Hunza Sugar Mills (Pvt.) Limited

CREDIT RATING REPORT | Mar-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
14-Mar-25 BBB+ A2 Stable Maintain -
15-Mar-24 BBB+ A2 Stable Maintain -
16-Mar-23 BBB+ A2 Stable Maintain -
16-Mar-22 BBB+ A2 Stable Upgrade -
03-Sep-21 BBB A2 Positive Maintain -
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.

Rating Rationale

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.

Key Rating Drivers

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.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Hunza Sugar Mills (Pvt.) Limited

rating analysis

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Profile
Legal Structure

Hunza Sugar Mills (Pvt.) Limited (Hunza Sugar or the Company) is a private limited Company. It was incorporated in 2002.


Background

Hunza Sugar is part of the Hunza group. The flagship company of the group was Hunza Ghee Mills (Pvt) Limited in the edible oil sector and it dates back to 1988. The company hasa diverse revenue stream. It manufactures refined sugar, molasses, ethanol, and other allied products. The company installed its distillery and CO2 processing plant in MY14 and MY18, respectively.


Operations

The Company is involved in manufacturing and selling of multiple sugarcane related products and operates in two different locations in District Jhang and District Faisalabad. It’s engaged in the businesses of a) Sugar, b) Ethanol and c) Other allied products. 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.


Ownership
Ownership Structure

The Company is a family-owned entity. Shares of the Company are divided among the families of three brother Mr. Idrees Chaudhry, Mr. Saeed Chaudhry, and Mr. Waheed Chaudhry.  Mr. Idrees Chaudhary family owns 31% shares, Mr. Saeed Chaudhary family owns 32% shares, and Mr. Waheed Chaudhary owns 37% shares.


Stability

Ownership of the Company seems stable as majority shareholding vests with the sponsoring family.


Business Acumen

Hunza Group initially started with Hunza Ghee Industries (Pvt.) Limited in the Edible Oil sector in 1988. The Company produces vegetable ghee and cooking oil that sells under the brand ‘Swera Ghee’ and ‘Swera Cooking Oil'.


Financial Strength

Hunza Sugar Mills (HSML) derives significant financial stability from the diversified Hunza Group, which spans food processing, agro-processing, trading, and oil & ghee sector. This diversification mitigates risk, enhancing financial resilience by reducing dependence on single-industry performance. The group's integrated operations and strong market presence provide HSML with improved capital access and operational efficiencies. Strategic resource allocation within the group further supports HSML's growth and expansion.


Governance
Board Structure

BoD, including the CEO, comprises three members. All three are family members and hold shares of Hunza group (except Swera (Pvt) Ltd.). There are no independent members on the board. The BoD has no committees in place.


Members’ Profile

Mr. Idrees Chaudhary, the eldest brother, is the Chairman of Board of Directors. He serves as an adviser to the management. Mr. Waheed Chaudhary looks after the external relations of the Company. All the Board members have more than 35 years of overall experience and more than 23 years of experience in sugar industry.


Board Effectiveness

BoD meetings are conducted to discuss important matters related to business approve minutes. However, minutes of the meetings are restricted to formal approvals required for regulatory purposes. Discussions regarding business aspects are not documented in the minutes.


Financial Transparency

The auditors of the Company are Amin, Mudassar & Co, opinion for MY24 has not been issued yet. The auditors have satisfactory QCR rating and also listed in SBP panel in category B.


Management
Organizational Structure

The Company is headed by a CEO who is supported by Senior General Manager and Manager Finance & Accounts at the Head office. On each Site, the company has GM projects with a team of production and technical staff including a head responsible for cane purchase and accounts personnel dealing with operational matters. Overall, each site has member of the family/shareholder present at site for monitoring of operations day to day operations. The company receives IT support at group level.


Management Team

Mr. Saeed, CEO of the company is the youngest brother and is CEO of Group companies (except Swera (Pvt) Ltd.). He has 23 years of experience in the Sugar Industry and over 35 years of experience in the Edible Oil Sector.


Effectiveness

Monthly management accounts, Accounts receivable and payable balance and financial matters are presented to the CEO for review and discussions.


MIS

Hunza Sugar, having previously relied on an in-house ERP system, successfully transitioned to Microsoft Dynamics 365 ERP. This strategic move involved integrating processes across the supply chain, finance, accounts, tax, production, sales, and distribution. Additionally, they conducted comprehensive user training and implemented HR development initiatives. As a result, this transformation significantly impacted their operational efficiency and enhanced the reliability of their processes.


Control Environment

Monthly management accounts, Accounts receivable and payable balance and financial matters are presented to the CEO for review and discussions. Additionally, the organization's internal audit function is executed with complete independence by a QCR- rated firm, A.H.W & Co, which assigns dedicated teams to oversee both the head office and the site locations, thereby promoting a culture of transparency, accountability and strict adherence to established protocols.


Business Risk
Industry Dynamics

Pakistan's sugar industry, a significant contributor to the national economy, faces persistent challenges stemming from government-regulated sugarcane support prices. During MY24, sugar production was recorded by  6.7million MT, primarily due to the lower procurement of sugarcane resulting from increased cost and reduced recovery rate. To manage the surplus inventory, the Government permitted the export of 0.5 million MT of sugar, offering some relief to the industry.


Relative Position

Hunza Sugar contributed approximately 2% making it one of the leading sugar mills in Punjab region.


Revenues

Company mainly generates its revenue from sugar and ethanol. Also, the revenue includes sales of mud, bagasse and CO2. During MY24 revenue of the Company stood at PKR 29bln (MY23: PKR 34bln). Sugar division posted a dip in revenue and stood of PKR 19bln during MY24 (MY23: PKR 28bln) due to unavailability of the sugarcane. The Ethanol segment also posted a dip in revenues and stood at PKR 8bln during MY24 (MY23: PKR 9bln). This is due to the decrease in global prices of ethanol. Also the local sales of ethanol decreased that led to this dip in the revenue.


Margins

The company's MY24 financial results paint a stark picture of deteriorating creditworthiness, highlighted by a 12% sales growth reduction, a precipitous drop in gross profit margin from 18% to 8%, and a dramatic plunge in operating profit margin to 3%. Most concerning is the shift to a -9% net profit margin, driven by escalating finance costs, indicating a severe strain on debt servicing capabilities. This confluence of factors—revenue decline, margin compression, and heightened financial leverage—signals a substantial weakening of the company's financial profile, raising serious concerns about liquidity, solvency, and the potential for default, necessitating immediate and decisive management action to avert further credit deterioration.


Sustainability

Being an export sector with minimal imports tends to bode well for the Company as the economic situation has favored exports and constrained imports into Pakistan. However, the Company is exposed to volatility and ensuing challenges in the sugar sector. 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.


Financial Risk
Working capital

Working capital represents the net resources available to a company for managing short-term obligations and supporting operational requirements. Current assets, including inventory days, play a critical role in determining working capital needs. Hunza Sugar faces an inherent stress in its working capital cycle due to seasonality in the sugar industry. Hunza Sugar manages its working capital requirement through short-term borrowings and internal cashflows. The company's working capital cycle exhibited a notable deterioration in MY24, indicating potential strains on operational efficiency and liquidity. Average inventory days increased to 50 from 45, suggesting slower inventory turnover and potentially elevated holding costs. Trade receivable days expanded significantly to 52 from 37, implying a delay in customer collections and a potential increase in credit risk. Consequently, gross working capital days extended to 78 from 57, reflecting a longer cash conversion cycle. Concurrently, trade payable days rose to 21 from 8, indicating a potential extension of payment terms to suppliers, which, while temporarily preserving cash, could strain supplier relationships. The overall effect of these changes is reflected in the increased net working capital days, rising to 57 from 49. This lengthening of the working capital cycle suggests a reduced capacity to efficiently convert operating activities into cash, posing a potential risk to short-term liquidity and financial flexibility.


Coverages

A critical analysis of the company's debt coverage ratios reveals a substantial deterioration in its capacity to service debt obligations, significantly impacting its perceived financial stability and creditworthiness. The surge in finance costs from PKR 2.7 billion in MY23 to PKR 4.8 billion in MY24 has precipitated a sharp decline in FCFO coverage, reducing it from 1.7x to 0.5x. This indicates a significantly diminished ability to cover finance costs with operating cash flows. Furthermore, total coverage, which assesses the capacity to meet all fixed charges, also deteriorated, falling from 0.5x to 0.2x, further highlighting the company's increased financial vulnerability. These diminished coverage ratios underscore the escalating financial risk associated with the company's rising debt burden and necessitate immediate strategic interventions to enhance cash flow generation and address the burgeoning finance costs.


Capitalization

The company's capitalization ratio analysis reveals a concerningly high leverage of 80%, driven by a substantial increase in total debt to PKR 17 billion, with 80% of that debt concentrated in short-term borrowings. This heavy reliance on short-term debt exposes the company to significant rollover and liquidity risks, while the overall high leverage amplifies interest rate and solvency concerns, significantly reducing financial flexibility and demanding immediate action to restructure debt and mitigate the elevated financial risk profile.
 
 

Mar-25

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Hunza Sugar Mills (Pvt.) Limited

financial summary

(PKR mln)

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Sep-24
12M		 Sep-23
12M		 Sep-22
12M
Management Audited Audited
A. BALANCE SHEET
1. Non-Current Assets 10,107 9,992 7,533
2. Investments 64 64 66
3. Related Party Exposure 3,264 5,485 2,525
4. Current Assets 14,521 7,960 10,999
a. Inventories 6,980 2,501 5,974
b. Trade Receivables 2,414 832 1,304
5. Total Assets 27,957 23,501 21,123
6. Current Liabilities 5,471 2,983 1,560
a. Trade Payables 2,328 1,135 400
7. Borrowings 17,253 12,074 12,342
8. Related Party Exposure 647 831 780
9. Non-Current Liabilities 108 159 194
10. Net Assets 4,477 7,455 6,248
11. Shareholders' Equity 4,477 7,455 6,248
B. INCOME STATEMENT
1. Sales 29,785 34,142 21,654
a. Cost of Good Sold (27,176) (27,953) (17,936)
2. Gross Profit 2,609 6,189 3,718
a. Operating Expenses (1,657) (1,473) (955)
3. Operating Profit 952 4,716 2,763
a. Non Operating Income or (Expense) 1,657 (301) (780)
4. Profit or (Loss) before Interest and Tax 2,609 4,415 1,982
a. Total Finance Cost (4,817) (2,799) (1,113)
b. Taxation (361) (408) (254)
6. Net Income Or (Loss) (2,569) 1,208 615
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 2,126 4,754 2,463
b. Net Cash from Operating Activities before Working Capital Changes (2,068) 2,234 1,691
c. Changes in Working Capital (1,991) 786 (5,617)
1. Net Cash provided by Operating Activities (4,059) 3,020 (3,926)
2. Net Cash (Used in) or Available From Investing Activities (1,067) (2,985) (2,087)
3. Net Cash (Used in) or Available From Financing Activities 4,989 (413) 6,300
4. Net Cash generated or (Used) during the period (138) (378) 287
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -12.8% 57.7% 7.4%
b. Gross Profit Margin 8.8% 18.1% 17.2%
c. Net Profit Margin -8.6% 3.5% 2.8%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 0.5% 16.2% -14.6%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] -43.1% 17.6% 10.4%
2. Working Capital Management
a. Gross Working Capital (Average Days) 78 57 95
b. Net Working Capital (Average Days) 57 49 90
c. Current Ratio (Current Assets / Current Liabilities) 2.7 2.7 7.1
3. Coverages
a. EBITDA / Finance Cost 0.5 1.8 2.6
b. FCFO / Finance Cost+CMLTB+Excess STB 0.2 0.5 0.8
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) -3.6 3.9 2.6
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 80.0% 63.4% 67.7%
b. Interest or Markup Payable (Days) 102.5 73.8 156.5
c. Entity Average Borrowing Rate 23.2% 17.5% 9.0%

Mar-25

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Hunza Sugar Mills (Pvt.) Limited

rating scale

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Mar-25

www.pacra.com

Hunza Sugar Mills (Pvt.) Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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Mar-25

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