9th February 2025, Kathmandu
Eastern Sugar Mills, backed by Golcha and Vishal Groups, is in financial trouble and has decided to take a loan of NPR 1.17 billion.
Eastern Sugar Mills Loan
This move comes after the company faced serious financial challenges, prompting them to secure funding to stabilize its operations.
Loan Ratings Assigned by ICRA Nepal
ICRA Nepal has rated the company’s loans. The long-term loan received an ICRA NP AL+ rating, while the short-term loan was assigned an ICRA NP A4 rating. The company’s weak financial condition, including significant accumulated losses, negative net worth (excluding revaluation reserves), and high debt, contributed to these low ratings.
Declining Sugar Extraction Rate
In recent years, Eastern Sugar Mills has seen a drop in its sugar extraction rate. For the 2023 season, the sugar extraction rate was just 8.80%, lower than in 2021 and 2022. While rising sugar prices have helped somewhat, the company’s ability to maintain profits and meet debt obligations in the long term remains uncertain.
Dependence on Sugar Sales
The company heavily relies on sugar sales, with 89% of its revenue coming from sugar production. Operating a single mill without any integrated distillery or co-generation facility, the company faces difficulties in diversifying its operations. Additionally, global sugar price fluctuations, rising sugarcane prices, and import duties on sugar pose long-term challenges.
Risks to Future Operations
Agricultural risks, such as fluctuations in sugarcane supply and sugar production, continue to impact the company. The seasonal nature of the sugar industry also complicates cash flow, operations, and working capital, which could make it difficult for Eastern Sugar Mills to maintain financial stability.
Revenue Growth, But Limited Profitability
Eastern Sugar Mills has seen an increase in its revenue, from NPR 553 million in 2021 to NPR 1,405 million in 2024. Despite this growth, there has been no significant improvement in its financial stability. The company struggled to maintain positive profitability, with a negative Operating Profit Margin (OPIBDTIA) of -2% in 2021. While this margin improved to 15% in 2024, the company still faces challenges in ensuring long-term profitability.
Debt Levels Remain High
The company’s debt-to-equity ratio is concerning, with ratios ranging from -1.7 in 2021 to -2.9 in 2024, indicating the company’s debt exceeds its assets. The ratio of total liabilities to net worth worsened from -1.9 in 2021 to -3.3 in 2024, signaling poor debt management.
Interest Coverage Ratio Still Low
The company’s interest coverage ratio was -0.2 in 2021, improving to 0.5 in 2023. However, this remains insufficient for covering debt obligations. The Debt Service Coverage Ratio (DSCR) also showed little improvement, reaching only 0.3 in 2023.
About Eastern Sugar Mills
Established in 1994 and operational since 1996, Eastern Sugar Mills operates in Amahebehala, Sunsari with a daily sugarcane crushing capacity of 2,500 tons. Despite facing financial challenges, the company remains a key player in Nepal’s sugar industry. However, its future depends on improving its financial health and operational efficiency.
For more: Eastern Sugar Mills Loan