PACRA maintains Entity Ratings of Mirpurkhas Sugar Mills Limited

The ratings reflect Mirpurkhas Sugar Mills Ltd.'s ('MSML' 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 MSML'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 the sugar industry's volatility and enhanced the Company's profitability. Mirpurkhas Sugar Mills' market risks stem from fluctuating sugarcane yields and volatile raw material prices, impacting operational certainty. This, in turn, impacts profit margins, leading to net losses. Due to the surplus stocks, the government has allowed the sugar millers to export ~0.79 million MT, ensuring liquidity relief for the industry. With the government's shift to deregulated pricing of sugarcane, the cost of goods sold is expected to decline moving forward, as prices are determined by market forces rather than fixed regulations. This transition to a market-driven pricing model will likely lead to more competitive pricing, encouraging efficiency and cost reduction across industries. In FY24, the Company achieved a ~54% increase in topline revenue, with ~67% of contributions from the sugar division and ~33% from the paper division. However, profitability remained under strain. Gross profit margins experienced a sharp contraction, declining by ~10.7% during MY24, primarily attributable to elevated sugarcane procurement costs. Consequently, operating profit margins also mirrored the same effect due to increased operating expenses. Additionally, the Company reported a net loss of ~19%, largely attributed to a substantial increase in finance costs. Furthermore, the Company's financial performance was adversely affected by a share of loss from Unicol Limited, amounting to PKR ~652mln, further contributing to the overall net loss. This rise in finance cost also led to a deterioration in debt coverage ratios, making it more challenging for the management. The Company remains compliant with all obligations, and management anticipates improved performance. MSML's efforts to streamline inventory are commendable, yet the substantial increase in receivable days suggests a need for closer scrutiny of their credit and collection practices. While overall working capital improved marginally, addressing the lengthening receivable cycle in paper sales could unlock further financial flexibility. The rating watch assigns reflect the losses of MSML and the share of loss from “JV” Unicol Limited. The Company performance will be analyzed in the upcoming quarters and, appropriate rating action will be taken in due course of time.
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.

About the Entity
Mirpurkhas Sugar Mills Limited, incorporated in 1964, is a public listed company. The Company has a crushing capacity of 12,500 TCD with its mill located in Mirpurkhas, Sindh. Also, the company's paper and board business segment has the production capacity of 250 tons per day. Major shareholding lies with the Ghulam Faruque Group through Faruque Pvt. Limited and its associated companies (49.28%), Sponsors of the Company (0.87%), Banks, DFIs, NBFIs and others (9.37%), Insurance Companies (1.79%), Modarabas (8.09%) and General Public (30.6%).