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PACRA Maintains Entity Ratings of Noon Sugar Mills Limited

Rating Type Entity
(05-Apr-23 )
(05-Apr-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 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. During MY22, the support prices for sugarcane in Punjab were fixed at PKR 225/maund and PKR 250/maund in Sindh. Actual realized prices were even higher. During MY22, the overall sugar production increased by ~24%, YoY, to 7.1mln MT (MY21: 5.7mln 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 under cultivation of roughly 4.7% amidst flash floods; the forecast of sugar production is affected and is estimated to be ~7mln MT. However, the carryover 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, ensuring liquidity remains intact.
The ratings reflect Noon Sugar Mills Limited's ('Noon Sugar' or 'the Company') diverse revenue stream, comprising the sale of sugar and ethanol exports. This diversification provides the Company with a competitive advantage and mitigates industry-specific risks and volatility. Despite higher costs for cane, the Company's topline benefited from elevated prices of sugar, in the local market, and ethanol, in the international market. Moreover, higher volumes supported the topline. The Company managed to improve its operational costs leading to better margins. The financial risk profile of the Company is deemed adequate, as it is characterized by effective working capital management, strong coverages, and a adequality leveraged capital structure. Strong governance framework augur well for the Company.
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 is primary engaged in manufacturing and sale of white refined sugar and ethanol exports. The Company has the capacity to crush 12,000 tons of sugarcane and can produce 130,000 liters of ethanol per day. Total sugar production during MY22's crushing season stood at 104,720MT with a sugar recovery rate of 9.36%. Majority shareholding is held by Noon family (~57%) through Ms. Tahia Noon and Mr. Salman Hayat Noon. Whereas, ~5% is held indirectly through Noon Industries Ltd., 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 CEO. 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.