Analyst
Faiqa Qamar
faiqa.qamar@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Maintains Entity Ratings of Popular Sugar Mills Limited
Rating Type | Entity | |
Current (05-Apr-23 ) |
Previous (05-Apr-22 ) |
|
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 of 90 mills with an annual crushing capacity estimated at~ 80–90mln MT. Despite overcoming the challenge of raw material supply, the industry is facing a constraint due to the government-set support price for sugarcane. During MY22, the support prices for sugarcane in Punjab were fixed at PKR 230/maund and PKR 250/maund in Sindh. Actual realized prices were even higher. During MY22, the overall sugar production increased by ~9%, YoY, to 7.1mln MT (MY21: 6.5mln MT) due to better crop availability and an increase in area under cultivation. Subsequently, sugar prices witnessed ~12% decrease. During the current crushing season (MY23), loss of area under cultivation of roughly 4.7% amidst flash floods; the forecast of sugar production is affected and is estimated to be ~7mln MT. However, the carryover stock from MY22 and the expected sugar production during MY23 are likely to result in a surplus of local sugar production. Therefore, the Government has allowed exports of 0.25mln MT on the basis of production during MY22. The support prices have been fixed at PKR 300/maund for Punjab and PKR 302/maund for Sindh. Although low sugar prices locally and increased sugarcane prices have prompted many sugar mills to close the crushing early in MY23, sugar exports are expected to be favorable, ensuring liquidity remains intact.
The ratings reflect Popular Sugar Mills Limited's ('Popular Sugar' or 'the Company') adequate business profile. The Company posted a positive trend in revenues along with improved margins. Relatively higher sugar production along with increased prices in the local market resulted in better profits. However, the cane procurement cost remain relatively high. Moreover, the Company’s profitability is supported through the sale of by-products (molasses and bagasse). Financial profile of the Company remains adequate with modestly leveraged capital structure and improved coverages. However, mismatch in the debt mix persisted as the Company increased its reliance on short-term borrowings to fund its working capital needs. The rating incorporates Group support for the Company, if needs be.
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. Meanwhile, strengthening governance framework and internal controls will have a favorable impact on ratings
About
the Entity
Popular Sugar Mills Limited is a public limited company. Popular Sugar acquired 100% shareholding of National Sugar Industries Limited in 2013. The Company operates a unit located at Jan Muhammad Wala, near Sargodha, having a crushing capacity of 8,000 TCD. The Company is engaged in the manufacturing and sale of refined sugar and its by-products; molasses and bagasse. The total sugar production in MY22 stood at ~79,068MT (MY21: 58.050MT) with recovery rate standing at 9.335% (MY21: 9.58%).
Popular Sugar is a wholly owned company of the Popular Group of Industries (‘Popular Group’). Around 87% of the shares reside with other Group companies. While, remaining ~13% stake vests with the individuals of Roshan and Malik family. The Company's Board is chaired by Mr. Imamuddin Shouqeen, whereas, Mr. Shahbaz Ali Malik heads the Company as Managing Director. He is aided by a team of experienced professionals.