Press Release

VIS Reaffirm Entity Ratings of Deharki Sugar Mills (Private) Limited (DSML)

Karachi, April 27, 2020: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Deharki Sugar Mills (Private) Limited (DSML) 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 March 13, 2019.

Ratings assigned to DSML take into account its association with JDW Sugar Mills Limited (JDWS), the largest sugar manufacturer in the country with the highest installed sugar crushing capacity. Being a wholly owned subsidiary of JDWSML, the company draws various synergies from its parent including operational integration. Ratings also take into account strong corporate governance framework and professional management team. Ratings also reflect significant improvement in financial profile during MY19 and high business risk profile of the sugar sector.

The business risk profile of the sugar sector is considered high given the inherent cyclicality in crop levels and raw material prices. Moreover, distortion in the 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, sugar production has declined and prices have trended upwards. 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. Business risk profile draws support from diversification in revenue streams achieved through forward integration into co-generation segment which has consistently contributed to profitability over the years. While the crushing season has largely ended, disruption in operations/sales due to coronavirus outbreak remains a business risk factor.

Despite higher finance cost, net profit depicted significant growth during MY19 due to increase in quantity sold, improvement in margins and higher other income. While sugar cane procurement cost is on the lower side vis-à-vis other players in the sector reflecting efficient procurement, profitability for MY20 will be a function of higher sugar cane procurement cost relative to MY19, relatively low carryover stock (which is at low cost), lower recovery ratio vis-à-vis preceding year and higher average sugar prices in MY20 vis-à-vis MY19. Liquidity and capitalization indicators have improved on a timeline basis and are largely in line with benchmarks for the assigned

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

VIS Credit Rating Company Limited