Press Release

VIS Reaffirm Entity Ratings of Al-Noor Sugar Mills Limited

Karachi, March 30, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Al-Noor Sugar Mills Limited (ASML) at ‘A-/A-2’ (Single A minus/Single A-Two). The long term rating signifies good credit quality with adequate protection factors. Risk factors are considered variable if changes occur in the economy. Short term rating of ‘A-2’ depicts good certainty of timely payment. Liquidity factors and company fundamentals are sound with good access to capital markets. Risk factors are small. Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on February 18, 2019.

The reaffirmation of rating takes into account satisfactory operating track record, extensive experience of sponsors in the sugar sector, diversified operations and some improvement in financial profile in MY19 and in the ongoing year. However, leverage indicators and cash flow coverages have room for improvement. While increase in sugar cane prices and lower recovery ratio is expected to impact profitability of sugar produced in the ongoing year, overall profitability for MY20 is expected to improve given the sizeable carryover stock from the preceding year, expected increase in profitability of the MDFB segment and sizeable revenues from sale of molasses and bagasse. Ratings will remain contingent on improving cash flow coverages and maintaining adequate leverage indicators.

Business risk profile of the sugar sector is considered high given the inherent cyclicality in crop levels and raw material prices. Moreover, distortion in pricing mechanism of raw material prices and refined sugar also creates challenges for sugar mills. Given the decline in area under cultivation in MY19 and the ongoing year and the resultant decline in sugar production, average sugar prices have increased by 19% in MY19 and 16% in the ongoing year. However, increase in profitability is expected to be limited (barring those players that have sizeable carryover stock) due to significant jump in sugar cane prices and decline in recovery ratio (Tiddi Dal pest attack) in the ongoing year. While demand and supply dynamics are expected to result in an increase in sugar prices, significant politicization of sugar prices may cap increase in sugar prices. Recent decline in international sugar prices ($336/ton as of 24th March vis-à-vis average price of $413.9/ton in the month of February) is also expected to cap increase in domestic sugar prices given the threat of imports. Business risk profile draws support from diversification in MDFB segment which has consistently contributed to profitability over the years. However, disruption in operations due to coronavirus outbreak remains a key business risk factor.

For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext: 306) at (021) 35311861-66 or email at .

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Industrial Corporates (April 2019)

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 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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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