Karachi, June 30, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Al-Noor Sugar Mills Limited (ASML) at ‘A-/A-2’ (Single A Minus/Single A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely repayment, sound liquidity factors and good company’s fundamentals. Outlook on the assigned ratings is stable. Previous ratings action was announced on March 30, 2020.
The assigned ratings take into account satisfactory operating track record, extensive experience of sponsors in the sugar sector, diversified operations and some improvement in financial profile in MY20 and in the ongoing year. The risk profile of sugar sector is considered high given inherent cyclicality in the crop levels and raw material prices. While narrow demand and supply dynamics may lead to high sugar prices, risk of government intervention to control prices is expected to remain intact. Meanwhile, the ratings have taken into consideration the confirmation by the management that no action/inquiries are pending against the company with regards to follow up actions on the ‘Inquiry Committee constituted by the Prime Minister of Pakistan regarding increase in sugar prices.’
Revenue of the company was impacted by decrease in sugar division sales due to lower dispatches with higher selling price, partially offset by increase in medium density fiber board (MDFB) sales during HY21. Despite increase in sugarcane procurement price, profit margins improved on account of higher sucrose recovery rate, increase in selling prices for both sugar and MDFB as well as lower finance cost due to reduction in interest rates.
Debt repayment capacity was supported by increase in funds from operations, as reflected by higher debt service coverage ratio during HY21 though there is room for further improvement. Gearing and debt leverage was recorded higher at end-HY21 due to seasonality factor. With sale of inventory, leverage indicators are expected to decrease from the current levels by end-MY21, though are expected to remain relatively high. Ratings remain dependent on the cyclicality of sugarcane production and prices along with maintenance of threshold financial indicators.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
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