PACRA Maintains Entity Ratings of Sindh Abadgars Sugar Mills Limited

The assigned ratings affirm Sindh Abadgars Sugar Mills Ltd. ('Sindh Abadgars' or 'the Company') as an established player in Pakistan’s sugar industry. A key contributing factor to the ratings is Sindh Abadgars’ affiliation with the well-established United Group, which holds a prominent presence in the country's sugar and related industries. The group also reflects adequate market share in sugar industry stemming from the support of sugar mills (SGM Sugar Mills and Sindh Abadgar Sugar Mills). The market risk the Company may face includes fluctuations in sugarcane yields and quality, influenced by agronomic conditions and cyclical variations in crop production. Additionally, raw material price volatility further accentuates operational uncertainty, necessitating adept supply chain, and cost management. This, in turn, impacts profit margins, leading to net losses. Due to the surplus stocks, the government has allowed the sugar millers to export ~0.79 million MT, ensuring liquidity relief for the industry. With the government's shift to deregulated pricing of sugarcane, the cost of goods sold is expected to decline moving forward, as prices are determined by market forces rather than fixed regulations. This transition to a market-driven pricing model will likely lead to more competitive pricing, encouraging efficiency and cost reduction across industries. However, this shift may introduce risks that could discourage farmers from cultivating sugarcane. On the financial profile side, Sindh Abadgar derives its revenue from sugar (~96% local market and ~4% export market). During MY24, the Company’s topline has reflected a slight incline of ~4% YoY, primarily due to increased sugar prices despite a decline in sales volume. Sugar exports also provided a cushion in sustaining the growth. Profitability metrics showed an eroding performance, as gross margins declined due to high procurement cost of sugarcane. Similarly, the operating margin also mirrored the same effect and decline resulting from high operating expenses. Meanwhile, net margins were also compressed as a result of a net loss driven by increased financing expenses in the context of a high-interest-rate environment. On the other side, leverage indicators continue to remain moderate on account of the utilization of short-term borrowing. Governance and management continue to be critical strengths for the Company. Anchored by the Essarani family’s strategic oversight, the leadership team leverages decades of expertise to steer the Company through evolving industry dynamics.
The ratings are dependent upon improving margins and strict working capital discipline. The Company’s ability to improve profitability while further strengthening coverage ratios remains critical. Any significant deterioration in business performance and/or financial health will negatively impact ratings.

About the Entity
Sindh Abadgars was incorporated in 1984 as a public listed company and was formerly owned by Effendi Group. The primary business activity of the Company involves manufacturing and sale sugar, along with its by-products. In 2005, Essarani Family acquired the Company. Today, major shareholding of the Company rests with Essarani Family (~79%). The remaining shareholding resides with Islamic Developmental Bank (~9%), insurance companies (~2.4%). Whereas, ~10% stake is held by the general public. Dr. Tara Chand heads the Company as the Chief Executive Officer.