The Pakistan Credit Rating Agency Limited
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Ahmad Faraz Arif

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PACRA Maintains Entity Ratings of Sindh Abadgars Sugar Mills Limited

Rating Type Entity
(20-Feb-23 )
(21-Feb-22 )
Action Maintain Maintain
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 ~ 80–90mln MT. The industry has overcome the raw material supply challenges, lately. However, support price of sugarcane, set by the Government considering the cost incurred by farmers, remains a constraint. During MY22, the support prices for sugar-cane in Punjab were fixed at PKR 230/maund and PKR 250/maund in Sindh. Actual realized sugarcane prices at the mill gate were even higher. During MY22, the overall sugar production increased by ~9%, YoY, to 7.1mln MT (MY21: 6.5mln MT) due to better crop availability and an increase in area under cultivation. Subsequently, sugar prices witnessed ~12% decrease during MY22 compared to the preceding year. Furthermore, the Government has allowed exports of 0.5mln MT considering the surplus sugar production in the country. During the current crushing season (MY23), loss of area under cultivation of roughly 4.7% amidst flash floods; the forecast of sugar production is affected and is estimated to be ~7mln MT. This, along with exporting possibility, is anticipated to remain favorable for the millers.
The ratings reflect Sindh Abadgars Sugar Mills Ltd.'s ('Sindh Abadgars' or 'the Company') association with an established group in the agriculture and allied chain and demonstrated support from the Sponsors. Sindh Abadgars has a modest business profile and relatively lower margins. The Company generates revenue from the sale of refined sugar and ensuing by-products: molasses and bagasse. The mill, located in Sindh, has a relatively adequate capacity of 8,000 TCD. Better crop availability, amidst higher sugar-cane production, led to increased production during MY22. Furthermore, the Company was able to benefit from lower average procurement price and this led to improved financial performance. The Company has sufficient inventory levels to reap benefits from the export possibility during the ongoing year. This is expected to bode well for the Company's profitability. Lack of diversification exposes the Company to inherent volatility in the sugar industry. Financial risk profile of the Company is characterized by a high working capital cycle, dominated by increased inventory levels, and significant short-term borrowings to finance working capital requirements. Coverages and leverage remain adequate. Continued group support, in case need arises, remains imperative for the ratings.
~The ratings are dependent upon improving margins and strict working capital discipline. The Company’s ability to improve profitability while further strengthening coverage ratios remains critical. Any significant deterioration in business performance and/or financial health will negatively impact ratings.

About the Entity
Sindh Abadgars was incorporated in 1984 as a public listed company and was formerly owned by Effendi Group. The primary business activity of the Company involves manufacturing and sale sugar, along with its by-products. In 2005, Essarani Family acquired the Company. Today, major shareholding of the Company rests with Essarani Family (~79%). The remaining shareholding resides with Islamic Developmental Bank (~9%), insurance companies (~2.4%). Whereas, ~10% stake is held by the general public. Dr. Tara Chand heads the Company as the 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.