Press Release
VIS Assigns Initial Ratings to RYK Mills Limited
Karachi, January 17, 2020: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A/A-2’ (Single A /A-Two) to RYK Mills Limited (RYK). The medium to long-term rating of ‘A’ signifies 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 payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned ratings is ‘Stable’.
RYK is a part of RYK Group that was established in 2007. RYK has two wholly owned subsidiaries namely Alliance Sugar Mills (Private) Limited (ASML) and SW Sugar Mills Limited (SWS). The cumulative sugarcane crushing capacity of the group stands at over 38,000 tons per day (tpd) along with 30 MW of bagasse-based independent power generation unit (IPP). The assigned ratings take into account sponsors led experienced management, scalable sugarcane crushing operations and diversification into power generation business which provides some cushion against the cyclicality of sugar sector. The ratings also incorporate established relations with the suppliers where the company provides support to farmers in the form of better quality seeds and fertilizers that has helped in improving sucrose recovery on a timeline basis. The ratings draw comfort from notable growth in revenue during the past two years on account of higher volumetric sales and higher recovery rate. Sugar revenue model of the company encompasses open market and institutional sales and exports. Institutional sales more than doubled during FY19 as the company employed head of corporate marketing and sales to grow institutional clientele. Going forward, proportion of institutional sales is projected to increase further.
The ratings also take into account capital expenditure in process efficiencies, energy conservation and quality improvement, which has helped the company to more than double its institutional segment sales during FY19. While the commodity risk is embedded in sugar business, the recent increase in domestic sugar prices will bode well for the company, though increase in sugarcane support price may partially dilute the positive impact. However, the ratings also factor in fluctuation in margins and decline in cash flows generation owing to sizeable increase in finance cost. While there is room for improvement in the liquidity position, the company’s capacity to meet its financial obligations is considered adequate despite some pressure on debt service coverage. The ratings positively factor in decrease in leverage indicators on account of enhanced equity and moderation of debt levels by end-FY19. The ratings are dependent on sustainability of improved sucrose recovery and profit margins, maintenance of adequate debt coverage, and moderation of leverage indicators.
For further information on this rating announcement, please contact Syed Fahim Haider at 042-35723411-13 (Ext: 8006) or the undersigned at 021-35311861-70 (Ext. 201) or email at info@vis.com.pk
Javed Callea
Advisor
VIS Entity Rating Criteria Corporates (May 2019)