Press Release
VIS Reaffirms Entity Ratings of Al-Moiz Industries Limited
Karachi, August 02, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Al-Moiz Industries Limited (AMIL) at ‘A/A-2’ (Single A/A-Two). The medium to long-term rating of ‘A’ denotes good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on April 26, 2022.
AMIL is part of an industrial conglomerate, ‘Almoiz Group’, engaged in the businesses of beverages, sugar, steel, power & textile. The company is primarily engaged in manufacturing and sales of sugar, steel deform bars and electricity. The sugar production facility is based on multi-feedstock. i.e., sugarcane and beetroot; the mill therefore remains operational for a relatively longer period in comparison to conventional sugar mills that utilizes only sugarcane as raw material. Total sugarcane production in 2022-23 season was reported lower at 82.4m MT vis-à-vis 89.0m MT preceding year due to floods. Resultantly, according to sources, sugar production in the country has reported a decrease of ~7%. However, total available sugar stocks are expected to remain largely intact vis-à-vis preceding year. Meanwhile, the Government allowed 250,000 MT of exports due to surplus sugar inventory available in the country in the ongoing year. Primarily inflationary pressure, has led to an upward trend in sugar prices lately. Nonetheless, 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 the stay orders granted on penalties imposed by Competition Commission of Pakistan (CCP) on certain sugar mills. VIS will continue to monitor further development in this matter.
During MY22, growth in topline was mainly led by increase in sale of deformed bars entailing higher selling prices while quantity sold was reported marginally lower. Steel segment contributed around one-third to the revenue mix in the outgoing year. However, overall gross margins decreased on account of weakening in sugar segment profitability owing to sale of carried over sugar stock at unfavorable prices. In 1H’MY23, gross margins further declined primarily due to depressed sugar prices in the first quarter. In addition, higher sugarcane procurement prices along with hike in prices of steel segment raw material, have negatively impacted the gross margins. The bottomline also took a hit due to substantial increase in finance cost and resultantly, the company has reported net losses in 1H’MY23. Overall, liquidity position of the company remained under pressure, owing to subdued profitability and slower inventory turnover; however, the same is expected to improve in full year primarily on the back of enhanced profitability coupled with reduced borrowing requirements in line with lifting of majority of the sugar inventory. Leverage indicators mounted upwards due to higher borrowings to meet working capital requirements along with elevated long-term debt to fund capex related to sugar beet project and steel billet capacity enhancement. The ratings will remain sensitive to achieving projected growth in revenues and profitability, improvement in cash flow coverages, along with managing leverage indicators in line with benchmarks for the assigned rating.
For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA (042-35723411-13, Ext. 8005) and/or the undersigned at 021-35311861-64 (Ext. 207) or email at info@vis.com.pk.
Sara Ahmed
Director
VIS Entity 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