The Pakistan Credit Rating Agency Limited
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Silwat Malik

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PACRA Assigns Initial Entity Ratings to SGM Sugar Mills Limited

Rating Type Entity
Action Initial
Long Term BBB-
Short Term A3
Outlook Stable
Rating Watch -

The ratings draw comfort from strong acumen and support of new sponsors and management in the sugar industry. SGM Sugar is located in Sindh with a crushing capacity of 8000TCD and is recently acquired by 'United Group' of Essarani family. The family has long standing experience in agriculture sector and commodity trading including trading in fertilizer and coal, operating a sugar mill (Sindh Abadgar's Sugar Mills Limited) and ethanol distillery. Given the size of mill and steps taken by new management, a turn around in operations is expected. The financial risk profile is characterized as highly leveraged owing to loans obtained to re-profile the existing debt and a thin equity base. The Company's coverages are in a distressed situation for the period. However, planned activity for current crushing season and Sponsors' commitment to provide financial support provides cushion for the Company.

The ratings are dependent upon increasing capacity utilization level and achieving the operational efficiency envisaged by the management. Any further deterioration in margins and/or cashflows will negatively impact the ratings.

About the Entity
SGM Sugar Mills Limited, a public unlisted company, was incorporated in Pakistan on September 11, 2007. It is engaged in manufacturing and sale of crystalline sugar and by-products. The Company operates a production plant located at Wallo Mahar, 17-KM, Jarwar Road, Ghotki, Sindh with a crushing capacity of 8000 Tons per day. Its Head Office is located at 211, 2nd Floor, Progessive Plaza, Beaumont Road, Karachi.

Majority shareholding (66%) lies with the Essarani Family through individuals while remaining (34%) is held by the Mehar Family through individuals. Essarani Family has recently acquired its share in the Company in May' 18 from Dhabi Group and Etihad Group.

Post acquisition in May '18 by Essarani Family, Mr. Deoo Mal Essarani has been appointed as the Chairman of the Company and his son, Mr. Asha Ram has been appointed as the CEO. However, key responsibility for managerial oversight and decision making rests with his another son, Dr. Tara Chand Essarani who is a director on the board.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.