PACRA maintains the Entity Ratings of Unicol Limited

The assigned ratings affirm Unicol as an established player in Pakistan’s ethanol industry. A key contributing factor to the ratings is Unicol's affiliation with the three well-established groups, including Ghulam Faruque Group, Amin Bawany Group, and Hasham Group, which hold a prominent presence in the country's sugar and related industries. The Company's strategic expansion into the sugar sector, through the acquisition of M/S Popular Sugar Mills Ltd., demonstrates its commitment to growth and diversification. 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 profile side, Unicol derives its revenue from ethanol (~100% export market) and from sugar (~2% export market and ~82% local market). During MY24, the Unicol topline has reflected a ~27.5% YoY incline primarily due to increased ethanol exports. Profitability metrics showed an eroding performance, as gross margins declined due to the high procurement cost of molasses. Similarly, operating margin also mirrored the same effect and decline resulting from high operating expenses, mainly selling and administration. Meanwhile, net margins were also squeezed as a result of net loss resulting of higher financing expenses in the context of a high-interest-rate environment. On the other side, leverage indicators continue to remain high leveraged on account of the utilization of short-term borrowing predominantly. This financial resilience is further reinforced by weak coverages and challenges in optimizing the management of working capital.
The ratings are dependent on the Company's ability to sustain its margins and healthy coverages while maintaining the necessary cushion and discipline in working capital management.

About the Entity
Unicol Limited ('Unicol' or 'the Company') was incorporated in 2003 as a public unlisted company. Unicol is a joint venture among three public listed sugar mills: Faran Sugar Mills Ltd., Mehran Sugar Mills Ltd., and Mirpurkhas Sugar Mills Ltd., each holding an equal stake of ~33.33%. The Company's Board is chaired by Mr. Asif Qadir. Mr. Aslam Faruque heads the Company as the Chief Executive Officer. He is supported by a team of experienced professionals. The Company's formal operations begun in 2007 and since then its primarily involved in the manufacturing and sale of ethanol and liquid carbon dioxide (LCo2). Furthermore, during the period, Unicol acquired the assets of M/S Popular Sugar Mills Ltd against the consideration amount for PKR 6.5bln for which PKR 5bln was financed through banks. The company's annual capacities include 56,000MT for ethanol, 18,000MT for LCo2, and 8,000 TCD for sugar production.