PACRA Maintains Entity Ratings of Mirpurkhas Sugar Mills Limited
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 demonstrate Mirpurkhas Sugar Mills Ltd.'s ('Mirpurkhas' or 'the Company') established position and its association with a leading group – Ghulam Faruque Group. The ratings incorporate diversified revenue stream of the Company emerging from sale of sugar, molasses & bagasse. Lately, the Company has set up a separate division for Paper & Board project as a part of its strategic investment, apart from Mirpurkhas's associate - Unicol Limited - a leading ethanol producer. This mitigates the impact of volatile nature of sugar industry and supplements the Company's profitability. High competition for sugarcane procurement amongst mills and increased support price of sugarcane result in relatively higher input costs. Topline has posted a growing trend. Margins remain stable, while bottom-line reaps benefit of the profits share from associate, Unicol. 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. Financial profile is characterized by moderately leveraged capital structure and adequate working capital management. Coverages remain stretched. Likely Group support, if needs be, remains imperative for ratings.
The ratings are dependent on the Company’s ability to improve profitability while strengthening coverage ratios. Prudent debt management and efficient working capital management, to eliminate any mismatch, is critical. Continued negative trade, total leverage and deterioration in coverages would negatively impact ratings in future.
Mirpurkhas Sugar Mills Limited, incorporated in 1964, is a public listed company. It is among the first ventures of Ghulam Faruque Group. The Group holds a notable position in cement, sugar, packaging, ethanol, IT solutions, industrial equipment and air conditioning among others. Primary business activity of the Company involves manufacturing and sale of sugar, along with its byproducts. The Company has a crushing capacity of 12,500 TCD with its mill located in Mirpurkhas, Sindh.
Major shareholding (~57.6%) of the Company vests with Faruque Family, through associated companies (~51.8%) and individuals (~5.7%). Remaining shareholding resides with General Public and others (~18.9%), NIT (~0.01%) and Public Sector Companies & Corporations (~10.87%) and Banks, DFIs, Modarbas and Mutual Funds own (~12.66%).