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Karachi, December 31, 2014 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Al Noor Sugar Mills Limited (ASML) at ‘A-/A-2’ (Single A Minus/ A-Two). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on November 25, 2013.
Sugar is characterized by price in-elasticity; demand over the long term is driven by changing consumption patterns and growth in population. Currently, the industry is under-going a down cycle and prices have remained depressed for an extended time.
Despite a decline in forecasted sugar production in 2015 vis-à-vis previous year; prices are expected to remain range bound over the foreseeable horizon mainly due to continuity of surplus availability of sugar.
ASML is operating with two divisions, sugar and Medium Density Fiber Board (MDFB). Moreover, the company sells surplus power generated during the crushing season to Water and Power Development Authority.
Prolonged crushing season translated into higher sugar production and improved top line in FY14. However, gross margin for the sugar division declined slightly on account of lower sucrose recovery rate and depressed market prices.
The bottom line receives support from the MDFB division; gross margins of the same have improved over time on the back of diversification into value added products, for which capex has been undertaken.
While having trended downwards, short term borrowings remain sizeable at year-end as the company had carry over inventory. Given the long inventory holding period, reduction in borrowing cost in line with market rates is likely to bode well for the company’s bottom line, going forward, in context of depressed sugar prices.
Long-term borrowings of the company have increased due to expansion in the MDFB plant. Debt service coverage ratio remains adequate; however, further increase in long term borrowings may not be considered prudent.
For more information, contact:
Ms. Sobia Maqbool
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk