PACRA Maintains Entity Ratings of Sargodha Jute Mills Limited

The ratings reflect Sargodha Jute Mills Limited’s (“the Company” or “SJML”) established position within Pakistan’s jute industry, underpinned by its significant market share and a legacy spanning more than four decades. The Company’s principal operations focus on the production and sale of jute products, including sacking bags, hessian cloth, hessian bags, yarn, and twines. Pakistan's jute industry depends entirely on imported raw materials, sourcing 100% of its supply from Bangladesh due to the superior quality and cost-efficiency of Bangladeshi jute. Recently, raw jute prices in Bangladesh have surged, primarily driven by heightened demand from India, which has escalated production costs and increased global market competition. As a result, SJML experienced a notable dip in its export segment during FY24. The top line of the Company has recorded a decline of ~36.4% YoY in FY24, primarily attributable to a significant decrease in demand for jute bags from the government, its key customer, driven by reduced wheat procurement during the year. This decline follows the previous year’s substantial government procurement of jute bags to store imported wheat, which resulted in a surplus of jute bags currently available in the market. During the year, the Company effectively passed on a significant portion of the cost escalation to its customers and improved its profitability margins compared to the previous year. To mitigate the impact on its topline, management implemented cost-effective strategies and transitioned to renewable energy resources through the installation of 2.2 MW solar system, resulting in margin improvement in future. Going forward, the Company remains committed to driving cost efficiencies while actively exploring downstream products beyond jute bags, as well as innovative offerings, to strengthen its position and competitiveness in the export market. The ownership and board structure are primarily composed of members from the sponsoring family, all of whom bring substantial expertise and deep industry-specific experience. The financial risk profile of the Company is deemed adequate, supported by comfortable coverages, adequate cashflows, and a stretched working capital cycle. Capital structure remains low-leveraged, where borrowings are comprised of only short term to meet their working capital needs owing to the seasonal nature of the business.
The ratings are dependent on the firm’s ability to maintain its market position in the face of challenging industry dynamics. Meanwhile, better financial profile through effective working capital management and robust coverages will remain critical. Further enhancing the governance framework for better oversight of strategic affairs is also essential.

About the Entity
Sargodha Jute Mills Limited, established in 1981, operates as an unquoted public limited company in Pakistan. The majority ownership of ~75% is held by Mr. Parvez Aslam and his family, including his two sons, Mr. Imran Aslam (Chairman) and Mr. Irfan Aslam (CEO), each holding a 28.32% stake. The Company’s shares of ~24.94% are owned by its associated entity, Shahzad Textile Mills Limited. Beginning operations in 1984 with an annual production capacity of 5,000 metric tons (MT), the Company has progressively expanded its capacity to around 30,500 MT over the years.