PACRA Maintains Entity Ratings of Mehran Sugar Mills Limited

The Pakistani sugar sector, recognized as the second most substantial agro-based industry within the nation, encompasses 91 mills with a collective processing capacity of roughly 80–90 million metric tons. The season ended with a sugar output of ~6.6 million tons, a ~16% decrease from the previous year’s ~7.9 million tons due to severe floods that damaged the crop and shortened the harvesting period. Despite the lower crop, the country had sufficient sugar stocks to meet the annual demand, owing to the large carryover from the previous year. Anticipated water scarcity is projected to precipitate a significant ~13.7% contraction in the forthcoming sugarcane supply for MY24, ascribed to a decrement in cultivated area and yield.
Mehran Sugar Mills Limited has upheld its credit rating through a strong financial performance, marked by a 58% revenue increase to PKR ~10.9 bln in MY23 (MY22: PKR 6.9 bln), aligned with industry’s upward trajectory. The escalation in cane costs has catalyzed a concomitant rise in sugar prices within the domestic sphere during MY23, thereby engendering significant profitability for the Company. The gross profit stood at PKR ~2.34 bln, indicating a ~21.5% gross margin (MY22: ~11.7%), while the net income rose to PKR ~1.443 bln (MY22: PKR 289 mln), reflecting a ~13.1% net margin (MY22: 4.2%). The looming challenges posed by elevated policy rates and the pervasive inflationary milieu, which are projected to exert a marginal impact on profit margins in MY24. However, Mehran Sugar Mills Limited’s financial resilience is evident in its reduced net working capital days to 38 days in MY23 (MY22: 53 days) and a leverage ratio of ~47.3% (MY22: ~45.9%), with a focus on maintaining stable margins and financial discipline amidst market fluctuations. Looking ahead, the management harbors an optimistic outlook regarding the Company’s fiscal trajectory, bolstered by a consistent share of profits emanating from Unicol Limited and the anticipated capital gains/dividend income derived from its short-term trading portfolio. The Company’s financial risk profile is characterized by a moderately leveraged capital structure, adequate coverage ratios, and proficient working capital management, all of which underscore its financial acumen and strategic prudence.
The company’s credit ratings are predicated on its ability to fortify business margins, sustain robust cash flows, and uphold financial coverages through unwavering financial discipline. An intensified commitment to the meticulous management of working capital is paramount. Any substantive erosion in margins and/or financial coverages would precipitate an adverse recalibration of the company’s credit ratings

About the Entity
Mehran Sugar Mills Limited is principally engaged in the manufacturing and commercialization of sugar and related by-products. The enterprise boasts a daily sugarcane processing capability of 12,500 metric tons. During the MY23 crushing season, the entity achieved a total sugar output of 85,796 metric tons, reflecting a recovery rate of 10.66%. The Hasham Family holds a predominant ownership stake, accounting for 75% of the shareholding. The governance of the Board is presided over by Mr. M. Kasim Hasham, while the executive leadership is steered by Mr. Ahmed Ebrahim in the capacity of Chief Executive Officer.