Press Release
VIS Reaffirms Entity Ratings of Sheikhoo Sugar Mills Limited
Karachi, February 03, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Sheikhoo Sugar Mills Limited (SSML) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 29, 2020.
Ratings reaffirmation continues to factor in SSML’s sound operating track record of more than two decades, sizeable crushing capacity and healthy financial indicators along with diversified revenue stream from steel segment (billets plants commencing operations from Feb’20). The reaffirmation has also incorporated continued sponsor support as exhibited by extending interest-free loans for working capital requirement. The risk profile of sugar sector is high given inherent cyclicality in crop levels and raw material prices while with respect to steel sector, ratings are exposed to both local and international demand cyclicality and foreign exchange risk. The ratings further take note of developments with regards to penalties imposed by CCP on certain sugar mills and legal proceedings for interim relief initiated by the subject company. However, in the meanwhile, uncertainty of the outcome would persist on the sector. The material impact of penalty imposed (amounting to Rs. 1.4b) on SSML will be significant and hence VIS will continue to monitor further development in this matter.
The company has planned to go for value-addition in steel segment by establishing a steel melting and re-rolling mill (with annual stated capacity of ~150,000 MT). At present, the project has a completion status of ~80% and the mill is expected to commence operations in the ongoing year. The high-pressure boiler along with steam turbine is already in the installation phase to meet energy requirement of the re-rolling mill. The management has also expressed interest in doubling the production capacity of re-rolling mill through installation of 400 MT furnace in the medium term.
Sales revenue has more than doubled over the period of past two marketing years mainly driven by volumetric growth in billets sales along with a mix of higher retail price and quantity sold of sugar. Profitability margins have also depicted improvement on a timeline basis and the same has translated into improved bottom-line and healthy cash flow generation. Leverage indicators have improved despite considerable increase in debt levels as mobilized for forward integration in steel segment. Given sound profitability projected, gearing is expected remain within manageable limits. The cyclicality of sugar sector and materialization of expected profitability from steel segment would continue to be among important rating drivers, going forward.
For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 204) or the undersigned (Ext: 306) at 021-35311861-71 or fax to 021-35311872-3.
Faryal Ahmed Faheem
Deputy CEO
Applicable Rating Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf