The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Maintains Entity Ratings of Unicol Limited

Rating Type Entity
(18-Mar-22 )
(19-Mar-21 )
Action Maintain Initial
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Pakistan’s ethanol segment is largely export based owing to limited usage in the domestic market. Sugarcane production improved in Pakistan during MY21, however, ethanol exports stood at 183,856 MT during MY21 (MY20: 229,639 MT) according to PEMA (Pakistan Ethanol Manufacturers Association), slipping by ~20% due to higher molasses exports. Resultantly, low availability of molasses led to high procurement costs for local distilleries. On the demand front, prices of ethanol in the global market posted an inclining trajectory supported by higher demand. This was further supplemented by the devaluation of the Pakistani Rupee leading the domestic distilleries to post stable profits. During MY22, the distillery segment is expected to remain cash-rich and significantly liquid. Margins are also expected to remain stable owing to higher ethanol prices enabling the segment to cover the cost of molasses, and other costs of production. Lately, the ongoing global conflict has already impacted rise in prices of ethanol in the international market, however, higher transportation costs might create a challenge for the segment, going forward.
The ratings reflect Unicol Limited's strong business profile emanating from robust margins and the export-oriented nature of the ethanol industry. Additionally, the ratings draw strength from the Company’s association with three strong business Groups: Ghulam Faruque Group, Amin Bawany Group, and Hasham Group. The Company has a developed clientele in export market. Over time, Unicol has been able to enhance efficiency through consistently investing in BMR. This has yielded positive results while augmenting the turnover, and maintaining a stable trend in profitability. The Company has an adequately leveraged capital structure supplemented by strong coverages and healthy working capital cycle. This kept the financial risk moderate.
The ratings are dependent on the Company's ability to sustain its margins and healthy coverages while maintaining the necessary cushion and discipline in working capital management. Amicably sustaining the relationship among shareholders remains crucial for the ratings. Significant deterioration in coverages will have a negative impact on ratings.

About the Entity
Unicol Limited (the Company) is a public unlisted company. The primary business activity of the Company involves the manufacturing and sale of ethanol and liquid carbon dioxide. The Company was incorporated in 2003, however, formally began operations in 2007. The Company has an installed capacity to produce 56,000MT of ethanol per annum, with a utilization level of 98% during MY21. While, liquid carbon dioxide is produced at an installed capacity of 18,000MT per annum, with a utilization level of 64% during MY21.
Unicol Limited is a joint venture among three sugar mills, Faran Sugar Mills Ltd., Mehran Sugar Mills Ltd., and Mirpurkhas Sugar Mills Ltd., each holding an equal stake of ~33.33%. All the companies in the JV agreement are listed on Pakistan Stock Exchange. The sponsoring companies are parts of three established business Groups: Ghulam Faruque Group - has an established presence in cement, packaging, sugar, construction related segments, and renewable energy, Amin Bawany Group - having stable footings in sugar and consumer goods segments and Hasham Group - has progressed in the sugar segment. The Company's Board is chaired by Mr. Asif Qadir. Mr. Aslam Faruque heads the Company as its Chief Executive Officer. He is supported 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.