The Pakistan Credit Rating Agency Limited
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Ayesha Malik

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PACRA Maintains Entity Ratings of Jauharabad Sugar Mills Limited

Rating Type Entity
Action Maintain Maintain
Long Term BBB BBB
Short Term A2 A2
Outlook Stable 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 reflects improving business profile of Jauharabad Sugar Mills Limited in line with the current dynamics of sugar industry. During 9MFY19, rise in sugar prices in domestic market led to growth in the Company's revenue. Profit Margins improved significantly on gross and net levels on the back of relatively low conversion costs. Over the years, the sponsors business acumen and support (in the form of loan) have remained beneficial for the Company. The management's consistent attention to improve efficiency is expected bring efficiencies to supplement growth. Going forward, the management plans to diversify the Company’s revenue base by setting up a power plant and a distillery. Jauharabad Sugar Mills financial profile remains stretched and is characterized by modestly leveraged capital structure, largely emanating from working capital needs. The coverage ratios have improved due to strong cash flows despite the rising finance costs.
The ratings are dependent upon the management’s ability to improve its revenue while sustaining strong margins. Meanwhile, close monitoring of working capital requirements remains critical for the ratings. Any deterioration in the Company’s cash flows and coverage would have a negative impact.

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.

Jauharabad Sugar Mills is majorly owned by a Holding Company - Cane Processing (Pvt.) Limited (64%) and individuals of the Latif family. The family has effective shareholding of 86% in the company. The Company has a free float of 10%.

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.