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The Pakistan Credit Rating Agency Limited

Date
30-Sep-2017
Analyst
Mahina Majid
mahina.majid@pacra.com

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

  • Corporate Rating Methodology (Jul 17) [View]
  • Correlation between long-term and short-term rating scale (Jun 17) [View]

Related Research

  • Sector Study | Sugar (Mar 17) [View]
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PACRA Maintains Entity Ratings of Al-Abbas Sugar Mills Limited
 Rating Type Entity
Current
(30-Sep-2017)
Previous
(30-Mar-2017)
 Action Maintain Maintain
 Long Term A A
 Short Term A1 A1
 Outlook Stable Stable
 Rating Watch - -

The ratings of Al-Abbas Sugar Mills Ltd (Al-Abbas) emanates from fortified position in its respective lines of business. The company drives its strength from diversified revenue streams – sugar, ethanol and storage terminals – enabling it to cope up with the sugar price volatility. While sugar is characterized by stable demand supported by fundamentals, ethanol takes benefit of the value addition that it signifies as a product. Until recently, sugar prices have remained depressed for an extended period of time on account of surplus availability of the commodity, thus the sugar margins remained thin. Meanwhile, better margins of ethanol division and stable income from storage terminals continues to boost the bottom-line. The de-leveraged balance sheet (from long term loans perspective) has kept the financial profile strong; hence, benefiting the ratings. Although extended working capital requirements keep’s borrowings at high end, ample cash flows stabilizes the coverages. Going forward, the management would continue to exploit better margins from distillery operations, while sugar segment’s profitability remains dependent upon local demand supply scenario and Government off-led action to avoid any glut in the local market. Herein, finalization of subsidy on export from Government would ease up the inventory levels.

The ratings are dependent on the business volumes and related margins. Strategic plan regarding asset build up (expansion and/or diversification) and related leveraging plan needs to be drawn. This may impact the ratings accordingly. Resolution of shareholders’ dispute, though lately it has diluted significantly, remains integral to the growth of the company.
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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