Press Release

VIS Reaffirms Entity Ratings of Sheikhoo Sugar Mills Limited (SSML)

Karachi, June 20, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Sheikhoo Sugar Mills Limited (SSML) 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 Feb 28, 2023.

SSML is principally engaged in manufacturing and sale of sugar and its by-products with operating track record of more than two decades. The company has diversified into steel business with billets plant becoming operational in Feb’20 while steel bar re-rolling plant with an annual capacity of 300,000 tons has commenced its production in Oct’22. At present, power requirement of both sugar and steel division is met entirely through bagasse based steam turbines of 79 MW capacity. The crushing capacities of the mill was regularized to 25,000 tons per day (tpd) in January 2023 in terms of section 11 of the Punjab industries (Control on Establishment and Enlargement) (Amendment) Act, 2022. 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 allowed 250,000 MT of sugar exports in the ongoing year. Resultantly, sugar prices have exhibited 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 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 the outgoing year, net revenues recorded growth of ~19% primarily on the back of increase in steel billets sales. Sugar sales, on the other hand, remained largely muted on account of depressed sugar prices. Gross margins showed some increase largely due to higher contribution margin of steel segment. However, as a result of higher operating expenses amid expansion in operations and inflationary adjustments, along with augmentation in finance cost due to sharp hike in markup rates and higher average borrowings, net margins remained under pressure. Revenues and gross profitability further strengthened in 1HY’23 on the back of higher average retail prices of sugar and sale of re-bars, which entails relatively better margins. However, inflated markup rates continued to drag bottomline.

As per management, in full year, topline is expected to post YoY growth of almost 60% with nearly equal contribution from sugar and steel segments. The bottomline is projected to strengthen on the back of enhanced scale of operations and rationalized operating costs despite higher finance cost. The cash flow coverages have remained under pressure in the outgoing year as well as in 1HY’23, however, the same are expected to improve in full year on account of growth in earning profile and decrease in debt levels by the end-MY23. Despite augmentation in equity base due to profit retention, the leverage indicators remained elevated primarily owing to surge in short-term seasonal borrowings to support working capital requirements. Meanwhile, with subsequent repayments of long-term loans and lifting of sugar inventory to a large extent, leverage indicators are expected to recede by the year-end. The current sector outlook is viewed positively by industry players amid lower sugar production in the ongoing year and sizable price differential between imported sugar vis-à-vis local retail prices. Moreover, albeit, there is slowdown in construction sector, there is still demand for steel re-bars for the ongoing projects. Also, being a new entrant, the company has been selling re-bars at competitive rates to capture market share. In addition, better inventory management and marketing efforts have kept steel operations afloat. Nonetheless, the ratings remain sensitive to realizing projected growth in revenues and profitability along with maintaining liquidity and capitalization indicators at comfortable level, and in line with the benchmarks for the assigned ratings.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-13 (Ext. 8005) and/or the undersigned at 021-35311861-66 (Ext. 201) or email at

Javed Callea

VIS Entity Rating Criteria: Industrial Corporates (May 2023)

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