Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Indus Sugar Mills Limited at ‘A-/A-1’, indicating a stable outlook with a strong likelihood of timely repayment of short-term obligations. This rating reflects the company’s solid financial structure and good credit quality despite the inherent risks associated with the sugar industry.
According to VIS Credit Rating Company Limited, the latest ratings assessment for Indus Sugar Mills, conducted on October 16, 2024, considers both the medium to long-term and short-term investment horizons. The ‘A-‘ rating signifies good credit quality where protection factors are generally adequate but may deteriorate if the economy faces major disruptions. Meanwhile, the ‘A-1’ rating points to a strong capability for timely financial commitments, bolstered by excellent liquidity conditions.
Indus Sugar Mills, established in 1980 under the Companies Act of 1913 and operating from Kot Bahadur, Rajanpur, engages primarily in the production and sale of crystal sugar and related by-products. The industry is characterized by low exposure to economic cycles but is significantly affected by seasonal variations and the cyclicality of crop yields and raw material prices.
The ratings take into account the moderate business risk profile of the sugar sector in Pakistan, which faces fluctuations in sugarcane production and quality. Despite high industry fragmentation and the minimal threat of substitutes given sugar’s essential role, competitive risks are deemed medium to low.
The assessment also notes some challenges, including weakened profitability due to rising procurement costs. However, the company has maintained strong liquidity with an adequate current ratio and conservative capitalization, though there was an increase in gearing and leverage ratios at the end of the current review period attributed to seasonal borrowing. The company’s debt service coverage ratios remain healthy, supporting a sound coverage profile.
Looking forward, VIS highlights that the key factors influencing future ratings will be the company’s management of rising sugarcane prices and its ability to control procurement costs amid potential softening sugar prices. These elements are crucial for maintaining the current ratings and ensuring the company’s continued financial health.
The Lahore Chamber of Commerce and Industry remains steadfast in its commitment to defending the rights of businesses and ensuring a fair, transparent, and conducive environment for industrial growth in Pakistan. It called on the authorities to prioritize the resolution of these pressing issues, warning that failure to do so will have severe implications for the broader economy.