Press Release

VIS Reaffirms Entity Ratings of Madina Sugar Mills Limited

Karachi, February 23, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Madina Sugar Mills Limited (MSML) at ‘A-/A-2’ (Single A Minus/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 October 22, 2020.

The ratings assigned to MSML take into account its association with Madinah Group, having business interests in various sectors encompassing edible oils, sugar, ethanol, power generation, mass media and steel. The assigned ratings factor in diversification by the company into ethanol business to curtail the impact of sugar sector cyclicality. The company has recently embarked on establishing a steel unit in order to capitalize on in-house bagasse and steam production and to further diversify operations. The ratings also incorporate notable growth in revenue, driven largely by improved selling prices for the key products and higher ethanol export volumes, partially offset by slight decrease in sugar volumes during MY21. However, some weakness in profitability profile has been witnessed over the last couple of years mainly due to higher sugarcane prices and decline in ethanol prices in the international and local markets; declining trend in profit margins needs to be arrested. The ratings further take note of developments with regards to penalties imposed by CCP on certain sugar mills and legal proceedings for interim relief initiated by the subject company. However, in the meanwhile, uncertainty of the outcome would persist on the sector. The material impact of penalty imposed (amounting to Rs. 1.2b) on MSML will be significant, and hence VIS will continue to monitor further development in this matter.

Liquidity profile is supported by higher cash flows generation and manageable working capital cycle. The company’s capacity to meet its financial obligations is considered adequate, as reflected in improved coverage ratios during MY21. As the company mobilized two new long-term facilities in order to re-profile its borrowing mix, the management may need to maintain a buffer over a minimum threshold of debt service cover, going forward. Subsequent to the said re-profiling, the current ratio has improved. Meanwhile, overall leverage indicators have improved and remained in an adequate zone. Going forward, the ratings take into account the positive impact of the management’s plan not to mobilize further long-term borrowings as capex related to steel unit will mainly be financed through equity.

For further information on this rating announcement, please contact Syed Fahim Haider at 042-35723411-13 (Ext: 8006) or the undersigned at 021-35311861-70 (Ext. 201) or email at info@vis.com.pk








Faryal Faheem Ahmed
Deputy CEO

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

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