The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Maintains Entity Ratings of Mirpurkhas Sugar Mills Limited

Rating Type Entity
(07-Apr-21 )
(10-Apr-20 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
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. The industry has overcome the oversupply challenge. However, support price, set by considering the cost incurred by farmers, remains a constraint. During MY20, the overall sugar production fell by 6%, YoY, to 4.9mln MT on the back of lower crop availability. Surge in local sugar prices was witnessed due to low inventory levels. Moreover, increased sales tax of 17% (previously 8%) levied on sugar contributed to higher prices. International sugar prices remain attractive, however, exports were prohibited by the Government (previously, allowed sugar export quota was upto 1.1mln MT). In the current crushing season, the Government increased the support price to PKR 200 per maund (crushing season of MY20: PKR 190 per maund). However, actual realized sugarcane price at mill gate was even higher. Lately, the Government has decided to import 0.3mln MT of sugar to curb the increase in sugar prices. Out of which, around 0.15mln MT of sugar has already been imported till Oct-20. However, from the current crushing, overall local sugar production is expected to be ~ 12 to 15% higher than MY20. Margins are expected to remain stable, going forward. The industry players may remain afloat with adequate cash flows in the near-term.
The ratings reflect the Company’s established position in Pakistan’s sugar industry and its association with a leading industrial group – Ghulam Faruque Group. The ratings incorporate diversified revenue sources of the Company emanating from sale of sugar & byproducts and strategic investments in associates, including diversification in Unicol, a leading ethanol producer. This mitigates the impact of volatile nature of sugar industry to an extent and supplements the Company's profitability. Business fundamentals are challenged as high concentration of mills in close vicinity ensues competition for sugarcane procurement leading to relatively higher input costs. Margins, in turn profits have subdued. The Company’s financial profile remains stretched and is characterized by moderately leveraged capital structure and adequate working capital management. Coverages remain stretched. Likely group support, in case need arises, remains key rating factor.
The ratings are dependent on the Company’s ability to improve profitability while strengthening coverage ratios. Prudent management of debt structure and efficient working capital management to eliminate any mismatch is critical. Any further deterioration in business performance and/or financial health will negatively impact ratings.

About the Entity
Mirpurkhas Sugar Mills Limited, incorporated in 1964, is a public limited company, listed on Pakistan Stock Exchange. The Company is part of the Ghulam Faruque Group and is one of the Group's first ventures. The Group holds a notable position in cement, sugar, packaging, ethanol, IT solutions, power and air conditioning among others. Primary business activity of the Company involves manufacturing and sale of sugar, along with its byproducts. The Company has installed crushing capacity of 12,500 TCD with its mill located on Umerkot Road in Mirpurkhas, Sindh.
Major shareholding (~46.4%) of the Company vests with Faruque Family, through associated companies (~46%) and individuals (~0.4%). Remaining shareholding resides with General Public (~26%), NIT (~9%) and Public Sector Companies & Corporations (~6%) and Banks & DFIs (~1%). Mr. Arif Faruque is the Chairman of the Board while, Mr. Aslam Faruque is the Chief Executive Officer of the Company.

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.