Press Release

VIS Maintains Entity Ratings of Shahmurad Sugar Mills Limited

Karachi, August 26, 2024: VIS Credit Rating Company Limited (VIS) maintains entity ratings of Shahmurad Sugar Mills Limited (‘’SSML’’ or ‘’the Company’’) at 'A/A-2' (Single A/A-Two). 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 'A-2' indicates good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings has been changed to ‘Positive’ from ‘Stable’. Previous rating action was announced on August 23, 2023.

SSML was incorporated in Pakistan as a public limited company on April 9, 1979. Its shares are quoted at the Pakistan Stock Exchange Limited (PSX) and the registered office of the Company is located at SMCHS, Karachi. The Company owns and operates Sugar and Ethanol manufacturing units spread over 333.32 acres of land located at Jhok, District Sujawal in the Province of Sindh.

Assigned ratings reflect SSML’s medium business risk profile, characterized by inelastic demand, low cyclicality, and lower inherent technology risk. The Company's diversification into ethanol and low risk of substitute products provide stability in a politically sensitive market. However, the industry faces challenges such as high seasonality, increasing sugarcane costs, and sensitivity to fluctuations in sugarcane production and quality, which introduces risks related to raw material availability.
Change in outlook is based on movement in Company's financial risk profile for MY23 and 3QMY24 in positive direction, driven by revenue growth in both the sugar and ethanol segments. This growth is primarily due to higher average selling prices for sugar, increased ethanol sales values resulting from PKR devaluation, and sugar exports under allocated quota. Gross margins improved in MY23 due to inventory gains from carryover stock and currency depreciation benefits on exports but later declined due to increased costs, mostly due to inventory carrying cost from the built-up in stocks. Capitalization metrics were impacted by debt drawn to finance working capital needs. The liquidity position remains adequate, while the coverage profile continues to provide a strong cushion to assigned ratings.

Going forward, the sugar industry faces several financial and business s that could impact on the assigned ratings. These include the pressure from elevated finance costs and the stagnation of sugar prices due to inventory build-ups. The dependency on favorable government policies for exports and managing the cyclicality of sugarcane supply will also be important to the assigned ratings. Improvement in operational efficiencies and the maintenance of capital, coverage and liquidity profiles despite prevailing challenges will be major considerations for future reviews.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.









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

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 .