Karachi: VIS Credit Rating Company Limited (VIS) has updated its ratings for Shakarganj Food Products Limited (SFPL), stabilizing the company's outlook from 'Negative' to 'Stable' while revising the instrument rating from 'BBB+' to 'BBB-'. This adjustment reflects the company's adequate credit quality amidst a challenging market environment for dairy products.

According to VIS Credit Rating Company Limited, the medium to long-term rating of 'BBB-' suggests that SFPL maintains reasonable and sufficient protection factors, with variable risks depending on economic shifts. The short-term rating of 'A-3' indicates satisfactory liquidity and qualifies the company as investment grade, although it acknowledges larger risk factors that are subject to fluctuations.

SFPL, a subsidiary of Shakarganj Mills Limited and associated with BankIslami Pakistan Limited, has navigated intense competition within the dairy industry, which remains sensitive to exchange rate and price risks, particularly concerning imported raw materials like skimmed milk powder and edible oils. Despite these challenges, SFPL managed to improve its margins and profitability in FY23, thanks to higher product prices, even as revenue declined due to lower sales volumes.

The company issued PKR 725 million worth of rated, secured, shariah-compliant sukuk certificates in July 2018. After undergoing a restructuring supported by investors, the remaining amount of Rs 326.25 million is scheduled for redemption starting in July 2024. VIS notes that the company's projections indicate sufficient cash flows to cover these payments.

The revised ratings reflect both the risks and the improvements within SFPL, with future ratings dependent on the company's continued financial performance and ability to manage its capital structure effectively.