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The Pakistan Credit Rating Agency Limited
Press Release

Date
30-Sep-21

Analyst
Faiqa Qamar
faiqa.qamar@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Maintains Entity Ratings of Noon Sugar Mills Limited

Rating Type Entity
Current
(30-Sep-21)
Previous
(30-Sep-20)
Action Maintain Upgrade
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan’s sugar industry is the country's 2nd largest agro-based industry, comprising 90 mills with an annual crushing capacity estimated ~65–70mln MT. The industry is trying to overcome the supply challenges. However, support price, set by considering the cost incurred by farmers, remains a constraint. During MY21, the overall sugar production increased by 15%, YoY, to 5.6mln MT (MY20: 4.9mln MT) due to better crop availability and an increase in area under cultivation. The recent surge in local sugar prices was registered by the demand-supply gap. Previously, the sales tax levied on sugar was increased to 17% (previously 8%,) charged on the PKR 60/KG price, which contributed to higher prices. In the FY21 budget, a sales tax of 17% was proposed to be levied on the market retail price instead of PKR 60/kg. However, Government has allowed not to charge sales tax on market retail price till Nov-21. Currently, 17% sales tax is levied on PKR 72.22/kg. Moreover, in MY21 crushing season, the Government increased the support price of sugarcane to PKR 200 per maund (previously, it was increased to PKR 190 from PKR 180 per maund). Actual realized sugarcane prices at the mill gate were even higher. To meet the local demand and curb the hike in sugar prices, the Government planned to import 0.8mln MT of sugar. Out of this, 0.3mln MT has already been imported, till Jun-21. Lately, TCP approved to import another 0.1mln MT of sugar. Going forward, despite higher input costs, higher sugar prices are expected to remain favorable for millers.
The ratings reflect Noon Sugar Mills Limited ('Noon Sugar' or 'the Company') diverse revenue stream, comprising the sale of sugar and ethanol. This provides a competitive advantage to the Company and mitigates volatility and industry specific risks. Despite higher cane costs, the Company benefitted from inflated sugar prices in the local market. However, the margins deteriorated owing to lower profits from the distillery division. Going forward, the Company aims to focus on improving efficiency through BMR. The financial profile of Noon Sugar remains adequate, characterized by improved working capital management, strong coverages and adequately leveraged capital structure. Sponsors support and strengthening the governance structure provide comfort to ratings.
The ratings are dependent on sustaining business margins, while maintaining stable financial risk profile. Any deterioration to revenue, margins, and/or cashflows will impact the ratings negatively. Meanwhile, improvement in capital structure will benefit the ratings.

About the Entity
Noon Sugar Mills Limited was incorporated in 1964 as a public limited company, with its shares listed on the Pakistan Stock Exchange (PSX). The primary business of the Company is the manufacturing and sale of white refined sugar and Ethanol. Noon Sugar's registered office is located in Lahore, whereas, the mill is located in Sargodha. The Company has the capacity to crush 12,000 tons of sugarcane and can produce 130,000 liters of ethanol per day. The total sugar production during MY21's crushing season stood at 82,710MT with a sugar recovery rate of 9.6%.
The majority shareholding (~62%) of the Company lies with the sponsors, out of which ~ 57% is held directly by Noon family through Ms. Tahia Noon and Mr. Salman Hayat Noon. Whereas, 5% is held indirectly through Noon Industries Limited, an associated company. The remaining shareholding is split between public institutions and the general public. The Company's Board is chaired by Mr. K. Iqbal Talib, whereas, Lt. Col. (R) Abdul Khaliq Khan heads the Company as the Chief Executive Officer. He is aided by a team of experienced professionals.

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.