Press Release
VIS Reaffirms Entity Ratings of Chasma Sugar Mills Limited
Karachi, September 06, 2024: VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Chashma Sugar Mills Limited (‘CSML’ or ‘the Company’) at 'A-/A-2' (‘Single A minus/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 'A-2' 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 November 6, 2023.
CSML was incorporated in Pakistan on May 5, 1988, as a public limited company, commenced commercial production on October 1, 1992. The Company’s shares are listed on the Pakistan Stock Exchange Limited and it primarily engages in the manufacturing, processing, and sale of sugar and related products. The Company is a subsidiary of The Premier Sugar Mills and Distillery Company Limited, with its head office in Islamabad and manufacturing facilities in Dera Ismail Khan, KPK. The Premier Group has diversified interests in sugar, ethanol, high-grade polypropylene, real estate, consumer goods distribution, and agricultural storage. In October 2023, Ultimate Whole Foods (Pvt.) Limited, a subsidiary of CSML, began commercial operations focusing on milling grains and related products.
Assigned ratings incorporate the moderate business risk profile of the sugar industry in Pakistan, characterized by low exposure to economic cyclicality and notable impacts from seasonal variations. This includes the influences of fluctuations in sugarcane production and quality, compounded by cyclicality in crop yields and raw material prices. The competitive risk within the sugar sector is considered from medium to low, with minimal threat of substitutes due to the essential nature of sugar albeit high industry fragmentation.
Assigned ratings also take into account the economic and operational challenges within the sugar sector, including increased finance costs and the complexities arising from market-driven granulated sugar prices versus government-regulated sugarcane prices. The profitability profile is under pressure from rising costs, although recent revenue growth indicates some resilience. Coverage has shown signs of stress with a decline in profitability impacting the debt service metrics. The capitalization profile reflects an increase in short-term debt aimed at managing working capital needs, while liquidity has experienced fluctuations with a downward trend in the current ratio.
Going forward, key business and financial risk indicators that could impact the assigned ratings include the continued rise in sugarcane prices and the management of procurement costs. The Company’s approach to managing these cost pressures and the potential stabilization of sugar prices will be critical. Moreover, the Company’s plan to sell unutilized property to improve liquidity and coverage profiles as well as availability of sponsor support to meet any shortfall will be important for maintaining current ratings.
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