Karachi: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Chashma Sugar Mills Limited (CSML) at ‘A-/A-2’, reflecting a stable outlook and a good credit quality. The medium to long-term rating of ‘A-‘ suggests adequate protection factors, although risk factors may vary with changes in the economy. The short-term rating of ‘A-2’ highlights a sound likelihood of timely repayment of obligations.

According to VIS Credit Rating Company Limited, the reaffirmation of these ratings takes into account several factors that influence CSML’s financial and operational landscape. CSML, a key player in the sugar manufacturing sector of Pakistan, continues to navigate the economic conditions and competitive pressures within the industry. As of October 2023, CSML’s subsidiary, Ultimate Whole Foods (Pvt.) Limited, expanded its operations into grain milling, diversifying the company’s production capabilities.

The ratings consider the moderate business risk profile typical of the sugar industry, which includes low economic cyclicality but significant seasonal impacts. This seasonality affects sugarcane production quality and pricing, with the profitability of CSML currently under pressure due to rising costs and fluctuating market prices for granulated sugar. The company faces operational challenges from increased finance costs and government-regulated sugarcane prices, which differ from market-driven sugar prices.

The report further notes that CSML’s financial health is also characterized by an increased reliance on short-term debt to manage working capital needs, leading to a decrease in liquidity ratios. Looking forward, the company’s strategic decisions regarding the management of sugarcane prices and the potential sale of unutilized property to enhance liquidity will be pivotal in maintaining its credit ratings. Additionally, the availability of sponsor support to address any financial shortfalls remains a critical factor for CSML’s stability.