Press Release

VIS Reaffirms Entity Ratings of Shahmurad Sugar Mills Limited

Karachi, June 06, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Shahmurad Sugar Mills Limited (SSML) 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 with good access to capital markets. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on June 30, 2021.
The ratings assigned to SSML take into account the company’s association with Al-Noor Group having business interests in sugar, ethanol, medium density fiber, modaraba and insurance. Business risk profile of sugar sector is high given inherent cyclicality in crop levels and raw material prices along with any adverse changes in regulatory duties. However, given the projected higher crop coverage area and yields, the balance of raw material demand supply dynamics is expected to remain manageable. The ratings further take note of developments with regards to penalties imposed by CCP on certain sugar mills and legal proceedings for interim relief 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. 575m) on SSML will be significant therefore VIS will continue to monitor further development in this matter. Furthermore, any negative decision by the court of law will be incorporated in the rating action accordingly.

The ratings incorporate extensive sponsors experience in the sugar sector, satisfactory operating track records and financial flexibility in view of diversified revenue stream. Revenue of the company was reported lower during the outgoing year due to lower volumetric sales of both sugar and ethanol, partially offset by higher retail selling price of sugar. The gross margins of the sugar division improved during the outgoing year, however, demand dynamics kept ethanol production low. This along with strategic pricing policy to retain market share in ethanol impacted the overall gross margins. The gross margins, in the post Covid normalization internationally, are expected to revert to healthy levels during the ongoing year. The ratings draw strength from adequate liquidity position underpinned by improvement in cash flow position in relation to outstanding obligations during the ongoing year. Capitalization indicators were largely maintained; however, the same continue to remain slightly on a higher side in comparison to peer averages. Further, given there are no extensive capex plans in prospective, leverage indicators are expected to improve during the rating horizon owing to profitability retention. Going forward, the growth in topline would be largely driven by enhanced operations as there is room for improvement in capacity utilization indicators in sugar segment, storage capacity expansion planned for ethanol division coupled with sustained demand for ethanol; the same would strengthen overall risk profile of the company. The ratings will remain sensitive to maintaining capitalization and liquidity profiles at acceptable levels while improving coverages, going forward.

For further information on this rating announcement, please contact Ms. Maham Qasim (042-35723411-13, Ext. 8010) and/or the undersigned at 021-35311861-66 (Ext. 207) or email at info@vis.com.pk .


Faryal Faheem Ahmed
Deputy CEO

Applicable rating criterion: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .