The Pakistan Credit Rating Agency Limited
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Ahmad Faraz Arif

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PACRA Maintains Entity Ratings of Noon Sugar Mills Limited

Rating Type Entity
(05-Apr-22 )
(30-Sep-21 )
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan’s sugar industry is the country's 2nd largest agro-based industry, comprising 90 mills with an annual crushing capacity estimated ~ 65–70mln MT. The industry has overcome the raw material supply challenges. However, support price of sugarcane, set by considering the cost incurred by farmers, remains a constraint. The Government increased the support price of sugarcane to PKR 225 per maund for mills operating in Punjab (previously, it was increased to PKR 200). Actual realized sugarcane prices at the mill gate were even higher. During MY21, the overall sugar production increased by 15%, YoY, to 5.7mln MT (MY20: 4.9mln MT) due to better crop availability and an increase in area under cultivation. Moreover, in FY21's budget, the Government proposed to levy 17% GST on minimum PKR 72.22/kg instead of PKR 60/kg. This led to an increase in sugar prices in the local market. To curb this, the Government planned to import 0.8mln MT of sugar. Out of this, 0.3mln MT was imported till Jun-21, whereas, 0.3mln MT was imported till Nov-21. During the current crushing season (MY22), a surge of ~25-30% is expected in sugarcane production resulting in an increased total sugar production of ~7.5mln MT. This along with high sugar prices are expected to remain favorable for the millers.
The ratings reflect Noon Sugar Mills Limited's ('Noon Sugar' or 'the Company') diverse revenue stream, comprising the sale of sugar and ethanol exports. This provides a competitive advantage to the Company and mitigates volatility and industry specific risks. Despite higher cane costs, the Company benefited from inflated sugar prices in the local market and international ethanol prices leading to significant growth in revenue. However, the Company's margin witnessed dip owing to the increased procurement costs of sugarcane and operational costs of distillery division. Going forward, the Company aims to focus on improving efficiency through consistent BMR. The financial profile of Noon Sugar remains adequate, characterized by adequate working capital management, strong coverages and adequately leveraged capital structure. Sponsors' support and streamlined governance structure in place bodes well for the ratings.
The ratings are dependent on sustaining business margins, while maintaining stable financial risk profile. Any deterioration to revenue, margins, and/or cashflows will impact the ratings negatively. Meanwhile, improvement in capital structure will benefit the ratings.

About the Entity
Noon Sugar Mills Limited is primary engaged in manufacturing and sale of white refined sugar and ethanol exports. The Company has the capacity to crush 12,000 tons of sugarcane and can produce 130,000 liters of ethanol per day. Total sugar production during MY21's crushing season stood at 82,710MT with a sugar recovery rate of 9.6%. Majority shareholding is held by Noon family (~57%) through Ms. Tahia Noon and Mr. Salman Hayat Noon. Whereas, 5% is held indirectly through Noon Industries Limited, an associated company. The remaining shareholding is split between public institutions and the general public. The Company's Board is chaired by Mr. K. Iqbal Talib, whereas, Lt. Col. (R) Abdul Khaliq Khan heads the Company as the Chief Executive Officer. He is aided 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.