Press Release

VIS Reaffirms Entity Ratings of Fatima Sugar Mills Limited

Karachi, November 05, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Fatima Sugar Mills Limited (FSML) at ‘A-/A-2’ (Single A Minus/A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely repayment, sound liquidity factors and good company’s fundamentals. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on November 17, 2020.

FSML is a part of ‘Fatima Group’, a large conglomerate operating in the country, having business interests in fertilizer, textile, energy, sugar, and commodities trading sectors. FSML is mid-sized sugar mill with overall crushing capacity of 11,500 tons per day. The company sells refined sugar and molasses both in the local and international markets, though no exports were made during 9MFY21. Growth in net revenue was a function of higher volumetric sales for all the key products and improved sugar selling price during 9MFY21. However, profit margins declined as the impact of higher sugar price was more than offset by increase in sugarcane procurement price, decrease in sucrose recovery rate owing to early start of crushing season, and lower selling price of molasses in the absence of any export opportunities. Weakness in profit margins needs to be arrested to avert the developing pressure on rating drivers.

Funds from operations (FFO) were recorded in line with the profits, which along with the lower interest payment resulted in improved debt service coverage ratio by end-9MFY21. Meanwhile, decrease in FFO-to-total debt ratio was led by higher short-term borrowings for working capital requirements and mobilization of new long-term loan for capex. While debt repayment capacity is considered adequate, overall liquidity is impacted by increasing loans to associated undertakings. Despite growth in equity base on account of profits retention, increase in gearing and debt leverage by end-9MFY21 was due to higher utilization of short-term borrowings owing to seasonality factor and mobilization of long-term loan for capex. While the company is mobilizing new long-term loan facility for the ongoing BMR requirements, the leverage indicators are expected to remain manageable on account of internal capital generation. Going forward, the ratings would remain sensitive to maintenance of leverage indicators at prudent levels and adequate debt service coverage. Meanwhile, the ratings are constrained due to inherent commodity business risk present in sugar sector.

For further information on this rating announcement, please contact Syed Fahim Haider at 042-35723411-13 (Ext: 8006) or the undersigned at 021-35311861-70 (Ext. 201) or email at info@vis.com.pk







Faryal Ahmad Faheem
Deputy CEO

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

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