Press Release
VIS Reaffirms Ratings of RYK Mills Limited
Karachi, February 19, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of RYK Mills Limited (RYK) at ‘A/A-2’ (Single A/A-Two). The medium to long-term rating of ‘A’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamentals and liquidity factors. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on January 17, 2020.
The ratings assigned to RYK take into account sizeable scale of sugarcane crushing operations and diversification into power business through establishment of 30 MW bagasse-based independent power plant, which provides some cushion against cyclicality of sugar sector. RYK has two wholly owned subsidiaries namely, Alliance Sugar Mills Limited and SW Sugar Mills Limited. Cumulative sugarcane crushing capacity of the group stands at over 36,500 tons per day.
While company’s revenues exhibited healthy growth over the last few years mainly on account of increasing sugar prices and higher sugar offtake, higher cost of sugarcane and lower sucrose recovery rate have led to decrease in gross margins during the review period. The ratings also factor in continuous efforts by the management to enhance operational efficiencies and improve sugar quality in order to increase institutional sales. Revenue from power segment remained largely stagnant due to lower electricity delivered to CPPA. Receivables outstanding against CPPA have been accumulating; the management expects this issue to get resolved as CPPA has devised a payment mechanism plan. Meanwhile, some pressure on coverages was witnessed as reflected by lower cash flows in relation to outstanding obligations. Leverage indicators have continued to show an improving trend on the back of higher core equity and lower overall debt levels. Gross margins are expected to remain largely intact on the back of positive outlook for average retail sugar prices despite higher sugarcane cost. The ratings are sensitive to business risk emanating from inherent cyclicality in crop levels, raw material prices and any adverse changes in regulatory duties. Going forward, the ratings would remain dependent on sponsors’ support, additional contribution margins from power segment, maintenance of capitalization indicators while recouping the performance indicators.
For further information on this rating announcement, please contact Ms. Tayyaba Ijaz at 042-35723411-13 (Ext. 8004) and/or the undersigned at 021-35311861-66 (Ext. 306) or email at info@vis.com.pk
Faryal Ahmad Faheem
Deputy CEO
Applicable rating criterion: Corporates (May 2019)
https://www.vis.com.pk/kc-meth.aspx