VIS Reaffirms Ratings of Chashma Sugar Mills Limited

Karachi, November 10, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Chashma Sugar Mills Limited (CSML) 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 October 18, 2019.

The ratings assigned to CSML take into account sizeable scale of sugarcane crushing operations and diversified revenue stream through forward integration into ethanol manufacturing. Increase in retail prices of sugar has resulted in notable increase in revenues and profit margins. While ethanol prices have also increased sharply as an outcome of surge in demand of sanitizing products due to Covid-19, distillery margins decreased owing to relatively higher cost of molasses.

Liquidity position has also improved on back of higher profitability, as reflected by adequate cash flows in relation to outstanding obligations. Improving trend has been witnessed in leverage indicators. The government taking measures for adequate sugar supply through action on hoarding and additional supply through imports, the pressure on sugar prices may occur in the next season which may impact margins and profitability.

However, according to the management, gross margins are projected to remain largely intact mainly on the back of marginal increase in Ethanol prices in rupee terms. Meanwhile, the ratings remained constrained on account of high business risk emanating from inherent cyclicality in crop levels, raw material prices and any adverse changes in regulatory duties. The company would need to maintain its crushing levels, margins, gearing and leverages, 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
Tel: +92-21-35311861-72
Fax: +92-21-35311873

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