Karachi, December 29, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Sheikhoo Sugar Mills Limited (SSML) 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 payment coupled with sound company fundamentals and liquidity factors. The previous rating action was announced on November 07, 2019.
The ratings assigned to SSML take into account moderate business profile of the company, largely underpinned by ample experience of sponsors led management in the sugar sector, sizeable crushing operations and long-standing strong business relationships with institutional customers. Moreover, the ratings incorporate diversification into steel business; billet plant became operational in Feb’20.
The company is going into value-addition in steel segment by establishing a steel re-rolling mill which is expected to become operational by end-Mar’22. Current power requirement of the sugar division and steel division is entirely met through bagasse based boilers of 49 MW capacity. Installation of high-pressure boiler of 30 MW is in the pipeline to replace some old boilers for efficient bagasse consumption.
Profit margins exhibited a notable improvement mainly on back of higher sugar prices. Revenue generated from billet sales has also contributed positively to the bottom line during 9MFY20. Liquidity has remained adequate as reflected by cash flows in relation to outstanding obligations. The ratings also factor in fresh equity injection by sponsors and their continued support for working capital requirements by extending interest-free loans.
Despite increase in borrowings, leverage indicators have remained manageable. Meanwhile, the ratings are constrained due to inherent business risk present in sugar sector and any adverse changes in regulatory duties. Further, with respect to steel sector, the ratings are exposed to both local and international demand cyclicality and foreign exchange risk. Management of capitalization indicators within acceptable levels and realization of expected revenues and profits from steel plant are considered important, going forward.
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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