Lahore, November 15, 2018 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B-Plus/A-Two) to Chashma Sugar Mills Limited (CSML). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality with reasonable protection factors. Moreover, the risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamental and liquidity factors. Outlook on the assigned ratings is ‘Stable’.
The ratings assigned to CSML take into account its association with The Premier Group having business interests in sugar, high grade polypropylene, tableware and distribution of consumer goods and pharmaceuticals. The ratings draw comfort from sizeable scale of operations and revenue diversification through forward integration in ethanol business providing an adequate cushion in withstanding the impact of cyclicality of sugar sector. However, the ratings remained constrained on account of heightened financial risk owing to increased leverage indicators and weakening of debt coverages.
Despite slight increase in the volumetric sales of sugar, net sales of the company remained largely stagnant during FY17 owing to decline average selling price of sugar. Revenue contribution from ethanol unit has exhibited improvement on a timeline basis. With the proportion of ethanol sale comprising one-fourth of the total revenue mix, the gross margins showcased improvement during 9M18 despite ongoing slump in the retail prices of sugar. Higher margins, streamlining of finance cost, increase in other income and lower incidence of taxation led to improvement in profitability during 9M18.
The equity base of the company has steadily strengthened on the back of profit retention. The growth in debt levels during 9M18 is cyclical in nature, mainly pertaining to higher short-term borrowings arranged primarily to finance stock inventory and to finance sugarcane procurement. Given higher short-term borrowings carried on the balance sheet, gearing and leverage indicators have witnessed an increasing trend on a timeline basis. The ratings are dependent on projected improvement in gearing and debt coverage, going forward.
For more information, contact:
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk