Karachi, April 15, 2022 (PPI-OT):VIS Credit Rating Company Limited (VIS) has upgraded medium to long-term entity ratings of Deharki Sugar Mills (Pvt.) Limited (DSML) from ‘A-’ (Single A Minus) to ‘A’ (Single A) while maintaining short-term rating at ‘A-2’ (A-Two). The medium to long-term rating of ‘A’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamentals and liquidity factors. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on July 27, 2021.
Ratings assigned to DSML take into account its association with JDW Sugar Mills Limited (JDWS), the largest sugar manufacturer in the country. Being a wholly owned subsidiary of JDWS, the company draws various benefits from its parent including operational integration. In MY22, sugarcane production in the country is estimated to be ~11% higher than the preceding period due to increase in area under cultivation on account of favourable weather conditions and higher economic returns. Sugar production is also estimated to increase in line with higher cane production and largely intact recovery rates. However, the ratings do incorporate inherent cyclicality in crop levels and price vulnerability in sugar sector.
During MY21, topline recorded growth primarily due to better sugar prices which more than offset the decrease in quantity sold. The gross margins also improved mainly due to higher sugar prices despite increase in cane procurement cost. However, the company reported net losses on account of tax adjustments in the outgoing year. Overall liquidity profile remained adequate. Higher FFO is projected to support cash flow coverages in the ongoing year. Debt leverage and gearing have remained at manageable level.
Further, given decrease in long-term borrowings due to scheduled repayments along with equity expansion on the back of profit retention, capitalization indicators are projected to improve notably, going forward. The ratings will remain sensitive to maintaining capitalization and liquidity profiles at acceptable levels while improving coverages, going forward. Meanwhile, VIS will continue to monitor developments related to imposed penalty by Competition Commission of Pakistan and any other matter. Any negative decision by the court of law will be incorporated in the rating action accordingly.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/