Press Release

VIS Assigns Initial Ratings to Indus Sugar Mills Limited

Karachi, Nov 08, 2022: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-1’ (Single A Minus/A-One) to Indus Sugar Mills Limited (ISML). 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-1’ denotes high certainty of timely payment, with excellent liquidity factors and supported by good fundamental protection factors. Outlook on the assigned ratings is ‘Stable’.

ISML is principally engaged in production and sale of sugar and its byproducts. The shareholding of the company is vested with three families in equal proportion. ISML’s manufacturing facilities are located at Kot Bahadur, Rajanpur, in Southwestern Punjab. The company also owns agricultural farms over an area of 4000 acres near the mill. The mill operates on self-generated power from bagasse fueled captive facility of 11 MW capacity. A bumper sugarcane crop has been recorded during 2021-22 season, up by 9.4% over the preceding period due to increase in area under cultivation led by higher economic returns, favorable weather conditions and timely availability of quality inputs. Sugar production also increased in tandem with higher cane availability and largely intact recovery rates. Whilst the sugarcane production was forecasted to increase marginally during 2022-23, the recent floods have brought devastation for major crops in the country, including sugarcane.

The assigned ratings incorporate sustained topline during the last two years. The margins remained sizeable on the back of higher sugar prices, better sucrose recovery rates and cane procurement at competitive rates. Liquidity profile is underpinned by healthy cash flow coverages in relation to outstanding obligations. Cash conversion cycle of the company has also remained favorable relative to industry. The company has low leveraged capital structure, supported by equity growth due to profit retention, and lower debt levels. Maintaining liquidity and capitalization profiles would remain imperative for the ratings. Meanwhile, the ratings are constrained due to inherent cyclicality in crop levels and price vulnerability in sugar sector in the absence of diversified operations by the company. The issue of penalty imposed by Competition Commission of Pakistan lingers on and is being contested by the company, developments therein would be noted as they materialize.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA at 042-35723411-13 (Ext. 8005) and/or the undersigned at 021-35311861-66 (Ext. 207) or email at info@vis.com.pk


Sara Ahmed
Director


VIS Entity Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .