PACRA maintains Entity Ratings of Hunza Sugar Mills (Pvt.) Limited

The ratings of Hunza Sugar Mills (Pvt.) Limited ("HSML" or "the Company") is a testament to its stable fiscal stewardship and strategic growth initiatives. The Company is an established player in Pakistan’s ethanol and sugar industry, coupled with the export-driven dynamics inherent to the ethanol industry. The company's ratings are underpinned by the robust foundation of the Hunza Group and the experienced leadership of its management team. 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. Global ethanol prices have remained demoted, driven by economic uncertainties on a global scale, which ultimately stress the profitability matrix. The effect of falling international ethanol prices was further exacerbated by the dollar exchange rate. The Company also faced economic and operational challenges, including the complexities arising from the contrast between market-driven sugarcane prices and government-regulated rates. With the government's shift to the 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 front, HSML recorded a 12% decline in revenue, primarily driven by reduced sales volume. The company's revenue composition remains largely derived from sugar (~67%), followed by ethanol (~27%) and by-products (~6%). Profitability was further impacted by deteriorating margins, as gross profit margins declined due to the rising cost of sugarcane. Additionally, elevated finance costs contributed to a net loss, resulting in a ~8.6% reduction in net margins. During the first quarter of MY25, the deregulation of the minimum support price (MSP) for sugarcane facilitated margin stabilization, enabling the company to retain its net profit recording at PKR 365 million. The ratings are further strengthened by the strategic expansion of the Company. HSML is proceeding with the merger of Hunza Steel Mills into Hunza Sugar Mills Unit I, thereby establishing Hunza Sugar Mills as the holding entity. This consolidation is projected to enhance financial resilience and improve operational efficiencies. However, increased reliance on borrowings to meet working capital requirements has substantially elevated HSML's leverage, exposing the company to amplified vulnerability to fluctuations in sugarcane input costs and market price volatility. Sponsors support comfort the ratings.
The credit ratings encapsulate the Company's adeptness in maintaining formidable profit margins, fortifying coverage ratios, and refining the management of short-term liabilities to address any incongruities in asset-liability alignment.

About the Entity
Hunza Sugar Mills (Pvt.) Limited, is a private limited company, incorporated in 2002. Hunza Sugar manufactures refined sugar, molasses, ethanol and other allied products. Hunza Sugar has two sugar crushing units in District Faisalabad (Unit 1) and District Jhang (Unit 2) with a crushing capacity of 15,000 TCD and 15,000 TCD, respectively. Distillery has a production capacity of 125,000 liters per day. The shareholding is vested with the families of three brothers Mr. Idrees Chaudhury (31%), Mr. Saeed Chaudhry (32%), and Mr. Waheed Chaudhry (37%). Mr. Saeed Chaudhry is the CEO of Hunza Sugar.