The Pakistan Credit Rating Agency Limited
Press Release


Mustafa Hassan

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PACRA Maintains Entity Ratings of SGM Sugar Mills Limited

Rating Type Entity
Action Maintain Initial
Long Term BBB- BBB-
Short Term A3 A3
Outlook Stable Stable
Rating Watch - -

The ratings draw comfort from strong acumen and support of new sponsors and management in the sugar industry. SGM Sugar has its mill located in Sindh with a crushing capacity of 8000TCD. The Company has recently been acquired by 'United Group' of Essarani family. The family has long standing experience in agriculture sector and commodity trading including trading in fertilizer and coal, operating a sugar mill (Sindh Abadgar's Sugar Mills Limited) and ethanol distillery (United Ethanol Limited). Given the size of mill and steps taken by new management, a turnaround in operations is expected. The Company did not engage in sales during 1QMY19 in expectation of better prices in the near future. The financial risk profile is characterized by highly leveraging, owing to loans obtained for debt re-profiling of the existing structure, with a thin equity base. The Company's coverages are in a distressed situation for the period. However, planned activity for current crushing season and Sponsors' commitment to provide financial support provides cushion for the Company.
The ratings are dependent upon increasing capacity utilization and achieving operational efficiency envisaged by the management. Any further deterioration in margins and/or cashflows will negatively impact the ratings.

About the Entity
SGM Sugar Mills Limited, a public unlisted company and was incorporated in Pakistan on September 11, 2007. It is engaged in the manufacturing and sale of crystalline sugar and ensuing by-products. The Company operates a production plant located at Wallo Mahar, 17-KM, Jarwar Road, Ghotki, Sindh with a crushing capacity of 8,000 Tons per day. Its Head Office is located at 211, 2nd Floor, Progessive Plaza, Beaumont Road, Karachi.

Majority shareholding (66%) lies with the Essarani Family while remaining (34%) is held by the Mehar Family. Essarani Family has recently acquired its share in the Company during May' 18 from Dhabi Group and Etihad Group.

Post-acquisition, Mr. Deoo Mal Essarani has been appointed as the Chairman of the Company and his son, Mr. Asha Ram has been appointed as the CEO. However, key responsibility for managerial oversight and decision-making rests, Dr. Tara Chand Essarani who is a director on the board and is Mr. Asha Ram’s brother.

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.