PACRA Maintains Entity Ratings of Jauharabad Sugar Mills (Pvt.) 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 yield.
The ratings reflect a sustained business profile of Jauharabad Sugar Mills Limited in line with the current dynamics of the sugar industry. The management pays continuous attention to enhance efficiencies through BMR. The Sponsors' business acumen and support (in the form of loan) remain beneficial for the Company. The company experienced a ~33% surge in revenue to PKR ~6.9 billion in MY23 (MY22: ~5.1 billion), comparatively lower than industry’s upward trend and with an average recovery rate of ~9.86%. Rising sugarcane cost have resulted in increasing sugar prices in the domestic market during MY23. As a result, the Company attained sustainable profits from the sugar segment. The Company's gross profit stood at PKR ~1bln (MY22: ~829mln), resulting to a ~15.5% gross margin. Despite the escalation in finance costs associated with KIBOR, the net income showed a growth of ~65% and stood at PKR ~212mln (MY22: PKR ~128mln). Net margins remained at ~3.1% during MY23 (MY22: ~2.5%) which need to be improved in order to compete with industry peers with similar footing. The financial risk profile of Jauharabad stood adequate. During MY23, the Company's working capital stood at ~77 days (MY22: 55days) resulting from a significant amount of piled finished stock. The total leverage ratio of the company stood at ~43% in MY23, with regard to their pure equity i.e. PKR ~1.3bln (excluding revaluation of PKR ~6.3bln). Short-term borrowings constituting ~99% of the total debt. Currently, there is no long term borrowing recorded on the financials, but the Company is in the phase of expansion evident from their advances paid against the enhancement of capacity. The profitability of Jauharabad has been supported by elevated sugar prices, however struggling to maintain stable margins amidst market oscillations, indicating difficulties in preserving consistent profit margins when the market is fluctuating.
The ratings are dependent upon the management’s ability to sustain business margins, while improving the financial risk profile. Creating diversity in the revenue stream will enhance the Company's profitability. Any significant deterioration in the Company’s margins and/or coverages would have a negative impact on the ratings.

About the Entity
Jauharabad Sugar Mills Limited is a public limited company, listed on Pakistan Stock Exchange since 1973. The Company was acquired from Saigol Group in Oct-13 by Cane Processing (Pvt.)Limited. Lately, the Company has increased its operational crushing unit, to 9,500 TCD. The Company is engaged in the manufacturing and sale of refined sugar and its by-products; molasses and bagasse. Jauharabad is majorly owned by a Holding Company - Cane Processing (Pvt.) Limited (~64%) -and individuals of Latif family (~9%). While the Company has a free float of ~34%. The Company's Board is Chaired by Mr. M. Aamir Beg