Press Release

VIS Reaffirms Entity Ratings of RYK Mills Limited

Karachi, February 15, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of RYK Mills Limited (RYK) at ‘A/A-2’ (Single A/A-Two). Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on February 19, 2021.

Ratings reaffirmation continues to factor in the extensive sponsors experience, long-standing business relationships with institutional customers and sizeable sugarcane crushing operations along with the presence in power division. Ratings also reflect the improvement in crushing capacity over the past two years on the back of significant capex pertaining to steam efficiency enhancement and reduction of process bottlenecks. During the period under review, the company fully divested its wholly-owned subsidiary, SW Sugar Mills Limited, with immediate payment settlement. Business risk profile of sugar sector is high given inherent cyclicality in crop levels and raw material prices; however, given the indication of higher crop coverage area demand supply dynamics are expected to depict some improvement in the ongoing year. 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. 1.5b) on RYK will be significant and hence VIS will continue to monitor further development in this matter.

The management has planned to set up a new distillery plant with stated ethanol production capacity of 125,000 liters per day. At present, the project has a completion status of ~60%. The production unit will be located off-site in the district Rahim Yar Khan, near existing sugar manufacturing units. This would facilitate in smooth procurement of molasses from RYK and its subsidiary (Alliance Sugar Mills Limited). Moreover, a turbine of ~16MW is also in the installation phase. Total estimated cost of the project is Rs. 3.5b; of which 30% will be funded through internal capital generation with the remaining being financed through a 10-year (inclusive of 2 years grace period) long term financing facility. The project is expected to come online in Nov’22.

Assessment of financial profile indicates weakening with the declining trend in operating margins while CPPA related bad debts write-off further impacted the profitability in the outgoing year. In addition, the continued decline in cash flow generation exerts pressure on debt coverage metrics. However, inflows from sale of subsidiary would extend some ease to the liquidity profile with the same being utilized for working capital and other needs. Leverage indicators have also elevated since last review. Ratings remain dependent on sustainable and sufficient internal cash flow generation along with maintenance of threshold leverage indicators.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 204) or the undersigned (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3 or email at info@vis.com.pk





Javed Callea
Advisor

Applicable Rating Criteria: Industrial 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 .