The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of Mirpurkhas Sugar Mills Limited

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

Pakistan’s sugar industry is the 2nd largest agro based industry, comprising 90 mills with annual crushing capacity estimated around 65 – 75 mln MT. In previous years, the industry was under pressure owing to a supply glut combined with a distortion in the support price mechanism. Additionally, a slowdown in international sugar prices made exports viable only through subsidy support. During MY19, the overall sugar production fell by 16%, YoY, to 5.5 mln MT on the back of lower crop availability. Sugar prices improved in local market as inventory levels reduced. The Government approved an export quota upto 1 MMT, however, no subsidy was announced, leading to low quantities availed. In the FY20 budget, sales tax levied on sugar was increased to 17% from 8%, charged on the price of PKR 60/KG, contributing to higher prices. Due to low crop availability in the crushing period ended Mar-20, sugar production is expected to be around 5-5.2 mln MT. The Government increased the support price of sugarcane to PKR 190 per maund (previously PKR180). Actual realized sugarcane price at mill gate were even higher. Despite increase in costs, higher local sugar prices are expected to improve miller's profitability. Local prices are expected to be capped due to lower international prices (making imports viable) and potential intervention by the Government.

The ratings reflect the Company’s established position in Pakistan’s sugar industry and its association with a leading industrial group – Ghulam Faruque Group. The ratings incorporate diversified revenue sources of the Company emanating from sale of sugar and related products and strategic investments in associates, including diversification in Unicol, a leading ethanol producer. This mitigates the impact of volatile nature of the sugar industry to an extent and supplements the Company's profitability. Business fundamentals are challenged as high concentration of mills in close vicinity ensues competition for sugarcane procurement leading to relatively higher input costs. High domestic sugar prices have significantly improved Company's profitability. Meanwhile, the Company’s financial profile remains stretched and is characterized by moderately leveraged capital structure and adequate working capital management. Coverages remain stretched. Likely group support, in case need arises, remains key rating factor.
The ratings are dependent on the Company’s ability to sustain profitability while further strengthening coverage ratios. Prudent management of debt structure and efficient working capital management to eliminate any mismatch is critical. Any significant deterioration in business performance and/or financial health will negatively impact 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 with the General Public (~22%), NIT (~9%), Public Sector Companies & Corporations (~10%) and Banks & DFIs (~1%). Mr. Arif Faruque acts as the Chairman of the Board while Mr. Aslam Faruque is 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.