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Faiqa Qamar

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PACRA Maintains Entity Ratings of Hunza Sugar Mills (Pvt.) Limited

Rating Type Entity
(16-Mar-23 )
(16-Mar-22 )
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 of 90 mills with an annual crushing capacity estimated at~ 80–90mln MT. Despite overcoming the challenge of raw material supply, the industry is facing a constraint due to the government-set support price for sugarcane, which is determined based on the cost incurred by farmers. 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 the current crushing season (MY23), loss of area un-der cultivation of roughly 4.7% amidst flash floods; the forecast of sugar production is affected and is estimated to be ~7mln MT. However, the carry-over stock from MY22 and the expected sugar production during MY23 are likely to result in a surplus of local sugar production. Therefore, the Government has allowed exports of 0.25mln MT on the basis of production during MY22. The support prices have been fixed at PKR 300/maund for Punjab and PKR 302/maund for Sindh. Although low sugar prices locally and increased sugarcane prices have prompted many sugar mills to close the crushing early in MY23, sugar exports are expected to be favorable for the industry, ensuring liquidity remains intact.
The ratings reflect Hunza Sugar Mills (Pvt.) Limited's ('the Company') substantial crushing capacity, diverse revenue stream (comprising local sugar sales and ethanol exports), and sponsors' strong acumen. Despite volatility in the sugar segment and ensuing challenges, the Company has witnessed significant improvement in its financial performance with a growth of 7.4%. Higher cane cost has led to rising sugar prices in the local market during MY22. Consequently, the Company earned significant profits from the sugar segment. Similarly, the Company also benefited from the rising ethanol prices, internationally. The Company has stable business profile and healthy margins owing to diversification despite volatile market conditions. The Company's financial risk remains adequate owing to improved capital structure supported by enhanced equity base. Moreover, sponsors' firm commitment to provide financial support in a timely manner provides comfort to the ratings.
The ratings are dependent upon the Company’s ability to maintain healthy margins, improve coverages and rationalize short-term borrowings to avoid asset-liability mismatch. Any significant deterioration in margins and/or cash flows will impact the ratings negatively. Improvement in governance framework and internal controls will be favorable for the ratings.

About the Entity
Hunza Sugar Mills (Pvt.) Limited, is a private limited company, incorporated in 2002. Hunza Sugar manufactures refined sugar, molasses, ethanol and other allied products. Hunza Sugar has two sugar crushing units in District Faisalabad (Unit 1) and District Jhang (Unit 2) with a crushing capacity of 10,000 TCD and 10,000 TCD, respectively. Distillery has a production capacity of 125,000 liters per day. The shareholding is vested with the families of three brothers Mr. Idrees Chaudhury (33%), Mr. Saeed Chaudhry (33%), and Mr. Waheed Chaudhry (33%). Mr. Idress Chaudhry is the Chairman of the Hunza Group of Industries while Mr. Saeed Chaudhry is the CEO of Hunza Sugar

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.