Tandlianwala Sugar Mills Limited Maintains Strong Ratings Amid Industry Challenges

Karachi: Tandlianwala Sugar Mills Limited (TSML) has retained its strong credit ratings, with long-term ratings maintained at ‘A’ and short-term ratings at ‘A1’, both with a stable outlook, as affirmed by The Pakistan Credit Rating Agency Limited (PACRA). These ratings highlight TSML’s robust position in Pakistan’s sugar, ethanol, and CO2 sectors, despite the moderate business risks associated with the sugar industry, including seasonal and climatic variations and government-mandated pricing pressures.

According to The Pakistan Credit Rating Agency Limited, TSML’s ratings reflect the company’s ability to navigate the inherently volatile conditions of the sugar industry, driven by fluctuations in sugarcane yields and quality. Despite challenges such as raw material price volatility and the impact of recent floods that reduced cultivation by approximately 4.7%, the industry is expected to produce around 7 million metric tons of sugar in the MY24 season. The government has facilitated industry liquidity by permitting the export of approximately 0.79 million metric tons of surplus sugar.

TSML’s financial profile benefits from a diversified revenue mix, with 70% of revenues from sugar, 29% from ethanol, and 1% from CO2, which mitigates the effects of sectoral cyclicality. However, in the first nine months of MY24, TSML experienced an 8.6% year-over-year decline in topline revenues, primarily due to reduced ethanol exports. Despite this, domestic sugar sales grew by 5%, supported by strong domestic demand and pricing.

The company’s financial stability is underscored by a significant asset base of PKR 46.6 billion and equity of PKR 13.6 billion, though leverage indicators remain elevated due to increased short-term borrowing. TSML’s financial management is highlighted by moderate leverage supporting stability and growth potential, with governance and management seen as critical strengths, anchored by the strategic oversight of the Akhtar family.

The ratings are contingent upon TSML’s continued market leadership, volume sustainability, and margin preservation, along with optimal production capacity utilization and disciplined working capital management. The company’s performance relative to industry peers will remain a crucial factor in determining its creditworthiness amid prevailing economic challenges.

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