Press Release
VIS Reaffirms Entity Ratings of Sheikhoo Sugar Mills Limited
Karachi, August 05, 2025: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Sheikhoo Sugar Mills Limited (“SSML” or “the Company”) at ‘A-/A2’ (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 'A2' indicates a good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on August 05, 2024.
SSML, incorporated in 1990 as an unlisted public limited company, is primarily engaged in the manufacturing and sale of white refined sugar along with its by-products. In addition to its core operations, the Company has diversified into steel manufacturing through the establishment of a steel re-rolling mill, which commenced commercial operations on October 28, 2022. Further diversification is underway through the development of a distillery division intended for the production and sale of ethanol. The Company’s head office and registered offices are based in Lahore, while its manufacturing facility is located in District Muzaffargarh, Punjab.
Assigned ratings incorporate the medium-to-high business risk profile of SSML, which encompasses its operations in both the sugar and steel sectors. The ratings reflect seasonality in sugar production, procurement pressures due to mill clustering, rising input costs, inelastic demand, and regulatory exposure following the removal of the minimum support price. In the steel segment, cyclical demand linked to construction activity, high industry fragmentation, reliance on imported scrap, and elevated energy costs are key risk factors. However, SSML’s internal energy generation through its bagasse-based power plant resulting in lower input costs, further diversification into ethanol, and continuous financial support from sponsors provide comfort to the ratings.
Ratings also incorporate the Company’s financial indicators for MY24 and 1HMY25, supported by revenue growth across both sugar and steel segments, driven by improved pricing and higher volumes. Gross margins benefited from full-fledged operations of re-rolling mill, and cost efficiencies from in-house power generation. However, net margin declined due to elevated finance costs under a high-interest rate environment and increased debt utilization. In 1HMY25, despite pressure on gross profitability from sector-wide pricing trends, net margin remained stable, supported by monetary easing. Capitalization metrics remained elevated, reflecting higher short-term borrowing for inventory procurement and drawdown of long-term debt for the distillery project. Liquidity remained at the minimum threshold levels in terms of current ratio. Coverage indicators, though previously strained, showed some improvement in 1HMY25. Ratings remain sensitive to improvement in coverages and gearing levels as projected.
For further information on this rating announcement, please contact at 021-35311861-64 or email at info@vis.com.pk
Applicable Rating Criteria:
Corporate Rating
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf