The Pakistan Credit Rating Agency Limited
17-Oct-19
Analyst
Ayesha Malik
ayesha.malik@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
- Methodology | Corporate Ratings | Jun-19
- Methodology | Correlation Between Long-Term And Short-Term Rating Scale | Jun-19
- Criteria | Rating Modifier | Jun-19
Related Research
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PACRA Assigns Initial Entity Ratings to Chanar Sugar Mills Limited
| Rating Type | Entity | |
|
Current (17-Oct-19 ) |
||
| Action | Initial | |
| Long Term | BBB- | |
| Short Term | A3 | |
| Outlook | Stable | |
| Rating Watch | - | |
The sugar industry of Pakistan has remained under pressure in recent times. A persistent supply glut negatively impacted players across the industry. Additionally, slowdown in international sugar prices rendered domestically manufactured sugar uncompetitive, making exports viable only through subsidy support. However, prices during the current season (MY19) have improved owing to lower sugar production and depletion of carryover stock. This has impacted profitability for industry players positively. Moreover, retirement of subsidy amount due by the government has eased the liquidity pressure to an extent.
The ratings reflect modest business profile of Chanar Sugar Mills Limited with relatively small crushing capacity of 4,800 tons per day. The sponsors have sound understanding of the business and have been proactive in improving efficiencies. The Company has been able improve profitability, albeit moderate, over the years. However, it remains exposed to inherent cyclical nature of the sugar industry as it lacks diversification in revenues. The Company has developed a leveraged capital structure. Financials needs mainly emanates from prolonged working capital cycle. The Company has long term loans to finance BMR and group projects. The may put stress on existing cashfolws as coverages remain adequate.
The ratings are dependent upon the management’s ability to improve revenues while sustaining the margins and, in turn profitability. Meanwhile, close monitoring of working capital requirements remain critical for the ratings. Timely completion of expansion plan is important. Any deterioration in the Company’s cashflows and/or coverages would have a negative impact on the ratings.
About
the Entity
Chanar Sugar was incorporated as a public limited company in 1990. Primary business activity of the Company involves manufacturing and sale of sugar and its by-products molasses, bagasse and mud. The Company’s crushing unit, having sugarcane crushing capacity of 4,800 tons per day, is located in Tandianwala, Faisalabad District. While, the registered office is situated in Muslim Town, Lahore.
Chanar Sugar’s ownership resides with the sponsors, the Kayani Family, through individual family members. The Company and its Board is headed by Mr. Javed Ahmad Kayani.