PACRA Maintains Entity Ratings of Sindh Abadgars Sugar Mills Limited

Pakistan’s sugar industry is the country's 2nd largest agro-based industry, comprising 90 mills with an annual crushing capacity estimated ~ 65–70mln MT. The industry has overcome the raw material supply challenges. However, support price of sugarcane, set by considering the cost incurred by farmers, remains a constraint. During MY21, the overall sugar production increased by 15%, YoY, to 5.7mln MT (MY20: 4.9mln MT) due to better crop availability and an increase in area under cultivation. In the ongoing crushing season (MY22), total sugar production is expected above ~6mln MT. In FY21's budget, the Government proposed to levy 17% GST on market retail price instead of PKR 60/kg, after Nov-21. For MY22, the Government has increased the support price of sugarcane to PKR 250 per maund (previously, it was increased to PKR 200 from PKR 190 per maund). Actual realized sugarcane prices at the mill gate were even higher. To curb the hike in sugar prices, the Government planned to import 0.8mln MT of sugar. Out of this, 0.3mln MT was imported till Jun-21, whereas, 0.3mln MT was imported till Nov-21. Going forward, despite higher input costs, higher sugar prices are expected to remain favorable for millers.
The ratings reflect Sindh Abadgars Sugar Mills Ltd.'s ('Sindh Abadgars' or 'the Company') association with an established group in the Agri and allied chain and demonstrated support from the Sponsors. Sindh Abadgars has a modest business profile and relatively lower margins. The Company generates revenue from the sale of refined sugar and ensuing by-products: molasses and bagasse. The mill, located in Sindh, has a relatively adequate capacity of 8,000 TCD. Better crop availability, despite a lower recovery rate, led to increased production. However, high concentration of mills in adjoining areas led to a surge in sugarcane cost, and created a challenge for the Company. The Company has sufficient inventory levels to reap benefits from inflated sugar prices in the future. This is expected to bode well for the Company's profitability. Lack of diversification exposes the Company to inherent volatility in the sugar industry. Financial risk profile of the Company is characterized by a high working capital cycle, dominated by increased inventory levels, and significant short-term borrowings to finance working capital requirements. Coverages and leverage remain adequate. Continued group support, in case need arises, remains key rating factor.
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 a Chief Executive Officer.