Analyst
Faiqa Qamar
faiqa.qamar@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Maintains Entity Ratings of Al-Abbas Sugar Mills Limited
Rating Type | Entity | |
Current (10-Apr-23 ) |
Previous (11-Apr-22 ) |
|
Action | Maintain | Maintain |
Long Term | A+ | A+ |
Short Term | A1 | A1 |
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 230/maund and PKR 250/maund in Sindh. 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 under cultivation of ~4.7% amidst flash floods; the forecast of sugar production is affected and is est. to be ~7mln MT. However, the carryover stock from MY22 and the expected sugar production during MY23 are likely to result in a surplus stock of sugar. 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 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 Al-Abbas Sugar Mills Ltd. ('Al-Abbas' or 'the Company') diversified revenue stream emanating from sugar, ethanol and storage facilities. This provides competitive advantage to the Company mitigating volatility and industry specific risks. Better availability of sugarcane led to stable sugar production. Rising sugar prices, in local market, and ethanol prices, in international market, sustained decent margin and benefitted the Company's bottom-line. Storage tank terminals provide an additional cushion to cashflows. Going forward, high sugar stock is expected to benefit the Company in terms of export potential and higher prices may drive better margins for the Company. Ratings draw strength from the Company’s strong financial profile represented by a modestly leveraged capital structure, strong coverages, efficient management of working capital. Strong governance framework bodes well for the Company.
The ratings are dependent on the Company's ability to sustain margins with healthy coverages while maintaining necessary cushion and discipline in working capital management. Significant deterioration of relationship among shareholders leading to adverse impact on the Company's profile and/or excessive borrowings deteriorating the coverages will impact the ratings.
About
the Entity
Al-Abbas Sugar Mills Limited was incorporated in May-91 and is listed on the Pakistan Stock Exchange. The Company has diversified businesses of sugar, ethanol and storage tank terminal. The installed capacities are a) Sugar - crushing at 8,500 TCD, b) Distillery to produce 170,000 liters of ethanol per day, and c) Storage tank terminal with a capacity of 22,850 M.T per month. It operates in three different locations at Mirpurkhas, Dhabeji and Karachi in Sindh.
Majority (~58%) of Al-Abbas Sugar's shareholding lies with Haji Ghani Group, which enjoys strong presence on the Board and has management control. Jahangir Siddiqui (JS) Group (~29%) is the other major shareholder. Mr. Zakaria Usman is the Chairman of the Board, whereas, Mr. Asim Ghani serves as the Company's Chief Executive