Press Release

VIS Maintains Entity Ratings of RYK Mills Limited

Karachi, October 5, 2023: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of RYK Mills Limited (RYK) at ‘A/A-2’ (Single A/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 ‘Positive’. Previous rating action was announced on February 15, 2022.

RYK is primarily engaged in manufacturing and sale of sugar along with presence in power segment through 30 MW of bagasse-based independent power plant. Total sugarcane crushing capacity of the company, along with its subsidiary stands at ~35K tons per day. In Jan’23, the company has started commercial operations of its distillery plant at Tillo Bangla, Sadiqabad, with a total capacity of 125,000 liters/day. RYK has production units including sugar mill and power generation facility located at District Rahim Yar Khan, Punjab. Total sugarcane production in 2022-23 season was reported lower at 82.4m MT vis-à-vis 89.0m MT in the preceding year 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. Sugar prices have exhibited an upward trend lately primarily on account of inflationary pressure. Nonetheless, 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 on certain sugar mills. VIS will continue to monitor further development in this matter.

During MY22, the company posted a growth of ~42% in topline primarily on account of increase in volumetric sales of sugar. Gross margins improved mainly due to economies of scale and inventory gains emanating from selling low cost carryover sugar stocks. Resultantly, net margins increased despite increase in tax charge and finance cost. The revision in rating outlook is supported by improvement in business risk profile of the company following diversification into ethanol business, in the ongoing year. Positive demand dynamics of ethanol underpinned by increasing trend towards its blending with gasoline fuels in the international market, and export competiveness due to PKR devaluation bodes well for local industry players. In addition, the company is able to meet around 90% of the molasses requirement through in-house production and from its subsidiary company.

Liquidity position has remained largely adequate in terms of cash flow coverages on a timeline basis. The capitalization is underpinned by manageable leverage indicators backed by profit retention and continued sponsor’s support in form of equity injection to assist company’s operations. Financial risk profile is expected to strengthen further with higher contribution margins from ethanol exports. Improvement in corporate governance framework in line with international best practices may be viewed positively from rating purview. Realization of expected economic benefits from distillery operations, achieving projected growth in revenues and profitability remain key rating drivers. Besides this, ratings are dependent upon improving the liquidity and capitalization profile of the company along with diversification in funding sources.

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

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 .