PACRA Maintains Entity Ratings of Jauharabad Sugar Mills (Pvt.) Limited

The assigned ratings affirm Jauharabad Sugar Mills Limited (JSML) as a strong player in Pakistan’s sugar sector. 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 market risk Company may face includes fluctuations in sugarcane yields and quality, influenced by agronomic conditions and cyclical variations in crop production. Additionally, raw material price volatility further accentuates operational uncertainty, necessitating supply chain, and cost management. 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.
On the financial profile side, JSML derives its revenue from sugar (~98% local market and ~2% export market). During MY24, the Company’s topline has reflected an incline of ~15% YoY, primarily due to increased sugar prices and sales volume. Sugar exports also provided a cushion for sustaining growth. Profitability metrics showed an eroding performance, as gross margin declined by ~18% due to the high procurement cost of sugar cane. Similarly, the operating margin also mirrored the same effect and decline resulting from high operating expenses. JSML achieved profitability during a period when most other sugar companies of a similar scale reported losses. However, net margins were compressed as a result of a decline in net income driven by increased financing expenses in the context of a high-interest-rate environment which needs to be improved in order to compete with industry peers with similar footing. On the other side, Net working days remained elevated due to the accumulation of finished stock. Leverage indicators remain moderate, primarily due to the company's reliance on short-term borrowing and pure equity i.e. PKR ~1.7bln (excluding revaluation of PKR ~6.2bln). Anchored by the Latif family’s strategic oversight, the leadership team leverages decades of expertise to steer the Company through evolving industry dynamics.
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.