Press Release

JCR-VIS assigns initial ratings to Chashma Sugar Mills Limited
 

Karachi, November 15, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial entity ratings of ‘BBB+/A-2’ (Triple B-Plus/A-Two) to Chashma Sugar Mills Limited (CSML). The medium to long-term rating of ‘BBB+’ denotes adequate credit quality with reasonable protection factors. Moreover, the risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamental and liquidity factors. Outlook on the assigned ratings is ‘Stable’.

The ratings assigned to CSML take into account its association with The Premier Group having business interests in sugar, high grade polypropylene, tableware and distribution of consumer goods and pharmaceuticals. The ratings draw comfort from sizeable scale of operations and revenue diversification through forward integration in ethanol business providing an adequate cushion in withstanding the impact of cyclicality of sugar sector. However, the ratings remained constrained on account of heightened financial risk owing to increased leverage indicators and weakening of debt coverages.

Despite slight increase in the volumetric sales of sugar, net sales of the company remained largely stagnant during FY17 owing to decline average selling price of sugar. Revenue contribution from ethanol unit has exhibited improvement on a timeline basis. With the proportion of ethanol sale comprising one-fourth of the total revenue mix, the gross margins showcased improvement during 9M18 despite ongoing slump in the retail prices of sugar. Higher margins, streamlining of finance cost, increase in other income and lower incidence of taxation led to improvement in profitability during 9M18.

The equity base of the company has steadily strengthened on the back of profit retention. The growth in debt levels during 9M18 is cyclical in nature, mainly pertaining to higher short-term borrowings arranged primarily to finance stock inventory and to finance sugarcane procurement. Given higher short-term borrowings carried on the balance sheet, gearing and leverage indicators have witnessed an increasing trend on a timeline basis. The ratings are dependent on projected improvement in gearing and debt coverage, going forward.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.

Javed Callea
Advisor

Applicable rating criterion: Industrial Corporates (May 2016)
http://jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf

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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 2018 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