The Pakistan Credit Rating Agency Limited
06-Sep-19
Analyst
Silwat Malik
silwat.malik@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
- Methodology | Corporate Ratings | Jun-19
- Methodology | Correlation Between Long-Term And Short-Term Rating Scale | Jun-19
Related Research
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PACRA Maintains Entity Ratings of Hunza Sugar Mills (Pvt.) Limited
| Rating Type | Entity | |
|
Current (06-Sep-19 ) |
Previous (08-Mar-19 ) |
|
| Action | Maintain | Maintain |
| Long Term | BBB | BBB |
| Short Term | A2 | A2 |
| Outlook | Stable | Stable |
| Rating Watch | - | - |
The Sugar industry of Pakistan is the 2nd largest agro based industry comprising ~90 sugar mills with annual crushing capacity estimated between 65 – 70 mln MT. During MY19, sugar production dropped by 20% to ~5.5mln MT amid low crop cultivation from two consecutively high crushing season. The decrease in piled up sugar stocks rallied up retail prices by ~20%, providing relief to sugar producers.
The ratings reflect the Company's diverse revenue streams (Sugar, Ethanol, Bagasse) and sponsors strong acumen in the sector. The Company remains exposed to volatility in Sugar sector. Higher recovery rate and rising sugar prices resulted in improving performance in 10MMY19, having a positive impact on the Company's bottom-line despite lower production. Financial risk is high owing to highly leveraged capital structure and stretched working capital. The Company utilizes short-term borrowings to finance its inventory. Short-term borrowings remain high despite significant reduction in trade assets. This, coupled with high finance cost, keeps the Company's coverages under pressure. Meanwhile, sponsors firm commitment to provide financial support in a timely manner provides comfort to the ratings.
The ratings are dependent upon the Company’s ability to maintain its margins, improve coverage's and rationalize short-term borrowings to avoid asset liability mismatch. Any significant deterioration in margins and/or cash flows will impact the ratings. Improvement in governance framework and internal controls will be favorable for the ratings.
About
the Entity
Hunza Sugar Mills (Pvt.) Ltd (‘Hunza Sugar’) is part of Hunza Group of Industries, which traces its roots back to 1988. The flagship entity of the group is Hunza Ghee Industries (Pvt.) Limited in the edible oils sector. Hunza Sugar has a strong presence in the refined sugar industry along with its allied products ethanol and CO2. It is a family owned entity. The shareholding is vested with the families of three brothers Mr. Idrees Chaudhury & Family (31%), Mr. Saeed Chaudhry & Family (32%) and Mr. Waheed Chaudhry & Family (37%). Mr. Idress Chaudhry is the Chairman of the Hunza Group of Industries while Mr. Saeed Chaudhry is the CEO of Hunza Sugar.