PACRA Upgrades Entity Ratings of Noon Sugar Mills Limited
Lahore, September 30, 2020 (PPI-OT): Pakistan’s sugar industry is the 2nd largest agro based industry after textile, comprising ~ 90 mills with annual crushing capacity estimated around 65 – 75 mln MT. It contributes about 0.6% to GDP and 2.9% of total value addition in agriculture. In previous years, the industry was under pressure owing to over supply combined with challenges in the support price mechanism. Additionally, a slowdown in international sugar prices made exports viable only through subsidy support. Government approved an export quota upto 1 MMT, however, no subsidy was announced. Consequently, zero exports were reported in August 2020 (August 2019: ~USD 5mln).
During MY20, sugar production declined by ~9% YoY and clocked in at ~4.8MT (MY19: ~5.27MT), owing to reduction in the area under cultivation and water scarcity. Sugar prices improved in local market as inventory levels reduced. Due to low crop availability in the crushing period ended Mar-20. The Government increased the support price of sugarcane to PKR 190 per maund (previously PKR180). Actual realized sugarcane price at mill gate were higher. Despite increase in costs, higher local sugar prices have improved miller’s profitability.
The ratings reflects Noon Sugar Mills Limited (‘Noon Sugar’ or ‘the Company’) diverse revenue stream, comprising the sale of sugar and allied products, electricity and ethanol. This provides a competitive advantage to the Company and mitigates volatility and industry specific risks. Relatively lower sugarcane availability in MY20 and higher procurement cost has resulted in rising sugar prices in local market and led to better profits from sugar segment.
The Company has displayed significant improvement in margins through support of distillery operations. It underwent capacity enhancement in MY19, expanding its distillery production capacity by 50,000 MT. Raw material supply remained constrained; however, strong demand for ethanol, during Covid-19, led to significant improvement in capacity utilization. Going forward, the Company aims to focus on improving efficiency through BMR.
The financial profile of Noon Sugar remains adequate, characterized by improved working capital management, strong coverages and adequately leveraged capital structure. Sponsors support and strengthening the governance structure provides comfort to ratings. The ratings are dependent on sustaining business margins, while maintaining strong financial risk profile. Any deterioration to topline, margins or cash flows will impact the ratings negatively. Meanwhile, improvement in capital structure will be favourable for the ratings.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,