The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Upgrades Entity Ratings of Jauharabad Sugar Mills Limited

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

Pakistan’s sugar industry is the 2nd largest agro based industry, comprising 90 mills with annual crushing capacity estimated around 65 – 70mln MT. In previous years, the industry was under pressure owing to over supply combined with challenges in the support price mechanism. Additionally, a slowdown in international sugar prices made exports viable only through subsidy support. During MY20, the overall sugar production fell by 6%, YoY, to 4.9 mln MT on the back of lower crop availability. Surge in local sugar prices was witnessed due to low inventory levels. Moreover, in FY20's budget, sales tax levied on sugar was increased to 17% (previously 8%,) charged on the price of PKR 60/KG, contributed to higher prices. In the current crushing season, the Government increased the support price of sugarcane to PKR 200 per maund (previously, it was increased to PKR 190 from PKR 180 per maund). Actual realized sugarcane price at mill gate were even higher. Lately, the Government has decided to import 0.3mln MT of sugar. Out of this, 0.15mln MT has already been imported, till Oct-20, to meet the local demand and curb the hike in local sugar prices. However, local sugar prices are expected remain high. Despite increase in costs, higher local sugar prices are expected to improve miller's profitability.

The ratings reflect an improving business profile of Jauharabad Sugar Mills Limited in line with the current dynamics of sugar industry. Relatively lower sugarcane availability in MY20 and higher procurement cost has resulted in rising sugar prices in local market leading to improved revenues. The Company has displayed improvement in margins on the back of relatively low conversion costs. Over the years, the sponsors business acumen and support (in the form of loan) have remained beneficial for the Company. The management's consistent attention to improve efficiencies through BMR. The financial profile of Jauharabad Sugar remains adequate, characterized by improved working capital management, adequate coverages and modestly leveraged capital structure.
The ratings are dependent upon the management’s ability to sustain business margins, while improving the financial risk profile. Any significant deterioration in the Company’s margins and/or coverages would have a negative impact.

About the Entity
Jauharabad Sugar Mills Limited is a public limited company, listed on Pakistan Stock Exchange since 1973. The Company was acquired from Saigol Group in Oct-13 by Cane Processing (Pvt.) Limited. The Company’s operational crushing unit, having sugarcane crushing capacity of 7,000 tons per day, is located in Jauharabad, Khushab District. The Company’s registered office is situated in Kot Lakhpat, Lahore. The Company is engaged in the manufacturing and sale of refined sugar and its by-products; molasses and bagasse.

Jauharabad Sugar Mills is majorly owned by a Holding Company - Cane Processing (Pvt.) Limited (64%) - and individuals of Latif family (10%). The family has effective shareholding of ~74%, while the Company has a free float of more than 23%.

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.