PACRA Maintains Entity Ratings of Jauharabad Sugar Mills Limited

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, which is determined based on the cost incurred by farmers. During MY22, the support prices for sugar-cane in Punjab were fixed at PKR 230/maund and PKR 250/maund in Sindh. Actual realized sugarcane prices at the mill gate 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 carry-over 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 0.5mln 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 for the industry, ensuring liquidity remains intact.
The ratings reflect an improved business profile of Jauharabad Sugar Mills Limited ('Jauharabad Sugar' or 'the Company) in line with the current dynamics of sugar industry. Relatively better sugarcane availability in MY22 resulted in higher sugar production. Despite high procurement costs, rising sugar prices improved the Company's topline. Business margins, in turn profitability remains intact. Going forward, sugar exports is expected to strengthen the Company's performance, hence boasts the bottom-line. The Sponsors' business acumen and support (in the form of loan) remains beneficial for the Company. The management pays continuous attention to enhance efficiencies through BMR. Financial profile of Jauharabad Sugar is strong and remains stable, over the years. Its characterized by stability in the working capital management, coverages and capital structure.
The ratings are dependent upon the management’s ability to sustain business margins, while improving the financial risk profile. Creating diversity in the revenue stream will enhance the Company's profitability. Any significant deterioration in the Company’s margins and/or coverages would have a negative impact on the ratings.

About the Entity
Jauharabad Sugar Mills Limited is a public limited company, listed on Pakistan Stock Exchange since 1973. The Company was acquired from Saigol Group in Oct-13 by Cane Processing (Pvt.) Limited. The Company’s operational crushing unit, having sugarcane crushing capacity of 7,000 tons per day, is located in Jauharabad, Khushab District. The Company’s registered office is situated in Kot Lakhpat, Lahore. The Company is engaged in the manufacturing and sale of refined sugar and its by-products; molasses and bagasse.
The Company is majorly owned by a Holding Company - Cane Processing (Pvt.) Limited (~64%) - and individuals of Latif family (~9%). While the Company has a free float of ~23%. The Company's Board is Chaired by Mr. M. Aamir Beg.