The Pakistan Credit Rating Agency Limited
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Bakhtawar Abid

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PACRA Maintains Entity Ratings of United Ethanol Industries Limited

Rating Type Entity
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan’s ethanol industry is largely export based owing to meager domestic consumption. The Country’s ethanol exports stood at USD 392mln in MY19, growing steeply by ~39% due to increased volumes. Prices in the global market have been fluctuating recently, with a decline observed in MY18. However, impact of subdued international ethanol prices was offset to a certain extent by devaluation of the Pakistani Rupee. Bumper sugarcane production in Pakistan during MY17 and MY18 of years benefited domestic distilleries through cheaper raw material costs, enhancing profitability. Going forward, margins for the industry is expected to come under pressure in light of increased raw material prices on the back of lower sugarcane production and high prices of molasses.

The ratings reflect United Ethanol’s strong business profile emanating from robust margins and export oriented nature of ethanol industry and grew, mainly due to rupee devaluation. Strong margins at gross and operating level resulted in augmented profitability. The ratings draw strength from the Company’s association with United Group, which has an established presence in the Country’s sugar and allied industry. The Company’s revenue comprises primarily of exports. Since being acquired by United Group in 2016, the Company has been able to enhance efficiency through effective BMR implementation, yielding positive results. The company has a leveraged capital structure supplemented by strong coverages and effective working capital management. This keeps financial risk manageable.
Ratings are dependent on the management’s ability to effectively maintain margins during foreseen challenges expected to be faced by the ethanol industry. Prudent debt and liquidity management is critical for ratings. Any significant increase in debt, deterioration in coverages and/or drag of high advances extended to group concerns, if any, will impact the ratings negatively. Meanwhile, strengthening governance framework remains critical for ratings.

About the Entity
United Ethanol Industries Limited (the Company) is a public unlisted company. Primary business activity of the Company involves manufacturing and sale of food and industrial grade ethanol. The Company was incorporated in October, 2003, and was formerly owned by Etihad Group. The Essarani Family acquired the Company in September, 2016. Major shareholding of the Company rests with Essarani Family, through Mr. Deoo Mal Essarani (24%) and his four sons – Mr. Asha Ram (29%), Dr. Tara Chand (24%), Mahesh Kumar (22%) and Mr. Jugdesh Kumar (1%).

The Company is headed by Dr. Tara Chand, the Chief Executive Officer. He is ably supported by Mr. Ishfaque Ahmed Nizamani (GM Factory) and Mr. Syed Abid Hussain (Group CFO).

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.