The Pakistan Credit Rating Agency Limited
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Silwat Malik

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PACRA Assigns Initial Entity Ratings to Mirpurkhas Sugar Mills Limited

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

The sugar industry of Pakistan has been under pressure in recent times. A distortion in the support price mechanism for sugarcane in conjunction with a persistent supply glut has negatively impacted players across the industry. Slowdown in international sugar prices has rendered domestically manufactured sugar uncompetitive, making exports viable only through subsidy support. However, prices have improved in the domestic market and the government, especially provincial governments, have paid the subsidy amount. These factors have eased the liquidity pressure to an extent and have also improved overall profitability.

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 staff add value to the Company’s business profile. As made necessary owing to the volatile nature of the sugar industry, the Company’s profitability is supported through inflows emanating from strategic investments in associates, including diversification in Unicol, a leading ethanol producer. 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 from outside its area, incurring high transport costs. However, going forward, recovery in domestic sugar prices and high stocks available will enhance the Company's profitability. Meanwhile, the Company’s financial profile is stretched and is characterized by weak coverages, extended working capital and an aggressive capital structure.
Ratings are dependent on the Company’s ability to improve profitability while strengthening coverage ratios. Prudent management of debt structure and efficient working capital management to eliminate any mismatch is critical for ratings. 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 their first ventures. The Group holds a notable position in the industries of cement, sugar, packaging, software solution, power, air conditioning and CNG installation, among others. Primary business activity of the Company involves the manufacture and sale of sugar. 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 who collectively own 57% of the Company 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.