Press Release

VIS Reaffirms Entity Ratings of Chashma Sugar Mills Limited

Karachi, November 23, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Chashma Sugar Mills Limited (CSML) at ‘A-/A-2’ (Single A Minus/A-Two). Long-term rating of ‘A-’ signifies good credit quality with adequate protection factors. Risk may vary slightly from time to time because of economic conditions. Short-term rating of ‘A-2’ depicts good certainty of timely payment where liquidity factors are sound and good access to capital markets. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on November 10, 2020.

Assigned ratings continue to factor in CSML’s satisfactory operating track record, extensive experience of sponsors in the sugar sector, and diversified revenue stream through forward integration into ethanol production. The risk profile of sugar sector is high given inherent cyclicality in crop levels and raw material prices. While narrow demand and supply dynamics may lead to high sugar prices, risk of government intervention to control prices is expected to remain intact. Ethanol as the by-product is dependent on supply of molasses and decline in sugar cane crushing has effected the growth in ethanol industry and the same is anticipated to remain subdued. The ratings have incorporated the developments with regards to penalties imposed by CCP on certain sugar mills and legal proceedings for interim relief (stay) initiated by the subject company. However, in the meanwhile, uncertainty of the outcome would persist on the sector. The material impact of penalty imposed (amounting to Rs. 6.7b) on CSML will be sizeable and hence VIS will continue to monitor further development in this matter.

Topline registered a strong growth trend mainly driven by higher retail prices of sugar along with a mix of volumetric and price increase in ethanol sales. However, margins were constrained during the year on account of lower sucrose recovery and higher sugarcane and molasses procurement cost. The company’s cash flow generation remains adequate over the review period to support its outstanding financial obligations. With growing trend in equity base, gearing and debt leverage metrics have improved; however, further loan acquisition is expected on account of regular capex and future business initiatives which would lead to increase in leverage indicators. Ratings remain dependent on the cyclicality of sugarcane production and prices along with maintenance of threshold financial indicators and a favorable outcome of the imposed penalty wherein it does not materially impact the risk profile of the company.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 203) or the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.





Javed Callea
Advisor

Applicable Rating Criteria: Industrial Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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