Press Release

VIS Maintains Entity Ratings of Al-Noor Sugar Mills Limited

Karachi, August 23, 2023: VIS Credit Rating Company Limited (VIS) has maintained entity ratings of Al-Noor Sugar Mills (ANSM) 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’ denotes good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. Previous rating action was announced on June 6, 2022.

ANSM is a part of Al-Noor Group, involved in the manufacturing sugar, rice, ethanol, power and fiberboard products along with presence in the financial sector. The ratings incorporate extensive experience of sponsors in the sugar sector, satisfactory operating track records and financial flexibility in view of diversified revenue stream. Total sugarcane production in 2022-23 season was reported lower at 82.4m MT vis-à-vis 89.0m MT in the preceding year on account of adverse impact on sugarcane crop due to floods. Resultantly, according to sources, sugar production in the country has reported a decrease of ~7%. However, total available sugar stocks are expected to remain largely intact vis-à-vis preceding year. Meanwhile, the Government allowed 250,000 MT of exports due to surplus sugar inventory available in the country in the ongoing year. 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 the stay orders granted on penalties imposed by Competition Commission of Pakistan (CCP) on certain sugar mills. VIS will continue to monitor further development in this matter.

ANSM is primarily engaged in the business of manufacturing and sale of sugar, medium density fiber board, along with generation and sale of power. The revision in outlook is on account of overall weakening of financial risk profile of the company. During MY22 and the ongoing year, the revenues and profitability have remained under pressure primarily owing to suppressed sugar prices, increase in cost of production and elevated finance cost. This has severely impacted the cash flow position and debt servicing ability of the company. Furthermore, given elevated short-term borrowings and lower internal capital generation, leverage indicators have also trended upward leading to decline in risk absorption capacity of the company. Sugar prices have trended upward lately and should benefit the company holding higher stocks. Nevertheless, the negative net margins of ANSM as of 9M’23, reflect that on full year basis even after realizing the outstanding stock sale at higher prices, bottom-line profitability and debt coverage will remain stressed. The ratings, therefore, will remain sensitive to improvement in financial indicators to be in line with the benchmarks for the assigned rating.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA (042-35723411-13, 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: Industrial Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS 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 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .