Press Release
VIS Reaffirms Entity Ratings of Ashraf Sugar Mills Limited
Karachi, May 12, 2024: VIS Credit Rating Company Limited reaffirms entity ratings of Ashraf Sugar Mills Limited (‘ASML’ or ‘the Company’) at 'A-/A2' (Single A Minus/A Two) with a 'Stable' outlook. 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 good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Previous review conducted on April 26, 2024.
ASML is a public limited company incorporated in Pakistan in 1978. Its registered office is located in Lahore, while the manufacturing facilities are based in Ashrafabad, District Bahawalpur with a crushing capacity of 20,000 metric tons per day. The Company is engaged in the production and sale of crystalline sugar, molasses, and other by-products catering to both domestic and international markets.
Assigned ratings take into account the business risk profile of the sugar sector in Pakistan, which is shaped by seasonal and cyclical production patterns, competitive procurement pressures, and exposure to regulatory interventions and price volatility. The sector operates within a limited crushing window, necessitating stock retention throughout the year, which increases exposure to price and interest rate fluctuations. Inefficiencies persist due to low crop yields, variability in sucrose recovery, and limited adoption of mechanized farming practices. Raw material procurement remains cost-intensive due to high competition and the perishable nature of sugarcane, though recent policy changes have altered minimum procurement requirements. Demand dynamics are underpinned by population growth and consumption by ancillary industries, with limited substitution risk on the demand side but continued clustering-related competition on the supply side. Recent periods have seen fluctuations in production volumes, shifts in export policy, and retail price movements driven by stock availability and weather-related crop impacts.
Assigned ratings also consider the financial risk profile of the Company. Revenue growth during the period was supported by an increase in average sugar prices, which partially offset lower sales volumes stemming from decline in production and lower institutional demand. Margins were impacted by higher cane procurement costs and competitive pressures, resulting in lower gross margins MY24, also impacting net margins. The subsequent improvement in net margins in 1HMY25 was supported by a reduction in finance costs. Capitalization indicators depicted an increase in gearing and leverage due to higher short-term borrowings for inventory financing. Liquidity remained adequate, although a declining trend in the current ratio was observed due to consumption of internally generated cash for capital expenditure. Improvement in liquidity was noted in the subsequent period. Coverage metrics reflected a decline during the year due to lower profitability in MY24, though an improvement was seen in the following period due to easing of financial costs and improved profitability.
Going forward, the ratings will remain sensitive to changes in sugar prices, government policies on exports, and interest rate movements. Sustained improvement in gross margins, maintenance of coverage metrics, and normalization of gearing and leverage indicators over the operational cycle will be important considerations.
For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.
Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf