PACRA Maintains Entity Ratings of Popular Sugar Mills Limited
Pakistan’s sugar industry is the 2nd largest agro based industry after textile, comprising ~ 90 mills with annual crushing capacity estimated around 65 – 75 mln MT. It contributes about 0.6% to GDP and 2.9% of total value addition in agriculture. 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. Government approved an export quota upto 1 MMT, however, no subsidy was announced. Consequently, zero exports were reported in August 2020 (August 2019: ~USD 5mln). During MY20, sugar production declined by ~9% YoY and clocked in at ~4.8MT (MY19: ~5.27MT), owing to reduction in the area under cultivation and water scarcity. Sugar prices improved in local market as inventory levels reduced. Due to low crop availability in the crushing period ended Mar-20. The Government increased the support price of sugarcane to PKR 190 per maund (previously PKR180). Actual realized sugarcane price at mill gate were higher. Despite increase in costs, higher local sugar prices have improved miller's profitability.
The ratings reflect Popular Sugar Mills Limited's ('Popular Sugar' or 'the Company') adequate business profile. The Company posted a positive trend in revenues along with improved margins. Relatively lower sugarcane availability in MY20 and higher procurement cost has resulted in rising sugar prices in local market resulting in better profits. Moreover, the Company’s profitability is supported through sale of by-products. Financial profile of the Company remains adequate with modestly leveraged capital structure and improved coverages. However, mismatch in the debt mix persisted as the Company increased its reliance on short term borrowings to fund its working capital needs. The rating incorporates group support for the entity, if the need arises.
The ratings are dependent upon the Company’s ability to maintain its margins, improve coverage's and rationalize short-term borrowings to avoid asset liability mismatch. Any significant deterioration in margins and/or cashflows will impact the ratings negatively. Meanwhile, strengthening of governance framework and internal controls will be favorable for the ratings.
Popular Sugar Mills Limited is a public limited company. Popular Sugar Mills acquired 100% shareholding of National Sugar Industries Limited in 2013. The Company operates a unit located at Jan Muhammad Wala, near Sargodha, having a crushing capacity of 8,000 tons per day. The Company is engaged in manufacturing and sale of refined sugar and its by-products; molasses and bagasse.
Popular Sugar Mills is a wholly owned company of the Popular Group of Industries (‘Popular Group’). Around 87% of the shares reside with other Group companies. While, remaining 13% of the stake vests with the individuals of Roshan and Malik family