Press Release

JCR-VIS Reaffirms Ratings of Shahmurad Sugar Mills Ltd at A-/A-2

Karachi, November 30, 2017: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Shahmurad Sugar Mills Limited (SSML) at ‘A-/A-2’ (Single A Minus/ A-Two). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on April 28, 2016.

Shahmurad Sugar Mills Ltd (SSML) was incorporated in 1979 as a public company. Production facilities of SSML include sugar and ethanol manufacturing units. Export of ethanol forms a sizeable portion of the company’s sales.

The assigned ratings are constrained by the demand supply imbalances in the sugar market, locally and internationally. Given this scenario, the ratings derive strength from the demonstrated financial support by sponsor which JCR-VIS expects to continue, if required.

Given the abundant supply of sugarcane crop during FY17, the quantity of sugarcane crushed increased along with an increase in capacity utilization. Furthermore, a slight improvement was also witnessed in the recovery rate. However, due to supply glut in the sugar sector, average local prices have remained depressed over the year resulting in negative gross margins from sugar segment. Meanwhile, proceeds from ethanol division stood higher on account of improved margins due to higher ethanol prices. Owing to underperformance of the sugar segment, financial profile has weakened on a timeline basis. However, capacity increase in ethanol division which is expected to come online in the third quarter of FY18 may improve cash flows being generated from operations. Achievement of the same is considered critical from ratings perspective given that demand supply imbalance in sugar is expected to continue.

The asset base of the company increased on the back of higher stock level amounting to Rs. 3.8b in 9MFY17 which resulted in increased short term borrowings. This led to pressure on leverage indicators at end 9MFY17. However, on account of higher sales in the first quarter of FY18, inventory levels, short term borrowings as well as leverage indicators are expected to decline.

For further information on this rating announcement, please contact the undersigned (Ext: 207) at 021-35311861-71 or fax to 021-35311872.

Jamal Abbas Zaidi

Applicable Rating Criteria: Industrial Corporates (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. JCR-VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2017 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited