VIS Reaffirms Etihad Sugar Mills’ Credit Ratings Amid Sector Challenges

Karachi: VIS Credit Rating Company Limited has reaffirmed the entity ratings of Etihad Sugar Mills Limited, maintaining its status at ‘A/A2’, reflecting good credit quality and highlighting the company’s ability to meet short-term obligations. The outlook for these ratings remains stable, despite the challenges posed by the broader economic environment.

Etihad Sugar Mills Limited, established in 2006, operates primarily in the manufacturing and sale of sugar and its byproducts. The company’s headquarters are located in Lahore, with production facilities in Rahim Yar Khan, Punjab. The reaffirmation of its ratings underscores the company’s resilience in a sector characterized by seasonal production patterns and regulatory pressures.

The ratings take into account the inherent business risks in Pakistan’s sugar industry, which include competition for raw materials, price volatility, and regulatory interventions. The concentrated harvesting period necessitates maintaining sugar stock year-round, which increases exposure to inventory costs. Factors like limited mechanization and weather sensitivity continue to affect crop yields and sucrose recovery rates. Despite these challenges, the essential nature of sugar keeps demand-side risks relatively low.

Financially, Etihad Sugar Mills has shown revenue growth through price increases, even as sales volumes have declined due to lower production. This decline stems from reduced sucrose recovery and delays in government export approvals, which have led to increased inventory levels and affected profit margins.

The company has faced higher finance costs due to increased short-term borrowings required for working capital, affecting net profitability. However, the financial metrics, including gearing and leverage, remain within industry norms. Liquidity remains adequate, aligned with the reaffirmed ratings.

The company’s future ratings will be sensitive to fluctuations in sugar prices, procurement costs, and interest rate changes. Maintaining profitability margins and effective management of working capital will be crucial for sustaining its ratings.