The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of Hunza Sugar Mills (Pvt.) Limited

Rating Type Entity
(04-Sep-20 )
(06-Sep-19 )
Action Maintain Maintain
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan’s sugar industry is the 2nd largest agro based industry, comprising 90 mills with annual crushing capacity estimated around 65 – 75 mln MT. In previous years, the industry was under pressure owing to over supply combined with challenges in the support price mechanism. Additionally, a slowdown in international sugar prices made exports viable only through subsidy support. During MY19, the overall sugar production fell by 16%, YoY, to 5.5 mln MT on the back of lower crop availability. Sugar prices improved in local market as inventory levels reduced. The Government approved an export quota upto 1 MMT, however, no subsidy was announced, leading to low quantities availed. In the FY20 budget, sales tax levied on sugar was increased to 17% from 8%, charged on the price of PKR 60/KG, contributing to higher prices. Due to low crop availability in the crushing period ended Mar-20, sugar production is around 5-5.2 mln MT. The Government increased the support price of sugarcane to PKR 190 per maund (previously PKR180). Actual realized sugarcane price at mill gate were higher. Despite increase in costs, higher local sugar prices are expected to improve miller's profitability. Local prices are expected to be capped due to lower international prices (making imports viable) and potential intervention by the Government.

The ratings reflect the Hunza Sugar Mills (Pvt.) Ltd ('Hunza Sugar' or 'the Company') diverse revenue stream (Sugar, Ethanol and Bagasse) and sponsors strong acumen. The Company remains exposed to volatility and ensuing challenges in sugar sector. Relatively lower sugarcane availability in MY20 and higher procurement cost has resulted in rising sugar prices in local market resulting in better profits from sugar segment. The Company has stable business profile and healthy margins owing to diversification despite volatile market conditions. Hunza Sugar's financial risk remains high owing to a significantly leveraged capital structure and stretched working capital management. The Company utilises short-term borrowings to finance its inventory. 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 cashflows will impact the ratings negatively. Improvement in governance framework and internal controls will be favorable for the ratings.

About the Entity
Hunza Sugar Mills (Pvt.) Ltd 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.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.