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The Pakistan Credit Rating Agency Limited

Date
30-Mar-2017
Analysts
Amara Gondal
amara.gondal@pacra.com

Mahina Majid
mahina.majid@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]

Related Research

  • Sector Study | Sugar (Apr 16) [View]
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PACRA Maintains Entity Ratings of Al-Abbas Sugar Mills Limited
 Rating Type Entity
Current
(30-Mar-2017)
Previous
(31-Mar-2016)
 Action Maintain Maintain
 Long Term A A
 Short Term A1 A1
 Outlook Stable Stable
 Rating Watch - -

The ratings recognize significant positioning of Al-Abbas in its core business segments - sugar and ethanol. With better efficiencies in its operations and by diversifying its revenue streams, Al Abbas has been able to fortify its position in the market and cope up with volatility in sugar prices. While sugar is characterized by stable demand supported by fundamentals, ethanol takes benefit of the value addition that it signifies as a product. Although margins are thin in sugar due to structure of domestic industry and softening of commodities in international markets, revenues of ethanol division support profitability. The company has also built a storage terminal at port; this provides stable rental income. The ratings take comfort from the completely deleveraged balance sheet (from long term loans perspective) of the company, providing a strong financial profile. However, working capital requirements during crushing season lead to sizable borrowings. Nevertheless, adequate cashflows and largely stable coverages provide relief to it.

The ratings are dependent on the sustained risk profile of the company. Herein, business volumes and related margins are important. Strategic plan regarding asset build up (expansion and/or diversification) and related leveraging need to be drawn. This may impact the ratings accordingly.
About the Entity
Al-Abbas Sugar Mills limited, listed on the Pakistan Stock Exchange (PSX), was incorporated in May 1991. Haji Ghani Group (HG) through family and associates own majority shareholding (58%) in Al-Abbas and exercise management control. Jahangir Siddiqui (JS) group (27%) is the other major shareholder. There are certain lawsuits between the two groups that are pending adjudication. The business include a) Sugar capacity of 7,500 M. tons per day, b) Ethanol-capacity 172,500 liters per day, and c) Storage tank terminal-capacity of 22,850 M. tons per month.

Al-Abbas BoD, including CEO, comprises nine members. Six members represent HG and associates, two representative of JS group and one independent director. Mr. Shunaid Qureshi, the CEO since inception, played critical role in development of company. However, he is gradually limiting himself to strategic decisions while Mr. Asim Ghani, an executive director and Ghani family member, has an increasing role in operational management. The executives are supported by a core team of dynamic and experienced professionals.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.
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