The Pakistan Credit Rating Agency Limited
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Silwat Malik

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PACRA Assigns Initial Entity Ratings to United Ethanol Industries Limited

Rating Type Entity
Action Initial
Long Term A-
Short Term A2
Outlook 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 FY18, growing steeply by ~39% owing to increased volumes. Prices fetched in the global market have been fluctuating in the recent past, with a decline observed in FY18. However, impact of subdued international ethanol prices was offset to a certain extent by devaluation of the Pakistani Rupee. Bumper sugarcane production in Pakistan in the past couple of years has 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 resulting molasses availability.

The ratings reflect United Ethanol’s strong business profile and margins in the ethanol industry. Additionally, 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 which are made to its developed clientele comprising of a few key entities. Since being acquired by United Group in 2016, the Company has been able to enhance efficiency through effective BMR implementation, yielding positive results while augmenting profitability and maintaining an upward trend. Meanwhile, the Company’s financial profile is characterized by high leveraging. However, strong coverages and effective working capital management bodes well for the Company.
Ratings are dependent on the management’s ability to effectively maintain margins during foreseen challenges expected to be faced by the ethanol industry. Prudent management of borrowings will be critical for ratings. Any significant increase in debt 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.