Press Release

JCR-VIS Assigns Initial Ratings to Madina Sugar Mills Limited

Karachi, June 29, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A-Minus /A-Two) to Madina Sugar Mills Limited (MSML). Outlook on the assigned ratings is ‘Stable’.

The assigned ratings take into account its sizeable scale of operations and experienced management. Ratings also derive strength from diversification in revenue stream owing to vertical integration with distillery unit-III providing adequate cushion against cyclicality in the sugar business. The operational performance of the company is supported by well-established relationships with the farmers and continuous improvement in both sucrose and molasses recovery rates. The ratings also reflect company’s minimal reliance on long-term debt, improved cash flows generation and adequate debt service coverage. However, ratings remained constrained on account of stringent government policies on sugarcane procurement prices, depressed sugar prices and declining profit margins.

Sales have showcased sizeable growth on the back of increased sugar and ethanol dispatches over the review period. Total sugarcane crushing has increased at a CAGR of 49%, over the past three years, along with a multifold growth in ethanol production. Despite significant growth in sales, profit margins continued to decline on account of higher procurement prices while average selling price of sugar remained under pressure given prevailing sugar surplus in the market. Going forward, overall profitability is expected to improve owing to growth in ethanol business entailing currently higher profit margins than sugar sector. Credit risk regarding sugar business remained manageable as the company has inked supply contracts with large institutional clients. With higher profits, funds from operations (FFO) improved, resulting in adequate debt service coverage.

Equity base has augmented on account of profit retention. The company’s debt profile primarily comprises short-term borrowings which have increased in line with higher working capital requirements. However, both gearing and leverage indicators have remained below 0.85x over the past three years. Going forward, ratings would remain dependent on maintaining adequate capitalization, profitability and 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: Industrial Corporate (May, 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited JCR-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.JCR-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.JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.JCR-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 2018 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited