PACRA Assigns Positive Outlook to Sindh Abadgars Sugar Mills Limited

Pakistan’s sugar industry is the country's 2nd largest agro-based industry, comprising 90 mills with an annual crushing capacity estimated ~ 80–90mln MT. The industry has overcome the raw material supply challenges, lately. However, support price of sugarcane, set by the Government considering the cost incurred by farmers, remains a constraint. During MY23, the support prices for sugar-cane in Punjab were fixed at PKR 300/maund and PKR 302/maund in Sindh. Actual realized sugarcane prices at the mill gate were even higher. During MY23, the overall sugar production decreased by ~15%, YoY, to 6.7mln MT (MY22: 7.9mln MT) due to decrease in sugarcane production and an decrease in area under cultivation. Subsequently, sugar prices witnessed ~27.4% increase during MY23 compared to the preceding year. For MY24, estimates show there is likely a reduction of sugarcane production by ~13.7% due to a decrease in sugarcane area by ~5.3% as well as a reduction in the crop yield by ~3.8% as scarcity of water is forecast on the backdrop of a lack of adequate rainfall. Sugar prices are expected to remain elevated for MY24.
The ratings reflect Sindh Abadgars Sugar Mills Ltd.'s ('Sindh Abadgars' or 'the Company') association with an established group in the agriculture and allied chain and demonstrated support from the Sponsors. Sindh Abadgars has a modest business profile and relatively lower margins. The Company generates revenue from the sale of refined sugar and ensuing by-products: molasses and bagasse. The mill, located in Sindh, has a relatively adequate capacity of 8,000 TCD. The company revenue has witnessed a surge in revenue of ~63% mainly due to higher sales volume and PKR devaluation compared to the last year. The networking capital days stood at 54 days (MY22: 89) represents efficient working capital management. The Company achieved a turnaround in MY23, with a gross margin of ~21% (up from 7.5% in MY22) and an operating margin of ~18% (up from 4.2% in MY22), driven by exposure to international landscape. Despite the challenging financial environment, the Company posted a net profit of PKR ~373mln, a substantial increase from the previous year’s loss of 41mln. The net profit margin also improved to 6.7% in MY23 (from -1.1% in MY22). The Company has improved its leverage structure significantly in MY23, reducing its total debt resulting in a lower leveraging ratio of 23%, indicating a stronger financial position. The operations of the Company are strengthened by a management team distinguished for their exceptional experience and skill in navigating the complexities of the sugar industry. The given rating is further supported by the extensive experience of its sponsors in the sugar and agriculture sectors.
The ratings are dependent upon improving margins and strict working capital discipline. The Company’s ability to improve profitability while further strengthening coverage ratios remains critical. Any significant deterioration in business performance and/or financial health will negatively impact ratings.

About the Entity
Sindh Abadgars was incorporated in 1984 as a public listed company and was formerly owned by Effendi Group. The primary business activity of the Company involves manufacturing and sale sugar, along with its by-products. In 2005, Essarani Family acquired the Company. Today, major shareholding of the Company rests with Essarani Family (~79%). The remaining shareholding resides with Islamic Developmental Bank (~9%), insurance companies (~2.4%). Whereas, ~10% stake is held by the general public. Dr. Tara Chand heads the Company as the Chief Executive Officer.