Karachi: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Sheikhoo Sugar Mills Limited (SSML) at 'A-/A-2', reflecting good credit quality and a stable outlook, consistent with assessments from the previous year. The ratings indicate a robust likelihood of timely financial obligations fulfillment, supported by sound short-term liquidity factors.

According to VIS Credit Rating Company Limited, SSML's ratings are underpinned by its dual operations in the sugar and steel sectors, with the medium to long-term rating of 'A-' denoting adequate protection factors, though subject to economic fluctuations. The short-term 'A-2' rating suggests a positive forecast for meeting short-term liabilities. These evaluations were last updated in June 2023 and remain stable.

SSML, established on January 3, 1990, in Lahore, Pakistan, engages primarily in the production and sale of white refined sugar and its by-products. The company has expanded its operations to include a steel re-rolling mill, utilizing its surplus power generation capacity. This diversification effort began contributing to the company’s revenue streams with commercial operations starting in October 2023.

The ratings take into account the inherent risks and cyclicality of the sugar and steel industries, including the high seasonality of sugarcane production and the intense competition in the steel sector. Despite these challenges, SSML's strategic diversification into the steel sector and plans for an ethanol plant enhance its business stability. Revenue growth in the recent fiscal periods has been bolstered by higher average selling prices for sugar and new steel products, although profit margins have been pressured by rising finance costs and higher sugarcane prices.

VIS also notes that SSML’s financial health is supported by adequate liquidity and manageable capitalization metrics, despite increased leverage for inventory procurement during the sugar crushing season. The company’s future ratings are poised to reflect its ability to manage economic pressures and maintain solid financial ratios, with ongoing efforts to diversify its product offerings and improve operational efficiencies.