PACRA Upgrades Entity Ratings of SGM Sugar Mills Limited

The rating upgrade of SGM Sugar Mills Limited (“SGM” or “the Company”) is primarily underpinned by a significant strengthening of the Company’s profitability profile and enhanced earnings stability during MY25. The upgrade reflects the company’s strengthened margins, enhanced profitability, and a robust improvement in key debt coverage indicators. The assigned ratings continue to factor in SGM’s established position within the domestic sugar industry and its strong strategic linkage with the Deoomal (DM) United Group. The Group's diversified presence across the sugar value chain—including Sindh Abadgars Sugar Mills, United Ethanol Industries, Ranipur Sugar Mills, and Agro Trade—provides SGM with significant operational synergies and financial flexibility. Since its incorporation in 2007, SGM has evolved into a resilient entity under the stewardship of the Essarani family (holding ~77% stake). The Company operates a crushing plant in Ghotki, Sindh, with a capacity of 14,000 TCD. During the MY25 season, the Company produced 93,745 tons of sugar with a recovery rate of 9.22%. Operational efficiency has been further bolstered by the effective monetization of by-products (molasses and bagasse), which provide a critical cushion against the inherent cyclicality of the sugar sector.
On the financial side, SGM has undergone a positive transformation in MY25, characterized by a robust increase in earnings and a notable strengthening of its risk profile. The Company recorded a substantial surge in net profit to PKR 552 million (MY24: PKR 145 million), driving a significant expansion in net margins to ~4.4% from a thin ~1.0% in the preceding year. This recovery was bolstered by disciplined working capital management and a more favorable interest rate environment, which contributed to a reduction in finance costs. Liquidity remains a key strength, with Free Cash Flows from Operations (FCFO) reaching ~PKR 1,756 million, providing ample headroom to meet short-term obligations and sustain operational flexibility. Furthermore, the capital structure improved as leverage declined to ~30.1% (MY24: ~36.7%), supported by a growing equity base of ~PKR 5.61 billion. This deleveraging, coupled with a strengthened debt-servicing capacity, underscores the Company’s heightened ability to withstand industry cyclicality and potential liquidity pressures.
The Company’s credit standings are contingent upon its ability to maintain profit margins, sustain strong cash flows, and uphold financial safeguards through consistent financial discipline. Continued emphasis on the prudent management of working capital remains critical to sustaining liquidity and operational flexibility. Any significant deterioration in profitability, cash flow generation, or financial safeguards will be translated into the ratings.

About the Entity
SGM Sugar Mills Limited, a public unlisted company incorporated in September 2007, is engaged in the manufacture and sale of crystalline sugar and by-products. The Company operates a 14,000 TCD production facility at Wallo Mahar, Ghotki, Sindh. The Essarani family holds a 77% controlling stake, acquired in May 2018 from the Dhabi and Etihad Groups, while the Mehar family retains 23%. Governance is led by Mr. Deo Mal Essarani as Chairman and Mr. Asha Ram Essarani as CEO, with strategic and executive management primarily overseen by Dr. Tara Chand Essarani.