Karachi: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings to Ranipur Sugar Mills Limited (RSML or the Company) of ‘A-/A2’ (Single A minus/A Two). A medium to long-term rating of ‘A-‘ indicates good credit quality, with adequate protection factors, though risk factors may vary with possible changes in the economy. The short-term rating of ‘A2’ signifies a good likelihood of timely repayment of short-term obligations, supported by sound short-term liquidity factors. The initial ratings have been assigned a “Stable” outlook.
According to VIS Credit Rating Company Limited, RSML was established in 1998 and operates a sugar mill in Pakistan, focusing on the production and sale of white crystal sugar. The company also engages in electricity generation through an in-house power plant. Its by-products include molasses, bagasse, and biofuels. Recently, RSML expanded into ferro alloys, producing calcium carbide, which is used for fruit ripening, in the steel industry, and as a source of acetylene, among other applications. The mill is located in Ranipur, District Khairpur, Sindh, with the registered office situated in Karachi.
The assigned ratings reflect the moderate business risk profile of the sugar industry, characterized by inelastic demand, low substitute risk, and a high degree of fragmentation within the sector. Despite the inherent seasonality and sensitivity to sugarcane production and quality, the industry benefits from stable demand driven by population growth, government measures supporting export activities, and recent discount rate cuts that ease pressure on the financial risk profile. However, the industry’s outlook remains constrained due to prevailing economic conditions and fluctuations in sugarcane production and pricing.
The ratings also consider RSML’s revenue growth, driven by increased local sugar prices and diversification into the ferro alloy segment. The company’s profitability has shown resilience despite a higher finance cost burden, supported by other income mainly from writing back of liabilities, which the company deems no longer payable. Liquidity metrics have improved due to better internal cash management and enhanced inventory turnover. However, the capitalization profile remains dominated by short-term borrowing and significant loans provided by the sponsors. Coverage metrics have improved, benefiting from enhanced cash generation and profitability during the review period.
Going forward, the assigned ratings will remain sensitive to several key financial and operational factors. This includes continued improvements in profitability, liquidity, and capitalization metrics, as well as the management’s commitment to convert the sponsors’ loans into long-term debt. Ratings will remain underpinned by the availability of sponsor support for the Company going forward. Improvements in governance and external reporting will also be an important consideration for future reviews.