Press Release

VIS Reaffirms Entity Ratings of Two Star Industries (Pvt.) Limited

Karachi, November 17, 2023: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Two Star Industries (Pvt.) Limited (‘TSIPL’ or ‘the Company’) at ‘BBB+/A-2’ (Triple BBB Plus/ A-Two). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality; protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on October 18, 2022.

TSIPL was incorporated in 2016 and is co-owned by Umer Group of Companies and RYK Group. The principal business of the Company is to manufacture and sale of white refined sugar and its by-products. The registered office is located in Lahore, Punjab, whereas the manufacturing facility in District Toba Tek Singh. 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 will increase, going forward. Nonetheless, the ratings do incorporate inherent cyclicality in crop levels and price vulnerability in sugar sector leading to competitive challenges for the company.

In MY23, the Company exhibited significant growth in topline, driven by around 30% increase in volumetric sales and nearly 26% increase in average selling prices vis-à-vis preceding year. This, along with higher sucrose recovery rates resulted in significant increase in gross margins. The operating expenses remained largely rationalized with inflationary pressure. Resultantly, despite augmentation in finance cost, net margins improved notably in MY23. Debt service coverage has improved mainly on the back of higher funds from operations. However, current ratio has remained below one, largely due to significant advances from customers for sale of sugar. The leverage indicators depicted improvement primarily on account of substantial decrease in short-term borrowings, along with growth in equity base led by higher internal capital generation and equity contribution from sponsors by way of interest free, discretionary loans. Meanwhile, improvement in overall liquidity profile and capitalization indicators is considered imperative from ratings purview.

For further information on this ratings announcement, please contact Ms. Tayyaba Ijaz, CFA (Ext: 8001) or the undersigned (Ext: 207) on 021-35311861-64 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 Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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