Press Release
VIS Reaffirms Entity Ratings of Indus Sugar Mills Limited
Karachi, December 07, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Indus Sugar Mills Limited (ISML) at ‘A-/A-1’ (Single A Minus/A-One). The 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-1’ denotes high certainty of timely payments; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings remains ‘Stable’. Previous rating action was announced on November 08, 2022.
ISML is principally engaged in production and sale of sugar and its byproducts. The shareholding of the company is vested with three families in equal proportion. ISML’s manufacturing facilities are located at Kot Bahadur, Rajanpur, in Southwestern Punjab. The company also owns agricultural farms over an area of 4000 acres near the mill. The mill operates on self-generated power from bagasse fueled captive facility of 11 MW capacity. Total sugarcane production in 2022-23 season was reported lower at 82.4m MT vis-à-vis 89.0m MT in the preceding year, primarily as a result of devastating floods. The Government also allowed 250,000 MT of exports due to surplus sugar inventory available in the country in the outgoing year. Sugar prices were consistently under pressure throughout the outgoing crushing season. 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 government initiatives 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.
During MY23, topline exhibited considerable growth vis-à-vis SPLY, largely due to augmentation in volumetric sale of sugar and some increase in average selling prices. Resultantly, the company generated healthy gross profits during the review period.. Net profitability also improved despite higher operating expenses and finance cost. The liquidity profile is underpinned by adequate cash flow coverages in relation to outstanding obligations. Cash conversion cycle of the company has also remained favorable relative to industry. The company's strategy to maintain low debt levels has resulted in both gearing and debt leverage staying at manageable levels over time. Meanwhile, the ratings are constrained due to inherent cyclicality in crop levels and price vulnerability in sugar sector in the absence of diversified operations by the company.
For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-12 (Ext. 8005) and/or the undersigned at 021-35311861-64 (Ext. 207) or email at info@vis.com.pk.
Sara Ahmed
Director
Applicable Rating Criteria:
VIS 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
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