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The Pakistan Credit Rating Agency Limited
Press Release

Date
22-Oct-19

Analyst
Ayesha Malik
ayesha.malik@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Mirpurkhas Sugar Mills Limited

Rating Type Entity
Current
(22-Oct-19)
Previous
(28-Jun-19)
Action Maintain Initial
Long Term A- A-
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 reflect the Company’s established position in Pakistan’s sugar industry and its association with a leading industrial group – Ghulam Faruque Group. Experienced and qualified management team adds value to the Company’s business profile. The Company’s profitability is supported by inflows emanating from strategic investments in associates, and diversification in ethanol, through Unicol, a leading ethanol producer. This provides cushion against the sugar industry volatility. Nonetheless, dependence on investment income remains high. Business fundamentals are challenged as high concentration of mills in close vicinity forces the Company to procure raw materials relatively higher prices. Recovery in domestic sugar prices has enhanced the Company’s profitability recently. Meanwhile, the Company’s financial profile continues to remain stretched and is characterized by weak coverages, extended working capital and an aggressively capital structure.
The ratings are dependent on continued group support and the Company’s ability to improve cashflows while strengthening coverage ratios. Prudent management of debt structure and efficient working capital management to eliminate mismatch is critical for ratings. Any significant deterioration in business performance and/or financial health will negatively impact the ratings.

About the Entity
Mirpurkhas Sugar Mills Limited, incorporated in 1964, is a public limited company, listed on Pakistan Stock Exchange Limited. The Company is part of the Ghulam Faruque Group and is one of the Group's first ventures. The Group holds a notable position in cement, sugar, packaging, software solution, power, air conditioning and CNG installation sectors, among others. Primary business activity of the Company involves manufacturing and sale of sugar, along with byproducts. The Company has installed crushing capacity of 12,500 TCD with its mill located on Umerkot Road in Mirpurkhas, Sindh. Additionally, it is involved in corporate farming on an area of 1,700 acres.

Major shareholding of the Company is attributable to Faruque Family that collectively owns 57%, through associated companies (~52%) and individuals (~5%). Remaining shareholding is attributable to the General Public (~22%), NIT (~9%), Public Sector Companies & Corporations (~10%) and Banks & DFIs (~1%). Mr. Shehryar Faruque acts as the Chairman of the Board with Mr. Aslam Faruque acting as the Chief Executive Officer of the Company.

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.