Press Release

VIS Reaffirms Entity Ratings of Madina Sugar Mills Limited

Karachi, June 16, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Madina Sugar Mills Limited (MSML) at ‘A-/A-2’ (Single A Minus/A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ suggests good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital market is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on Feb 24, 2022.
The ratings assigned to MSML take into account its association with Madinah Group, having business interests in various sectors encompassing edible oils, sugar, ethanol, power generation, mass media and steel. The ratings assigned to MSML are underpinned by extensive experience of sponsors, along with business risk profile being supported by diversification of operations into ethanol segment, which is almost entirely exported. The company is also in process of establishment of steel unit in order to capitalize on in-house bagasse and steam production to further diversify its operations. Sugar output in 2022-23 is expected to reduce owing to adverse impact on sugarcane crop due to floods. However, due to surplus sugar stocks available in the country, the Government has so far allowed 250,000 MT of sugar exports in the ongoing year. Sugar prices have depicted a rising trend lately. Meanwhile, the ratings do incorporate inherent cyclicality in crop levels and price vulnerability in sugar sector leading to competitive challenges for the company. The ratings have incorporated the developments in relation to penalties imposed by Competition Commission of Pakistan (CCP) on selected sugar mills and the subsequent legal proceedings initiated by the subject company. The company along with other sugar mills has challenged the order of CCP before the Lahore High Court (LHC) in a writ petition. The operation of the said order has been suspended and CCP has been restrained from recovering penalty imposed in terms of the order of the LHC dated August 13, 2021. The matter is pending adjudication before the LHC. Given uncertainty and materiality of the outcome, VIS will continue to monitor further developments in this matter.
During MY22, net revenues exhibited notable growth largely driven by augmentation in sale of ethanol on account of higher volumetric sales and average selling prices, along with significant increase in quantity of sugar sold. Average sugar prices, on the other hand, have remained suppressed owing to excess sugar stocks available in the country and Government intervention to control sugar prices. During MY22, overall gross margins decreased slightly as an outcome of lower profitability in sugar segment largely underpinned by higher raw material cost relative to average selling prices, despite notable improvement in ethanol margins primarily driven by economies of scale and favorable prices in the export market. Liquidity profile of the company is underpinned by adequate debt service coverage and working capital management. The leverage indicators have remained at quite comfortable level despite increase in overall debt levels by end-MY22. The overall risk profile of the company is expected to improve further when the steel billets plant become operational in Jul’23. Going forward, ratings will remain dependent on achieving projected growth in revenues and profitability, along with realization of expected economic benefits from steel operations while maintaining capitalization and liquidity indicators at comfortable levels.
For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-13 (Ext. 8004) and/or the undersigned at 021-35311861-66 (Ext. 207) or email at info@vis.com.pk

Sara Ahmed
Director

VIS Entity Rating Criteria: Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Rating Scale
https://docs.vis.com.pk/docs/ratingscale.pdf

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