementing robust margins and sustained profitability. This provides competitive advantage to the Company mitigating volatility and industry specific risks. Relatively lower sugarcane availability in MY20 has resulted in rising sugar prices and in turn 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. 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, efficient management of working capital, and strong governance.
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 8,500 M.T per day, b) Ethanol-capacity of 170,000 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. Zakaria Usman acts as the Chairman of the Board, whereas, Mr. Asim Ghani serves as the Company's Chief Executive Officer.