PACRA Maintains Entity Ratings of Tandlianwala Sugar Mills Limited

The assigned ratings affirm Tandlianwala Sugar Mills Limited (TSML) as a strong player in Pakistan’s sugar, ethanol, and CO2 sectors, leveraging an integrated operational model. The assigned ratings also factor in the moderate business risk profile inherent to Pakistan's sugar industry, shaped by its relatively low susceptibility to economic cyclicality yet pronounced exposure to seasonal and climatic volatilities. Key risk drivers include fluctuations in sugarcane yields and quality, influenced by agronomic conditions and cyclical variations in crop production. Government-mandated sugarcane support prices, also weigh on millers’ profitability. Additionally, raw material price volatility further accentuates operational uncertainty, necessitating adept supply chain and cost management. The competitive landscape, while fragmented with numerous players, is characterized by medium-to-low competitive intensity, underpinned by the indispensable nature of sugar in consumer staples. The sector's low substitution risk also fortifies demand stability. The MY24 season, while recovering from the aftermath of devastating floods that reduced cultivation by ~4.7%, is expected to deliver ~7 million MT of sugar, signaling resilience in the face of adversity. Due to the surplus stocks, the government has allowed the sugar millers to export ~0.79 million MT, ensuring liquidity relief for the industry. On the financial profile side, TSML’s strategically diversified revenue mix of 70% from sugar, 29% from ethanol, and 1% from CO2 fortifies its resilience against sectoral cyclicality. During 9MMY24, TSML’s topline has reflected an ~8.6% YoY decline primarily due to reduced ethanol exports. Despite this, sugar sales showed resilience with a 5% YoY increase, driven by domestic demand and pricing strength. Profitability metrics were mixed, with gross margins rising backed by effective procurement while net margins compressed to due to higher financing costs in a high-interest-rate environment. TSML's significant asset base of PKR 46.6 billion, coupled with equity of PKR 13.6 billion, underscores its financial stability and capacity for sustained growth. On the other side, leverage indicators continue to remain elevated on account of higher utilization of short-term borrowing. TSML upholds a prudently managed financial profile, characterized by moderate leverage that supports operational stability and growth potential. Governance and management continue to be critical strengths for TSML. Anchored by the Akhtar family’s strategic oversight, the leadership team leverages decades of expertise to steer the Company through evolving industry dynamics.
The ratings are contingent upon TSML's ability to maintain its market leadership, sustain business volumes, and preserve healthy margins while achieving optimal utilization of production capacities. Equally critical is the disciplined management of working capital to ensure liquidity buffers. In the prevailing challenging economic landscape, characterized by demand-side pressures, TSML’s relative performance against industry peers will remain a key determinant of its creditworthiness.

About the Entity
Tandlianwala Sugar Mills Limited commenced operations in Nov-92. The company is engaged in the manufacturing and sale of Refined Sugar, Ethanol, and CO2. The company is majorly owned by Akhtar Family. The overall control of the company vests in seven-member Board of Directors (BoD), including the CEO. The installed capacities are | Sugar - crushing at 48,500 TCD | Distillery to produce 265,000 liters of EPD | CO2. TSML plants are located at Faisalabad, DIK and Muzaffargarh, Punjab.