PACRA Maintains Entity rating of Hunza Sugar Mills (Pvt.) Limited

The ratings reflect Hunza Sugar Mills (Pvt.) Limited ("HSML" or "the Company") established market position in Pakistan’s sugar and ethanol sectors, further bolstered by the strategic support of the Hunza Group. The Company benefits from a diverse revenue stream and the experienced leadership of its management team. The Company remains exposed to the inherent volatility of the sugar industry, where fluctuations in sugarcane yields and sucrose recovery rates are heavily influenced by agronomic conditions and cyclical crop production. Furthermore, global ethanol prices have remained demoted, continuing to pressure the profitability matrix of the export-oriented ethanol segment. On the financial front, HSML recorded a 3.5% decline in revenue, primarily attributable to reduced sugar sales volumes following the strategic reorganization involving the transfer of Hunza Sugar Unit-2 to Hunza Steel (Pvt.) Limited under a merger scheme. Despite the decline in revenue, the subsequent incorporation of Hunza Steel as a wholly-owned subsidiary within the group is expected to strengthen overall financial resilience and generate operational synergies. Notwithstanding the decline in the topline, operational efficiencies and lower costs led to a significant improvement in margins; Gross Margin rose to 16.2% (MY24: 10.7%) and Operating Margin reached 9.2% (MY24: 3.8%). However, net margins remained modest at 2.7%, primarily constrained by elevated finance costs. A key rating constraint remains the Company's high leverage and capitalization profile. While total debt has reduced to PKR 10.6 billion, the capital structure is characterized by a 54% leverage ratio, consisting almost entirely of short-term borrowings. This heavy reliance on short-term debt to fund working capital requirements exposes HSML to substantial liquidity pressures, and heightened vulnerability to interest rate volatility. Furthermore, the firm commitment and continued support from the sponsors provide a significant cushion to the ratings.
The ratings encapsulate the Company's adeptness in managing operational efficiencies and improving core margins. Moving forward, the ratings remain sensitive to the stabilization of net profitability and the effective rationalization of its debt structure to manage the asset-liability alignment.

About the Entity
Hunza Sugar Mills (Pvt.) Limited, is a private limited company, incorporated in 2002. Hunza Sugar manufactures refined sugar, molasses, ethanol and other allied products. Hunza Sugar has a crushing unit in District Faisalabad with a crushing capacity of 15,000 TCD. Distillery has a production capacity of 125,000 liters per day. The shareholding is vested with the families of three brothers Mr. Idrees Chaudhury (31%), Mr. Saeed Chaudhry (32%), and Mr. Waheed Chaudhry (37%). Mr. Saeed Chaudhry is the CEO of Hunza Sugar.