Press Release
VIS Assigns Initial Ratings to Ashraf Sugar Mills Limited
Karachi, February 22, 2021: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of at ‘A-/A-2’ (Single A Minus/A-Two) to Ashraf Sugar Mills Limited (ASML). 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’.
ASML is primarily involved in production and sale of crystalline sugar, molasses and other by-products. Majority of the shareholding is vested with the sponsoring family. The company is a part of ‘Ashraf Group of Industries’ having presence in sugar, coal mining, stone quarry, livestock & dairy, power, corporate agriculture farming and real estate sectors. Crushing capacity of the mill stands at 10,000 tpd while power requirements of the company is entirely met through bagasse-based captive power source of 26.5 MW.
The ratings assigned incorporate topline growth on back of higher sugar offtake coupled with increase in sugar prices. However, gross margins of the company are largely on the lower side vis-à-vis other industry players mainly due to lower sucrose recovery. The management has been striving for quality improvement and process efficiencies through extensive BMR to meet quality standards of corporate clientele which contributes towards more than two-third of the revenue. The ratings also factor in capital expenditure contemplated by the management in the near term to conserve energy and reduce production losses which is likely to augur well for the company. The capex would also include upgradation of power house and installation of furnaces in view of the management’s plan to tap steel business, going forward. This would allow the company to remain competitive and curtail the risk emanated from cyclicality of sugar sector to some extent through diversification. Furthermore, liquidity is considered adequate and capitalization indicators are sound. While decrease in recovery rates due to early start of crushing season and increase in sugarcane procurement cost may put strain on profitability in the ongoing year, the same is expected to partially offset given positive outlook for average retail prices of sugar. Meanwhile, the ratings remain sensitive to business risk emanating from inherent cyclicality in crop levels, raw material prices and any adverse changes in regulatory duties. Completion of efficiency and severity initiatives with improvement in gross margins while maintaining leverage and liquidity at comfortable level is considered important, going forward.
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