Press Release

VIS Reaffirms Entity Ratings of Sheikhoo Sugar Mills Limited

Karachi, August 05, 2024: VIS Credit Rating Company Limited (VIS) reaffirms entity ratings of Sheikhoo Sugar Mills Limited (‘’SSML’’ or ‘’the Company’’) at 'A-/A-2' (Single A Minus/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' 2' indicates good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings remains Stable. Previous rating action was announced on June 20, 2023.

SSML was established in Pakistan on January 3, 1990, as an unquoted public limited company. The Company’s registered office is located in Lahore. The Company’s main activities include the manufacture and sale of white refined sugar and related by-products. In addition to sugar production, SSML has set up a steel re-rolling mill to utilize excess power generation capacity. The steel mill was initially equipped with two induction furnaces for billet production. Later a re-rolling mill was added, which began commercial operations on October 28, 2023.

Assigned ratings reflect SSML’s medium to high business risk profile, which encompasses its operations in both the sugar and steel sectors. The assigned ratings consider the high seasonality and sensitivity of sugarcane production, as well as challenges such as rising sugarcane costs and stabilizing sugar prices. In the steel sector, factors including high fragmentation, intense competition and high cyclicality, are also considered. Conversely, the lower cyclicality in the sugar sector and its inelastic demand, low inherent technology risk, and SSML’s diversification strategies, including forthcoming ethanol plant, provide support to the assigned ratings.

Ratings also incorporate the Company’s financial risk profile for MY23 and 1HMY24, supported by an uptick in revenue contributed by both sugar and steel segments. This revenue growth was driven by elevated average selling prices of sugar and the introduction of value-added steel bars from the re-rolling mills. Additionally, the gross margin enhancement was supported by inventory gains supported by higher sugar prices. However, the net margin experienced a decline due to elevated finance costs incurred during the period from a constraining monetary policy regime and higher debt drawdown. Capitalization metrics are deemed manageable albeit higher short-term debt utilization for procurement of the inventory during the crushing season. The liquidity position remains adequate, and the coverage profile commensurate with the assigned ratings.

Going forward, the Company's ratings will be sensitive to key business and financial risk indicators, including the impact of economic conditions, finance costs, sugarcane prices, exchange rates, and inventory levels. The Company's management has committed to focusing on rebar production and further diversifying its operations to support revenue streams. Ratings will depend on the Company's ability to maintain its profitability, capitalization, and liquidity profiles amidst challenging environment, with particular attention to maintaining key ratios.

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 .