Karachi, May 17, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Adam Sugar Mills Limited (ASML). Long-term rating of ‘A-’ signifies good credit quality; Protection factors are adequate while risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’.
Adam Sugar Mills Limited (ASML) is a public listed company, principally engaged in manufacturing and sale of sugar and by-products with operating history of nearly six decades. Major shareholding is vested with Mr. Ghulam Ahmed Adam while members of the Adam family are actively involved in management and supervision of operations. Headquartered in Karachi, ASML has the production unit located at District Bahawalnagar, Punjab while the stated sugarcane crushing capacity on per day basis stands at 4.6K MT.
Assigned ratings factor in the extensive sponsors experience, sound track record of operations, adequate financial indicators and sizeable improvement in production levels in the ongoing year. Ratings also reflect the management’s commitment for annual capital expenditure mainly to enhance production efficiencies and reduce process bottlenecks. Business risk profile of sugar sector is high given inherent cyclicality in crop levels and raw material prices; however, given higher crop coverage area and sugarcane production, improved yields and assurances of minimum support price to farmers, demand supply dynamics are expected to depict improvement.
The ratings further take note of developments with regards to penalties imposed by CCP on certain sugar mills and legal proceedings for interim relief initiated by the subject company. Ratings are constrained by limited scale of operations, capitalization levels and overall sales vis-à-vis similar rated peers, while no diversification of revenues increase the business risk.
Assessment of financial profile indicates improvement with strong growth in sales revenue in the ongoing year driven by significant jump in production volumes. The same has translated into improved bottom-line and cash flow generation, thus positively impacting the debt coverage metrics and overall liquidity buffers. However, current ratio continues to remain below 1.0x indicating room for improvement. Leverage and gearing ratios have trended downwards on a timeline basis on account healthy growth in equity base. The cyclicality of sugar sector, sustainability of internal cash flows and materialization of projected profitability would be among key rating drivers, going forward.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/