Karachi, VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings for Ashraf Sugar Mills Limited (ASML) at 'A-/A-2'. The medium to long-term rating of 'A-' indicates good credit quality with adequate protection factors, though risk factors may vary with economic changes. The short-term rating of 'A-2' reflects a good certainty of timely payment, with sound liquidity factors and company fundamentals. The outlook on the assigned ratings remains stable. The previous rating action was announced on March 17, 2023.

According to VIS Credit Rating Company Limited, Ashraf Sugar Mills Limited, part of the Ashraf Group of Industries, was established in 1978. The group is involved in various sectors, including sugar production, coal mining, stone quarrying, livestock and dairy farming, power generation, corporate agriculture farming, and real estate development. ASML's headquarters are in Lahore, and its sugar mill is located in Ashrafabad, District Bahawalpur, producing refined sugar, molasses, and other by-products primarily for the domestic market.

The assigned ratings reflect the medium business risk profile of ASML, supported by moderate barriers to entry, the capital-intensive nature of the industry, and low inherent technology risk. However, the industry's cyclicality due to sugarcane production poses a raw material availability risk, while inelastic demand linked to the growing population provides some stability.

The ratings also take into account ASML's financial risk profile, which has seen a decline in topline but growth in margins due to improved sugar prices and inventory gains. The company's coverage profile has improved due to higher profitability, while its capitalization metrics weakened due to increased drawdown of short-term borrowings to meet working capital requirements. Despite this, the liquidity position remains adequate.

Going forward, the ratings will be sensitive to the company's revenue growth and further improvement in financial metrics.