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PACRA Assigns Initial Entity Ratings to United Ethanol Industries Limited

July 1, 2019

Lahore, July 01, 2019 (PPI-OT): Pakistan’s ethanol industry is largely export based owing to meagre domestic consumption. The Country’s ethanol exports stood at USD 392mln in FY18, growing steeply by ~39% owing to increased volumes. Prices fetched in the global market have been fluctuating in the recent past, with a decline observed in FY18. However, impact of subdued international ethanol prices was offset to a certain extent by devaluation of the Pakistani Rupee.

Bumper sugarcane production in Pakistan in the past couple of years has benefited domestic distilleries through cheaper raw material costs, enhancing profitability. Going forward, margins for the industry is expected to come under pressure in light of increased raw material prices on the back of lower sugarcane production and resulting molasses availability.

The ratings reflect United Ethanol’s strong business profile and margins in the ethanol industry. Additionally, the ratings draw strength from the Company’s association with United Group, which has an established presence in the Country’s sugar and allied industry. The Company’s revenue comprises primarily of exports which are made to its developed clientele comprising of a few key entities.

Since being acquired by United Group in 2016, the Company has been able to enhance efficiency through effective BMR implementation, yielding positive results while augmenting profitability and maintaining an upward trend. Meanwhile, the Company’s financial profile is characterized by high leveraging. However, strong coverages and effective working capital management bodes well for the Company.

Ratings are dependent on the management’s ability to effectively maintain margins during foreseen challenges expected to be faced by the ethanol industry. Prudent management of borrowings will be critical for ratings. Any significant increase in debt and/or drag of high advances extended to group concerns, if any, will impact the ratings negatively. Meanwhile, strengthening governance framework remains critical for ratings.

For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425

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