Lahore, March 22, 2021 (PPI-OT): Pakistan’s ethanol industry is largely export based owing to lower domestic usage. The Country’s ethanol exports stood at USD 392mln in MY20, growing steeply by ~39%. Fluctuating yet inclining trend was witnessed in the global ethanol prices owing to spike in ethanol demand due to Covid-19 and closure of businesses worldwide. Devaluation of the Pakistani Rupee benefitted the industry players. The main raw material, molasses – a by-product in the sugarcane crushing process, accounts for approximately 80% of total cost of production. Average recovery rate of molasses (~4%) depends on the yield and quality of sugarcane crop.
The average recovery rate of ethanol from molasses is around 19%. As sugarcane production has witnessed a declining trend during MY20 and the ongoing crushing season, cost of molasses experienced a significant incline. This has offset the impact of rise in ethanol prices, leading the domestic distilleries to post stable profits. Going forward, the industry’s margins are expected to remain stable. Moreover, the industry players are expected to remain afloat with adequate cash flows and liquidity in the near-term.
The ratings reflect Unicol Limited’s strong business profile emanating from robust margins and export oriented nature of ethanol industry. Additionally, the ratings draw strength from the Company’s association with three strong business Groups: Ghulam Faruque Group, Amin Bawany Group and Hasham Group. The Company has a developed clientele in export market. Over time, Unicol has been able to enhance efficiency through consistently investing in BMR. This has yielded positive results while augmenting profitability and maintaining an upward trend. The Company has a moderately leveraged capital structure supplemented by strong coverages and healthy working capital cycle, which keeps financial risk moderate.
The ratings are dependent on the Company’s ability to sustain its margins and healthy coverages while maintaining necessary cushion and discipline in working capital management. Amicably sustaining the relationship among shareholders remain crucial for the ratings. Significant deterioration in coverages will have a negative impact on ratings.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
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