Press Release

VIS Reaffirms Entity Ratings of Adam Sugar Mills Limited (ASML)

Karachi, June 12, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Adam Sugar Mills Limited (ASML) at ‘A-/A-2’ (Single A Minus/A-Two). The medium to long-term rating of ‘A-’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are sound. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on May 17, 2022.

ASML is a public listed company, principally engaged in manufacturing and sale of sugar and by-products with operating history of nearly six decades. During MY22, ASML reported higher crushing capacity of 16,000 tpd on account of revision in installed capacity on the basis of inspection report. Sugar output in 2022-23 is expected to reduce owing to adverse impact on sugarcane crop due to floods. However, due to surplus sugar stocks available in the country, the Government has allowed 250,000 MT of sugar exports in the ongoing year. Resultantly, sugar prices have exhibited a rising trend lately. Meanwhile, the ratings do incorporate inherent cyclicality in crop levels and price vulnerability in sugar sector leading to competitive challenges for the company. The ratings also take note of developments with regards to penalties imposed by Competition Commission of Pakistan (CCP) on certain sugar mills. The operation of the said order has been suspended and CCP has been restrained from recovering the penalty imposed in terms of an order of the LHC dated October 2021 followed an interim stay order for the same by the Commission Appellate Tribunal. VIS will continue to monitor further development in this matter.

During MY22, net revenues posted a growth of ~88% on account of higher volumetric sugar sales. Average selling prices of sugar, on the other hand, were lower by ~18.9% owing to excess sugar stocks available in the country and intervention of Govt. to control sugar prices. Gross margins weakened primarily as a result of higher average procurement prices while the selling prices remained relatively depressed. Despite strong growth in revenues, bottomline remained subdued on account of increase in tax charge, finance cost and higher operating expenses in the outgoing year. Liquidity position of the company has remained adequate in terms of cash flows in relation to outstanding obligations.

During 1H23, net sales remained largely muted vis-à-vis SPLY while gross margins declined further amid suppressed sugar prices. This, along with higher financial charges have squeezed net margins. Meanwhile, the company is carrying sizable sugar inventory and, in full year, profitability profile is expected to improve largely on the back of higher average sugar prices. The leverage indicators are also expected to recede by the end of the marketing year in line with lifting of majority of the stocks. The current sector outlook is viewed positively by industry players amid lower sugar production in the ongoing year and sizable price differential between imported sugar vis-à-vis local retail prices. Nonetheless, the ratings remain sensitive to realizing projected growth in revenues and profitability along with maintaining liquidity and capitalization indicators at comfortable level.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-13 (Ext. 8005) and/or the undersigned at 021-35311861-66 (Ext. 207) or email at info@vis.com.pk.

Sara Ahmed
Director

Applicable Rating Criteria: Industrial Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Rating scale (2023)
https://docs.vis.com.pk/docs/VISRatingScales.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .