PACRA Maintains Entity Ratings of Mirpurkhas Sugar Mills Limited

The Pakistani sugar sector, recognized as the second most substantial agro-based industry within the nation, encompasses 91 mills with a collective processing capacity of roughly 80–90 million metric tons. The season ended with a sugar output of ~6.6 million tons, a ~16% decrease from the previous year’s ~7.9 million tons due to severe floods that damaged the crop and shortened the harvesting period. Despite the lower crop, the country had sufficient sugar stocks to meet the annual demand, owing to the large carryover from the previous year. Anticipated water scarcity is projected to precipitate a significant ~13.7% contraction in the forthcoming sugarcane supply for MY24, ascribed to a decrement in cultivated area and yields.
The ratings reflect Mirpurkhas Sugar Mills Ltd.'s ('Mirpurkhas' or 'the Company') strong standing in the market, which is attributed to its established position and its affiliation with the leading group - Ghulam Faruque Group. This association likely contributes to Mirpurkhas' stability and credibility within the industry. The ratings take into account Mirpurkhas Sugar Mills Ltd.'s varied revenue sources stemming from the sale of sugar, molasses, bagasse and paper. Also, the Company entered into a joint venture with Mehran and Faran Sugar Mills Limited and established Unicol Limited - a leading ethanol producer. This helped the Company to mitigate the effects of sugar industry's volatility and enhanced the Company's profitability. Sales of the Company stood at PKR 7,779mln during MY23 (MY22: PKR 4,833mln) with sucrose recovery rate of 10.55% due to increase in domestic prices of the sugar (MY23: PKR 116/kg, MY22: PKR 91/kg). Whereas, upward trend of the net profit of the Company stood at PKR 839mln during MY23 (MY22: PKR 204mln). Following the trend, net profit margins increased and stood at 10.8% during MY23 (MY22: 4.2%). Paper and board division also contributed in the profits and covers 24% of the total sales. Interest coverage ratio of the Company slightly decreased and stood at 0.9x during MY23 (MY22: 1.0x) due to increased finance cost (MY23: PKR 1,120mln, MY22: PKR 427mln). Despite of an increased finance cost, total interest coverage ratio slightly improved (MY23: 0.3x, MY22: 0.2x) due to improved profit before taxation. Whereas, leverage of the Company increased and stood at 66% during MY23 (MY22: 62%) due to increase in short term borrowings (MY23: PKR 4,772mln, MY22: PKR 2,202mln), primarily availed for paper and board division. The Company is exposed to exchange rate risk as the exports contribute 5% of the sales.
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.

About the Entity
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. Also, the company has introduced a paper and board business segment with the production capacity of 250 tons per day. The Company’s major shareholdings lies with Faruque Pvt. Limited and its associated companies (45.95%), Insurance Companies (2.56%), Modarabas (9.27%), General Public (30%), Banks , DFIs, NBFIs and others (11.27%).