Lahore, VIS Credit Rating Company Limited (VIS) has maintained its entity ratings for Faran Sugar Mills Limited (FSML) at ‘A-/A-2’, signifying good credit quality and a stable outlook. This reaffirmation reflects FSML's strong position in the sugar industry despite recent economic fluctuations and industry-specific challenges.
According to VIS Credit Rating Company Limited, FSML, a key player in the manufacturing and selling of white refined sugar, is part of the Amin Bawany Group (ABG). The group has interests in various sectors including sugar and allied products, power, modaraba, and insurance. The sugar industry faced production challenges in the 2022-23 season with a decline in sugarcane production to 82.4 million metric tons compared to 89.0 million metric tons in the previous year, primarily due to heavy flooding in the country. Despite these challenges, FSML managed to maintain a good credit rating.
The sugar market experienced consistent price pressures throughout the last crushing season due to excessive sugar stocks, although the government permitted 250,000 metric tons of exports. Post-season, sugar prices saw a significant increase, aligning with broader inflationary trends. Retail sugar prices, while high, have shown a recent downward trend following government interventions to curb smuggling. With higher indicative prices for sugarcane and lower sugar stocks nationally, sugar prices are anticipated to rise.
FSML's performance in the first nine months of 2023 showed topline growth driven by both price and volumetric increases in sugar sales, which constituted a significant portion of the total sales mix. Despite high financial charges, the company's margins and profitability were bolstered by increased turnover, inventory gains, and profits from an associate.
While the company's leverage and gearing remained elevated, they improved marginally due to an increase in the equity base. Cash flow coverages decreased due to higher long-term loan repayments. The management does not anticipate mobilizing further long-term loans in the foreseeable future, and leverage indicators are expected to improve with timely loan repayments and equity base augmentation.
The revision in outlook to stable considers FSML’s improved margins and its resilience in the face of recent floods. Going forward, the ratings will depend on the realization of projected revenue growth, income from a subsidiary to support profitability, and improvements in coverage and leverage indicators.