Press Release

VIS Reaffirms Entity Ratings of Etihad Sugar Mills Limited

Karachi, October 25, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Etihad Sugar Mills Limited (ESML). Long-term rating of ‘A-’ signifies good credit quality; Protection factors are adequate while risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on December 06, 2021.

Ratings reaffirmation continues to take into account ESML's satisfactory operational track record, strong sponsor experience and ongoing support (in the form of interest-free loans), and adequate financial metrics. Business risk profile of sugar sector is high due to inherent cyclicality in crop levels and raw material prices. Sugar production exceeded expectations during the current season, resulting in low retail prices. However, given the impact of floods on the sugarcane crop in Sindh and South Punjab, sugar retail prices are likely to trend upwards in the future. 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.

Despite higher production levels, sales in the current season have remained sluggish due to lower quantity sold and decline in retail prices thus affecting profitability margins and cash flow generation. Overall liquidity buffers are adequate; however, coverage of short-term borrowings in relation to stock in trade and trade debts has sizeable room for improvement. Leverage indicators have trended downwards over time on account of sustained growth in equity base. The cyclicality of sugar sector, improvement in profitability and internal cash flows would be among key rating drivers, going forward.

ESML’s long-term investment portfolio, representing nearly one-fifth of total asset base, comprises investment in two associates (Etihad Alloys Private Limited & Etihad Power Generation Limited (EPGL) - 74MW bagasse-based power project) and one subsidiary (Skyways Aviation Private Limited). The company has provided Rs. 3.1b to EPGL over the last two years, as an interest-bearing loan with repayment tenure of five years, to be paid in lump sum. In addition, markup on these loans given to related parties, continues to support the earnings profile.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 204) or the undersigned (Ext: 207) at 021-35311861-71 or fax to 021-35311872-3.





Sara Ahmed
Director

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

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