Muhammad Zain Ayaz
PACRA Maintains Entity Ratings of Premier Industrial Chemical MFG. Co. (Pvt.) Limited.
Pakistan’s ethanol industry is predominately an export-based owing to meager domestic consumption, with approximately 70% of the domestically produced ethanol being exported. The Country’s ethanol exports stood at 800,000mln liters in market year Sep'22 (MY22) (MY21: 435,000mln liters), witnessing ~83% increase. Prices in the global market have been high and observed ~ 33% increase. On the back of a spike in ethanol demand, despite unsteady economic conditions worldwide. Impact of high international ethanol prices was supplemented by devaluation of the Pakistani Rupee. In MY23, sugarcane production in Pakistan demonstrated growth (MY23: 91mlnMT, MY22: 88mln MT) Concurrently, domestic distilleries maintained stable profitability. During the ongoing MY23, the industry's margin is expected to remain stable owing to increased ethanol prices, though raw material prices have also increased due to high cost of molasses.
The ratings reflect Premier Industrial Chemical MFG. Co. (Pvt.) Limited's ('the Company') prominent position in the country's ethanol export segment emanating from its substantial capacity. The Company's performance has remained adequately stable over the years supplemented by high margins, and profitability. The Company’s gross margin stood at 24% (CY21: 10%) and net margin stood at 14.5% in CY22 (CY21: 1%), as a resultant of 2.5-times growth in revenue, which indicate substantial improvements in Company’s financials. Lately, the company's considerable increase in capacity utilization, driven by enhanced molasses availability (Capacity utilization for CY22: 59%, compared to CY21: 30%), significantly contributed to the improvement in financial performance. Similar trends were observed prior to the COVID-19 pandemic. The sugar and ethanol industries have faced substantial challenges during the COVID-19 pandemic, primarily stemming from a dual impact of reduced demand for biofuels and a decreased supply of molasses. This combination has significantly disrupted the sector's stability and operations. This has directly impacted revenue and, as a result, profits, during COVID-19 phase. The ratings also draw strength from the Company’s association with group entities operating in the paper segment. The Company’s revenue comprises primarily of ethanol exports and local sales of juices and flavored milk. The Company has a moderately leveraged capital structure of 34% (CY21: 31%), supplemented by strong coverages and effective working capital management. The Company has a very strong equity base. The sponsors' willingness to support the Company bodes well for the ratings.
Ratings are dependent on the management’s ability to effectively sustain the improved volumes and margins. Prudent debt and liquidity management is critical for ratings. Any deterioration in coverages and/or drag of high advances extended to group concerns, if any, will adversely impact the ratings. Meanwhile, strengthening governance framework remains imperative for ratings.
Premier Industrial Chemical Manufacturing Co. (Private) Limited (‘the Company’) was incorporated in Jun-03 as a private limited company. The Company is primarily engaged in the manufacturing and sale of food grade ethanol, dairy products, and juices. Total annual production capacity is 120,000 M. Tons with Superfine Ethanol of 96% strength and Fuel grade Ethanol of 99.9% strength comprising of 50,000MT each. The Company is completely owned by the sponsoring family. Mr. Muhammad Saeed, the Chief Executive Officer and Chairman of the Board, and has been associated with the Company since inception. Director, Mr. Shahid Saeed, heads the Company’s dairy and juices segment.