Press Release

VIS Maintains Entity Ratings of Faran Sugar Mills Limited

Lahore, December 29, 2023: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Faran Sugar Mills Limited (FSML) at ‘A-/A-2’ (Single A Minus/A-Two). 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. Short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are sound. Outlook on the assigned ratings has been revised from ‘Negative’ to ‘Stable’. Previous rating action was announced on October 31, 2022.

FSML’s principal business is manufacturing and selling of white refined sugar. The company is part of the Amin Bawany Group (ABG) with interest spanning over sugar and allied products, power, modaraba and insurance. Total sugarcane production in 2022-23 season was reported lower at 82.4m MT vis-à-vis 89.0m MT in the preceding year mainly due to heavy floods in the country. Sugar prices were consistently under pressure throughout the outgoing crushing season due to excessive sugar stocks available in the country while the Government allowed 250,000 MT of exports in the outgoing year. However, there was a significant surge in sugar prices after the season's conclusion, primarily in line with inflationary trends. Retail sugar prices, while remaining relatively elevated, have recently exhibited a downward trend due to the Government intervention aimed at reducing smuggling. Meanwhile, given higher indicative prices of sugarcane for the ongoing crushing season and lower available sugar stocks in the country, it is expected that sugar prices may increase, going forward. Nonetheless, the ratings do incorporate inherent cyclicality in crop levels and price vulnerability in sugar sector leading to competitive challenges for the company.

During 9M’23, topline growth was driven by both price and volumetric increase of sugar as compared to SPLY, which contributed almost four-fifth to the total sales mix. Despite elevated financial charges, margins and profitability for the same period were supported by higher turnover and inventory gains coupled with share of profit from associate. The company's leverage and gearing, though remained high, improved slightly on the back of augmentation in equity base. Cash flow coverages declined on account of higher long-term loan repayments. The management does not intend to mobilize further long-term loans in the foreseeable future. Leverage indicators are expected to improve on the back of augmentation to equity base and timely repayments of long-term loans. Revision in outlook takes into consideration the improvement in margins and the resilience shown in the face of the recent floods. Meanwhile, the ratings will remain dependent on realization of projected growth in revenues and income from subsidiary to support profitability, along with improvement in coverages and leverage indicators, going forward.

For further information on this rating announcement, please contact the undersigned at 042-35723411-12 (8008) or email at info@vis.com.pk.



Maimoon Rasheed
Director

Applicable Rating Criteria: Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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