Press Release

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

February 27, 2019: VIS Credit Rating Company Limited (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 November 30, 2017.

The assigned ratings incorporate improving overall business and financial risk profile. Overall business risk profile is supported by improved profitability of the ethanol segment resulting in enhanced cash flow coverage of outstanding debt and increase in debt servicing ability. Ratings are constrained by weak business dynamics of the sugar sector and elevated leverage indicators.

Sugar sector has witnessed sizeable increase in ending inventory over the last two years. With significant decline expected in production, local demand supply dynamics are projected to depict some improvement in MY19. However, overall surplus inventories are expected to persist (even after accounting for strategic reserves) given significant ending inventory at end-MY18. Quantum of surplus inventories at end-MY19 will remain dependent on exports undertaken vis-à-vis allowed export quota. Business risk profile is supported by improved dynamics of the ethanol segment where availability of molasses at competitive rates along with enhanced production post increase in production capacity supported bottom line. Going forward, with lower forecasted sugar and resulting molasses production, industry ethanol exports and margins are expected to witness some decline from existing levels.

For SSML, overall profitability is expected to post double digit growth in MY19 on the back of improved revenues from the ethanol segment. The company has hedged the potential risk of unavailability of molasses (due to lower production) through advance procurement. Going forward, sizeable rupee depreciation, advance accumulation of molasses and full year impact of enhancement in ethanol capacity would support ethanol division’s revenues and margins. Despite the recovery in profitability, capitalization indicators still remain elevated. An expected trim down in inventory levels would push down utilization of short term borrowings which along with healthy internal generation is expected to result in improvement in capitalization indicators, going forward.

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, VIS Credit Rating Company Limited (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.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.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited