The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Assigns Initial Entity Ratings to Unicol Limited

Rating Type Entity
(19-Mar-21 )
Action Initial
Long Term A
Short Term A1
Outlook Stable
Rating Watch -

Pakistan’s ethanol industry is largely export based owing to lower domestic usage. The Country’s ethanol exports stood at USD 392mln in MY20, growing steeply by ~39%. Fluctuating yet inclining trend was witnessed in the global ethanol prices owing to spike in ethanol demand due to Covid-19 and closure of businesses worldwide. Devaluation of the Pakistani Rupee benefitted the industry players. The main raw material, molasses – a by-product in the sugarcane crushing process, accounts for approximately 80% of total cost of production. Average recovery rate of molasses (~4%) depends on the yield and quality of sugarcane crop. The average recovery rate of ethanol from molasses is around 19%. As sugarcane production has witnessed a declining trend during MY20 and the ongoing crushing season, cost of molasses experienced a significant incline. This has offset the impact of rise in ethanol prices, leading the domestic distilleries to post stable profits. Going forward, the industry's margins are expected to remain stable. Moreover, the industry players are expected to remain afloat with adequate cash flows and liquidity in the near-term.
The ratings reflect Unicol Limited's strong business profile emanating from robust margins and export oriented nature of ethanol industry. Additionally, the ratings draw strength from the Company’s association with three strong business Groups: Ghulam Faruque Group, Amin Bawany Group and Hasham Group. The Company has a developed clientele in export market. Over time, Unicol has been able to enhance efficiency through consistently investing in BMR. This has yielded positive results while augmenting profitability and maintaining an upward trend. The Company has a moderately leveraged capital structure supplemented by strong coverages and healthy working capital cycle, which keeps financial risk moderate.
The ratings are dependent on the Company's ability to sustain its margins and healthy coverages while maintaining necessary cushion and discipline in working capital management. Amicably sustaining the relationship among shareholders remain crucial for the ratings. Significant deterioration in coverages will have a negative impact on ratings.

About the Entity
Unicol Limited (the Company) is a public unlisted company. Primary business activity of the Company involves manufacturing and sale of ethanol and liquid carbon dioxide. The Company was incorporated in 2003, however formally began operations in 2007. The Company has an installed capacity to produce 56,000MT of ethanol per annum, with a utilization level of 74% during MY20. While, liquid carbon dioxide is produced at an installed capacity of 18,000MT per annum, with utilization level of 39% during MY20.

Unicol Limited is a joint venture among three sugar mills, Faran Sugar Mills Ltd., Mehran Sugar Mills Ltd. and Mirpurkhas Sugar Mills Ltd., each holding an equal stake of ~33.33%. All the companies in JV agreement are listed on Pakistan Stock Exchange. The sponsoring companies are parts of three established business Groups: Ghulam Faruque Group - has an established presence in cement, packaging, sugar, construction related segments and renewable energy, Amin Bawany Group - having stable footings in sugar and consumer goods segments and Hasham Group - has progressed in the sugar segment. The Company's Board is chaired by Mr. Asif Qadir. Mr. Aslam Faruque heads the Company as its Chief Executive Officer. He is supported by a team of experienced professionals.

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.