The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Maintains Entity Ratings of Popular Sugar Mills Limited

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

Pakistan is the 6th largest country in the world in terms of area under sugarcane cultivation. Sugar industry is Pakistan's 2nd largest agro-based industry comprising ~90 sugar mills with annual crushing capacity estimated between 65 – 70 million tons. During MY19, sugar production totaled to ~5.5mln MT, coming down from ~6.5mln MT in the preceding year. Industry players have been negatively affected by depressed prices owing to a persistent supply glut and substantial carry over stock in the preceding years. Corrective measures implemented by the government in the shape of export quotas in-conjunction with subsidies provided relief by reducing carry over stock. Going forward, industry players are likely to benefit from recovering domestic prices.

The ratings reflect Popular Sugar Mills Limited’s adequate business profile. The Company has depicted stability in margins whilst maintaining a positive trend in revenues during challenging market dynamics. The Company’s profitability is supported through sale of by-products. Although a mismatch in the debt mix persisted, management’s efforts are reflected with improving cushion. Meanwhile, inventory and leveraging increased in Mar '19 at the end of the crushing season maintaining modest coverages.
Ratings are dependent on the Company’s ability to maintain margins while implementing strict working capital discipline. Continued efforts to realign the debt mix are critical for ratings. Any material deterioration in coverages and/or margins will negatively impact ratings.

About the Entity
Popular Sugar Mills Limited is a public limited company. Popular Sugar Mills acquired 100% shareholding of National Sugar Industries Limited in 2013. The Company operates a unit located at Jan Muhammad Wala, near Sargodha, having a crushing capacity of 8,000 tons per day. The Company is engaged in manufacturing and sale of refined sugar and its by-products; molasses and bagasse.

Popular Sugar Mills is a wholly owned company of the Popular Group of Industries (‘Popular Group’). 87% of the shares reside with other Group companies. While, remaining 13% of the stake vests with the individuals of Roshan and Malik family.

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.