PACRA Assigns Initial Entity Ratings to Tandlianwala Sugar Mills Limited

Pakistan’s sugar industry is the country's 2nd largest agro-based industry, comprising of 90 mills with an annual crushing capacity estimated at ~80–90mln MT. The industry is facing constraint due to government set support price for the sugarcane. During MY23, the support price for sugarcane in KPK and Punjab is fixed at 400/maund, and for Sindh, it is PKR 425/maund. During MY22, the overall sugar production increased by ~39%, YoY, to 7.9mln MT (MY21: 5.7mln MT) due to better crop availability and an increase in area under cultivation. Subsequently, sugar prices witnessed ~10% increase MoM on account of inflationary pressure. During the current crushing season MY23, loss of area under cultivation of ~4.7% amidst flash floods; the forecast of sugar production is affected and is est. to be ~6.5mln MT. However, the carryover stock from MY22 and the expected sugar production during MY23 are likely to result in a slight surplus stock of sugar. Therefore, the Government had allowed exports of 0.25mln MT on the basis of production during MY22. Sugar exports are expected to be favorable for the industry, ensuring liquidity.
The assigned ratings incorporate TSML market position as one of the leading player in the country’s sugar industry. Business risk profile of the company bolstered by a diversified revenue stream from sugar, ethanol, and CO2 gas sales, having a capacity for sugar production and distillery of 48,500 TCD and 265,000 liters per day, respectively. At MY23, The total revenue of the Company stood at PKR ~43bln, major constituent of which was sugar's local sales of PKR ~32bln and export sales of PKR ~1.6bln. Revenue from export of ethanol was PKR ~13.7bln. The given rating is further supported by the extensive experience of its sponsors in the sugar and agriculture sectors. The operations of the Company are strengthened by a management team distinguished for their exceptional experience and skill in navigating the complexities of the sugar industry. TSML maintains enduring relationships with growers, underpinned by a dedicated focus on sugarcane research and development initiatives. This provides competitive advantage to the Company mitigating volatility and industry specific risks. Better availability of sugarcane led to stable sugar production. Rising sugar prices, in local market, and slight decrease in ethanol prices, in international market, sustained decent margin and benefitted the Company's bottom-line. CO2 plant provide an additional cushion to cashflows. Going forward, high sugar stock is expected to benefit the Company in terms of export potential and higher prices may drive better margins for the Company. Ratings draws strength from the Company’s adequate financial profile represented by a moderately leveraged capital structure and efficient management of working capital.
The ratings remain dependent on upholding company's market position along with sustenance of business volumes, margins and achieving optimal utilization of production capacities while maintaining necessary cushion and discipline in working capital management. The company's performance as compared to other players in current stretched economic scenario- challenges on demand front - remains vital for ratings.

About the Entity
Tandlianwala Sugar Mills Limited commenced operations in Nov-92. The company is engaged in the manufacturing and sale of Refined Sugar, Ethanol, and CO2. The company is majorly owned by Akhtar Family. The overall control of the company vests in seven-member Board of Directors (BoD), including the CEO. The installed capacities are | Sugar - crushing at 48,500 TCD | Distillery to produce 265,000 liters of EPD | CO2. TSML plants are located at Faisalabad, DIK and Muzaffargarh, Punjab.