Press Release

VIS Assigns final Rating to Short term Sukuk of JDW Sugar Mills Limited

Karachi, January 25, 2023: Upon review of executed legal documents, VIS Credit Rating Company Limited (VIS) has finalized the rating of A-1 (A-One) to JDWS’s Short Term Sukuk (STS). Short-term rating of A-1 reflects high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Previous rating action was announced on December 07, 2023.

JDWS is a part of JDW Group. The group has a presence in sugar, corporate farming and power generation. JDWS is principally engaged in manufacturing of sugar, production of electricity and managing corporate farms. The assigned ratings incorporate JDWS market position as the leading player in the country’s sugar industry, significant experience of sponsors in the sugar and agriculture sector and a professional management team. The Company has longstanding relationships with growers along with focus on research activities in sugarcane development. Business risk profile of the Company draws support from diversification of operations into power sector.

JDWS issued a rated, unsecured, privately placed STS, amounting up to Rs. 8b (inclusive of a Green Shoe Option of Rs. 3b) on December 18, 2023, to finance working capital requirements of the Company. Tenor of the instrument is up to six (06) months; maturity date falling on June 14, 2024. The principal will be redeemed in bullet payment six (06) months.

The ratings incorporate inherent cyclicality in crop yields and price vulnerability in sugar sector leading to competitive challenges for the Company. The ratings also take note of developments with regards to penalties imposed by Competition Commission of Pakistan (CCP) on certain sugar mills. The operation of the said order has been suspended and CCP has been restrained from recovering the penalty imposed in terms of an order of the LHC dated October 2021 followed an interim stay order for the same by the Commission Appellate Tribunal. VIS will continue to monitor further development in this matter.

During MY23, the company posted a YoY growth of around 23% in its topline largely led by higher average selling prices of sugar and other by-products. Despite higher gross profitability, the net profitability decreased primarily on account of augmentation in finance cost. This has subsequently exerted some pressure on its cash flow coverages during the outgoing year. However, ratings draw comfort from liquidity cushion arising from sizeable unsold sugar stock anticipated to be sold at higher prices. The equity base decreased as of Sept’23, largely influenced by higher dividend payments while debt leverage witnessed an increase, primarily attributable to a substantial growth in advances received from customers. Consequently, this has reduced the need for short-term borrowing, leading to an improved gearing ratio by end-MY23. Going forward, the Company plans to secure long term financing for an upcoming capital expenditure. Hence, realization of sales and profitability targets while marinating adequate debt service coverage and capitalization profile will be imperative from ratings purview.

For further information on this rating announcement, please contact the undersigned at 021-35311861-64 (Ext. 201) or email at info@vis.com.pk


Javed Callea
Advisor

Applicable Rating Criteria: Corporate
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Rating The Issue
https://docs.vis.com.pk/docs/Rating-the-Issue-Aug-2023.pdf
VIS Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .