Karachi, June 30, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Shahmurad Sugar Mills Limited (SSML) 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 April 02, 2020.
The assigned ratings take into account satisfactory operating track record, extensive experience of sponsors in the sugar sector, and diversified operations. 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 reported lower during HY21 due to lower volumetric sales of both sugar and ethanol, partially offset by higher selling prices. Profit margins decreased on account of lower sucrose recovery and higher sugarcane and molasses prices. The ratings are constrained by declining trend in sugar production levels on a timeline basis owing to sugarcane availability issues in Sindh. Limited availability of molasses also poses a challenge for the distillery division which is the major source of income.
The company’s cash flows has depicted a declining trend over the review period. The company’s debt repayment capacity remains adequate. With stable equity base and higher short-term borrowings, gearing and debt leverage was recorded higher by end-HY21. With scheduled repayments of long-term debt and lower short-term borrowings, gearing levels are projected to decline by end-FY21. 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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