Tandlianwala, Tandlianwala Sugar Mills Limited (TSML), a key player in Pakistan's sugar industry, has been assigned initial entity ratings by The Pakistan Credit Rating Agency Limited (PACRA). These ratings reflect the company's market position in the country's second-largest agro-based industry, which faces challenges due to government-set support prices and environmental factors.
According to The Pakistan Credit Rating Agency Limited, Pakistan's sugar industry comprises 90 mills with an annual crushing capacity of approximately 80 to 90 million metric tons. The industry is currently constrained by government-set support prices for sugarcane, with prices fixed at PKR 400 per maund in KPK and Punjab, and PKR 425 per maund in Sindh for the marketing year 2023 (MY23). Despite these challenges, the overall sugar production increased by approximately 39% year-on-year to 7.9 million metric tons in MY22, primarily due to better crop availability and an increase in area under cultivation. However, the current crushing season has been impacted by a loss of approximately 4.7% in area under cultivation due to flash floods, leading to an estimated sugar production of around 6.5 million metric tons in MY23. The slight surplus stock of sugar resulting from carryover stock from MY22 and expected production in MY23 has led the government to allow exports of 0.25 million metric tons based on MY22 production, which is anticipated to be favorable for the industry's liquidity.
TSML's ratings are bolstered by its diversified revenue streams from sugar, ethanol, and CO2 gas sales, with capacities for sugar production and distillery at 48,500 TCD and 265,000 liters per day, respectively. The total revenue of the company in MY23 was approximately PKR 43 billion, with major contributions from local sugar sales of around PKR 32 billion and export sales of PKR 1.6 billion. Export revenue from ethanol amounted to PKR 13.7 billion. The ratings are further supported by the extensive experience of the company's sponsors in the sugar and agriculture sectors. TSML's operations are enhanced by a management team recognized for their expertise in the sugar industry. The company's enduring relationships with growers and focus on sugarcane research and development provide a competitive advantage, mitigating industry-specific risks. The stable sugar production, combined with rising sugar prices in the local market and a slight decrease in ethanol prices in the international market, have contributed positively to the company's margins and bottom line. The CO2 plant provides an additional cushion to cash flows. Looking ahead, high sugar stock is expected to benefit the company in terms of export potential and higher prices may drive better margins.
The ratings remain dependent on TSML's ability to uphold its market position and sustain business volumes and margins, while achieving optimal utilization of production capacities. Effective management of working capital and the company's performance in comparison to other players in the current economic scenario, particularly regarding demand challenges, are crucial for the ratings.
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