Press Release

VIS Upgrades Ratings of Chashma Sugar Mills Limited

Karachi, October 18, 2019: VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of Chashma Sugar Mills Limited (CSML) from ‘BBB+/A-2’ (Triple B Plus/A-Two) to ‘A-/A-2’ (A Minus/A-Two). The long term rating of ‘A-’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on November 15, 2018.

The assigned ratings take into account CSML’s sizeable scale of sugarcane crushing operations and diversified revenue stream through forward integration into ethanol manufacturing, which provides adequate cushion against the inherent cyclicality of sugar sector. Higher revenue contribution from ethanol business has supported the company’s profitability during the past two years. The ratings also draw comfort from considerable improvement in net sales, profit margins and cash flows during 9MFY19, mainly on account of notable increase in sucrose recovery rate and higher sugar and ethanol prices in the domestic and international markets, respectively. CSML has also exhibited notable growth in FFO generation, mainly on the back of higher profits during the period under review, which resulted in slight improvement in coverages.

The company has also exhibited improvement in leverage indicators during the period on the back of augmentation of equity base. The said indicators are still on the higher side, though further improvement is expected, going forward. However, the company’s capacity to meet its financial obligations is considered adequate, as depicted by improvement in debt service coverage ratios. While the commodity risk is embedded in sugar business, the recent increase in domestic sugar prices may positively impact the profitability and cash flows of the company, going forward. The ratings are dependent on sustainability of improved sucrose recovery and profit margins, maintenance of adequate debt coverage, and moderation of leverage indicators.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.

Javed Callea

Applicable rating criterion: Corporates (May 2019);

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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