Press Release

VIS Reaffirms Entity Ratings of Etihad Sugar Mills Limited

Karachi, April 9, 2025: VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Etihad Sugar Mills Limited (‘ESML’ or ‘the Company’) at 'A/A2' (‘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 'A2' suggests good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings is ‘Stable’. Previous ratings action was announced on February 21, 2024.

ESML was incorporated in 2006 as an unquoted public limited under the Companies Ordinance, 1984. The principal business activity of the Company is manufacturing and sale of sugar and its byproducts. ESML head office is in Lahore, while the manufacturing facilities are located in District Rahim Yar Khan, Punjab.

Assigned ratings incorporate the business risk profile of Pakistan’s sugar sector, shaped by seasonal and cyclical production patterns, procurement competition, regulatory interventions, and exposure to price and interest rate risks. The concentrated harvesting period necessitates year-round sugar stock maintenance, exposing mills to price volatility and inventory carrying costs. Constraints in crop yields and sucrose recovery persist due to limited mechanization, research, and weather sensitivity. The perishable nature of sugarcane leads to mill clustering near cane growing areas, increasing procurement competition and raw material costs. While supply-side remains sensitive to pricing, demand-side risk is moderate to low due to essential nature of the commodity. Profitability remains susceptible to price fluctuations driven by stock levels, harvesting trends, supply side manipulation, and policy decisions. Regulatory controls, including external trade restrictions, impact pricing and inventory management. Discontinuation of government-mandated minimum support pricing for sugarcane from the 2024-25 season may affect supply dynamics going forward. While procurement costs, pricing, and policy risks persist, sector stability is underpinned by sustained demand on the back of growing population and rising bulk consumption. The sector’s regulatory environment, particularly government intervention in trade policies, will continue to influence the business risk.

Assigned ratings also take into account the financial risk profile of the Company, which reflects revenue growth supported by price increases, despite decline in sales volumes due to lower sugar production resulting from lower sucrose recovery. The delay in government approval for exports resulted in higher inventory levels, affected the margins. Average sugar prices earned by the Company was significantly higher, even exceeding the industry average, while molasses price growth remained subdued. While increase in raw material costs contributed to lower gross margins, net profitability was further impacted by higher finance cost resulting from increase in short-term borrowings to finance increased working capital needs. This led to an increase in gearing and leverage, though remaining aligned with the assigned ratings as well as the industry norms. The financial burden from short-term borrowing, coupled with reduced operational profitability, resulted in lower funds from operations and a decline in debt service coverage, albeit remaining comfortable. Liquidity also remained adequate and commensurate with the assigned ratings.

Going forward, the assigned ratings will remain sensitive to fluctuations in sugar prices, procurement costs, and interest rate movements. The Company's ability to effectively manage working capital requirements, maintain profitability margins, and sustain coverage indicators will remain important for the ratings.

For further information on this ratings announcement, please contact on 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 2025 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .