PACRA Maintains Entity Ratings of Hunza Sugar Mills (Pvt.) 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.
Hunza Sugar's rating is a testament to its stable fiscal stewardship and strategic growth initiatives. The company experienced a ~58% surge in revenue to PKR ~34.2 billion in MY23 (21.62 billion in MY22), aligned with industry’s upward trend with an average recovery rate of ~9.75% from both plants. Rising cane cost has resulted in increasing sugar prices in the domestic market during MY23. As a result, the Company attained substantial profits from the sugar segment. Likewise, the Company also gained from the escalating ethanol prices, globally. Hunza Sugar's revenue streams are propelled by sugar sales and ethanol exports. The firm's gross profit is recorded at PKR ~6.2 billion (3.7 billion in MY22), corresponding to an ~18% gross margin. Despite the escalation in finance costs associated with KIBOR, the net income ascended to PKR ~1.2 billion (656 million in MY22), reflecting a ~4% net margin (3% in MY22). Amidst the economic tribulations and volatility of the sugar market in Pakistan, the company's export paradigm remains resilient. From a financial perspective, Hunza Sugar has exhibited commendable enhancements in working capital management. The optimization of short-term borrowings and cash flows has streamlined operations, although the borrowing buffer has experienced a marked constriction due to navigation of short-term borrowing into capital expansions. The leverage ratio of the company stood at ~63.4% in MY23, with short-term borrowings constituting 81% of the total debt. The profitability of Hunza Sugar has been buoyed by elevated sugar and ethanol prices, ensuring the sustenance of stable margins amidst market oscillations.
The credit ratings encapsulate the Company's adeptness in maintaining formidable profit margins, fortifying coverage ratios, and refining the management of short-term liabilities to address any incongruities in asset-liability alignment. The ratings are susceptible to negative implications in case of material erosion in margins and/or cash flows, and reliance on short-term financial instruments for long-horizon growth initiatives.

About the Entity
Hunza Sugar Mills (Pvt.) Limited, is a private limited company, incorporated in 2002. Hunza Sugar manufactures refined sugar, molasses, ethanol and other allied products. Hunza Sugar has two sugar crushing units in District Faisalabad (Unit 1) and District Jhang (Unit 2) with a crushing capacity of 15,000 TCD and 15,000 TCD, respectively. Distillery has a production capacity of 125,000 liters per day. The shareholding is vested with the families of three brothers Mr. Idrees Chaudhury (33%), Mr. Saeed Chaudhry (33%), and Mr. Waheed Chaudhry (33%). Mr. Idress Chaudhry is the Chairman of the Hunza Group of Industries while Mr. Saeed Chaudhry is the CEO of Hunza Sugar.