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The Pakistan Credit Rating Agency Limited
Press Release

Date
24-Dec-21

Analyst
Shayan Farooq
shayan.farooq@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of United Ethanol Industries Limited

Rating Type Entity
Current
(24-Dec-21 )
Previous
(24-Dec-20 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan’s ethanol industry is largely export based owing to meager domestic consumption. The Country’s ethanol exports stood at 183,856 MT in MY21 (MY20: 229,639 MT), dipping by ~20% due to higher molasses exports. Prices in the global market have been high, on the back of spike in ethanol demand, despite unsteady economic conditions worldwide. Impact of high international ethanol prices was supplemented by devaluation of the Pakistani Rupee. Sugarcane production in Pakistan during MY21 improved, as domestic distilleries posted stable profits. Going forward, the industry's margin are expected to remain stable owing to increased ethanol prices, though raw material prices have also increased from high cost of molasses.
The ratings reflect United Ethanol’s strong business profile emanating from robust margins and export oriented nature of ethanol industry. Strong margins at gross and operating level were a result of price appreciation and better volumes. Moreover, reduced borrowing costs further augmented profitability. The ratings draw strength from the Company’s association with United Group, which has an established presence in the Country’s sugar and allied industry. The Company’s revenue comprises primarily of exports. United Ethanol has been able to enhance efficiency through effective BMR implementation, yielding positive results. The Company has a moderately leveraged capital structure supplemented by strong coverages and effective working capital management. This keeps financial risk manageable.
Ratings are dependent on the management’s ability to effectively maintain margins. Prudent debt and liquidity management is critical for ratings. Any significant increase in debt, deterioration in coverages and/or drag of high advances extended to group concerns, if any, will impact the ratings negatively. Meanwhile, strengthening governance framework remains critical for ratings.

About the Entity
United Ethanol Industries Limited (the Company) is a public unlisted company. Primary business activity of the Company involves manufacturing and sale of food and industrial grade ethanol. The Company was incorporated in October, 2003, and is a part of United Group. The Group's entities include two sugar mills (Sindh Abadgar's Sugar Mills and SGM Sugar Mills), United Ethanol Industries Limited, Agro Trade Private Limited and United Agro Chemicals. The Essarani Family acquired the Company in September, 2016. Shareholding of the Company rests with Essarani Family, through Mr. Deoo Mal Essarani (24%) and his four sons – Mr. Asha Ram (29%), Dr. Tara Chand (24%), Mahesh Kumar (22%) and Mr. Jugdesh Kumar (1%).
The Company is headed by Dr. Tara Chand, the Chief Executive Officer. He is ably supported by a team of experienced professionals.

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.