Karachi, November 17, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Fatima Sugar Mills Limited (FSML) 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 repayment, sound liquidity factors and good company’s fundamentals. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on February 12, 2020.
FSML is a part of ‘Fatima Group’, a large conglomerate operating in the country, having business interests in fertilizer, textile, energy, sugar, and commodities trading sectors. FSML is mid-sized sugar mill with overall crushing capacity of 11,500 tons per day while its electricity requirement is met through in-house bagasse-based power unit. The company sells refined sugar both in the local and international markets, though proportion of local sales has increased significantly during 9MFY20.
Growth in net revenue and higher margins were largely a function of higher selling prices of sugar and molasses in the local market. The company also reported higher profits for the period as the impact of decrease in sucrose recovery rate and increase in sugarcane support price was more than offset by higher sugar price. Funds from Operations (FFO) increased in line with higher profitability that resulted in slight improvement in the debt service coverage ratio.
By end-FY20, leverage indicators have improved considerably on account of decline in short-term borrowings and equity expansion. The company is pursuing Balancing, Modernization and Replacement (BMR) of its sugar mill, which is scheduled to be completed in two phases; Phase-I is currently underway and is expected to be completed by end-December’2020 while Phase-II will take another year and is planned to be completed by December’2021. The replacement of old machineries and spare parts will contribute towards cost efficiencies.
The BMR is being funded through mobilization of long-term borrowings, though the management anticipates gearing to remain at similar levels with expected equity enhancement. Going forward, the ratings would remain sensitive to maintenance of leverage indicators at prudent levels and adequate debt service coverage. Meanwhile, the ratings are constrained due to inherent commodity business risk present in sugar sector and any adverse changes in regulatory duties.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
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