Press Release

VIS Reaffirms Entity Ratings of Fatima Sugar Mills Limited

Lahore, December 22, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Fatima 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 is ‘Stable’. Previous rating action was announced on October 25, 2022.

FSML is part of ‘Fatima Group’, having diversified business interests in fertilizer, textile, energy, sugar and commodities trading sectors. The company is principally involved in the production of refined sugar and allied products from sugarcane. Shareholding structure is equally split between three group-companies i.e., Fatima Trading Company (Pvt.) Limited (33%), Fatima Management Company Limited (33%), and Farrukh Trading Limited (formerly Fatima Trade Company Limited) (33%). Board of Directors of FSML comprises seven members, including six non-executive directors, all being representatives of the sponsoring family. Board also exercises oversight through Board Audit Committee and Board Human Resource & Remuneration Committee.

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 upcoming 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.

The outgoing year concluded with a significant growth in topline driven by both price and volumetric increase of sugar, which contributed almost three-fourth to the total sales mix. Margins and profitability for the year were supported by higher turnover and inventory gains, despite elevated financial expenses. The debt service coverage has remained adequate on a timeline basis. The leverage indicators, although somewhat elevated due to substantial working capital financing as of September 30, 2023, are considered to be within manageable limits. During the outgoing year, the company mobilized long-term loan to fund Balancing Modernization and Replacement (BMR). Sugar production for MY24 is expected to stay around similar levels while the management projects sizable incremental revenues from sale of carry over sugar stocks, coupled with higher average selling prices. Meanwhile, the ratings will remain dependent on realization of projected growth in revenues and profitability, along with improvement in working capital management and leverage indicators, going forward.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-12 (Ext. 8005) and/or the undersigned at 042-35723411-12 (8008) or email at info@vis.com.pk.



Maimoon Rasheed
Director

Applicable Rating Criteria: Industrial Corporates (May 2023)
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 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .