Press Release
VIS Reaffirms Entity Ratings of Adam Sugar Mills Limited
Karachi, May 7, 2025: VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Adam Sugar Mills Limited (‘ASML’ or ‘the Company’) at 'A-/A2' (‘Single A -/A Two’). Medium to long term rating of 'A-' indicates good credit quality; Protection factors are adequate. Risk factors may vary with possible changes in the economy. Short-term rating of 'A2' suggests good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings is ‘Stable’. Previous ratings action was announced on May 21, 2024.
Adam Sugar Mills Limited (‘’ASML’’ or ‘’the Company’’) was incorporated in Pakistan on Oct, 1965 in the name of Bahawalnagar Sugar Mills Limited as a public limited company under the Companies’ act, 1913 (repealed with Companies Ordinance, 1984 and subsequently Companies Act, 2017). In 1985, name of the Company was changed to Adam Sugar Mills Limited. ASML is principally engaged in manufacturing and sale of sugar and by-products with operating track record of nearly six decades. The mills started with initial capacity of 1,500 TCD, which was gradually increased to 16,000 TCD. Major shareholding of the Company is vested with the Adam family while members of the family are actively involved in management and supervision of operations. Headquartered in Karachi, ASML has the production unit located at District Bahawalnagar, Punjab.
Assigned ratings incorporate the business risk profile of Pakistan’s sugar sector, shaped by seasonal and cyclical production patterns, procurement competition, regulatory interventions, and exposure to price and interest rate risks. The concentrated harvesting period necessitates year-round sugar stock maintenance, exposing mills to price volatility and inventory carrying costs. Constraints in crop yields and sucrose recovery persist due to limited mechanization, research, and weather sensitivity. The perishable nature of sugarcane leads to mill clustering near cane growing areas, increasing procurement competition and raw material costs. While supply-side remains sensitive to pricing, demand-side risk is moderate to low due to essential nature of the commodity. Profitability remains susceptible to price fluctuations driven by stock levels, harvesting trends, supply side manipulation, and policy decisions. Regulatory controls, including external trade restrictions, impact pricing and inventory management. Discontinuation of government-mandated minimum support pricing for sugarcane from the 2024-25 season may affect supply dynamics going forward. While procurement costs, pricing, and policy risks persist, sector stability is underpinned by sustained demand on the back of growing population and rising bulk consumption. The sector’s regulatory environment, particularly government intervention in trade policies, will continue to influence the business risk.
Assigned ratings also take into account ASML’s financial risk profile. Revenue growth was driven by higher sales volume and an upward trend in sugar prices. However, margins remained under pressure due to elevated raw material costs and volatility in selling prices. Gross margins declined in 1QMY25 due to lower domestic prices, impacting overall profitability. Operating margins improved, supported by controlled operating expenses and lower export-related costs. Finance costs increased as higher short-term borrowings were required to finance inventory buildup, leading to an increase in leverage. Liquidity remained constrained due to an extended cash conversion cycle, while debt servicing capacity experienced some pressure. In 1QMY25, lower short-term borrowings resulted in an improvement in gearing and leverage indicators. Future cash flow generation will remain dependent on inventory management, price trends in sugar as well as sugarcane, and the Company's ability to optimize financing costs.
Going forward, the ratings will remain sensitive to changes in sugar prices, government policies on exports, and interest rate movements. Withdrawal of government-set support prices for cane is expected to impact procurement costs, while financing costs will remain dependent on interest rate trends. The outcome of pending litigation related to the Competition Commission of Pakistan’s penalties will be monitored, given its potential financial impact. VIS will continue to assess the Company’s performance in line with sector developments.
For further information on this ratings announcement, please contact on 021-35311861-64 or email at info@vis.com.pk.
Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf