Karachi, October 27, 2015: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of JDW Sugar Mills Limited (JDWSML) at ‘A/A-1’ (Single A/A-One). JCR-VIS has also reaffirmed instrument rating of ‘A+’ (Single A Plus) to the outstanding Privately Placed Term Finance Certificates - II (TFC-II). Outlook on the assigned ratings is ‘Positive’. The previous rating action was announced on February 17, 2015.
The ratings assigned to JDWSML take into account the leading position of company in the sugar sector of the country. Scale of operations along with operational efficiencies and diversification in revenue streams has enabled JDWSML to withstand the impact of prolonged downturn in sugar prices. Revenues from forward integration into co-generation are considered sustainable and provide impetus to the company’s profitability. While major debt repayments are due in the coming years, cash coverages are expected to remain adequate.
Sugar prices have remained depressed for an extended period of time. Sugar sector is cyclical and vulnerable to price fluctuations. Sugarcane prices, the major input cost, are regulated by the Government and as such, have no relation with the sugar prices. Moreover, sugar sector is exposed to agro-climactic risks which have a bearing on the cane output.
While volumetric sales of sugar declined, revenues increased during the outgoing year attributable to higher income from electricity sales. Improvement in sucrose recovery and higher average sales prices reflected positively on the gross margins of the company; gross margin of JDWSML compare favorably with sector averages. The maintenance of the same is important to the ratings, going forward.
Increase in debt levels during the outgoing year are cyclical and pertained to higher short-term borrowings arranged for carry over sugar stock; the same has subsided by year-end. Gearing indicators, after increasing in the recent years, have exhibited downward trend on account of expansion of equity base. In line with management aim of deleveraging balance sheet, gearing is projected to improve further. Company’s investment in associated concern, Faruki Pulp Mills Limited, is non-earning. Additional provisioning against the investment is expected to impact the profitability of the company, going forward.
For further information on this rating announcement, please contact Mr. Maimoon Rasheed at 042-35723411-12 or the undersigned at 021-35311861-70 (10 lines) or fax to 021-35311873.
Jamal Abbas Zaidi
Applicable Rating Criteria:
Industrial Corporates (Oct. 2003) http://www.jcrvis.com.pk/images/IndustrialCorp.pdf
Rating the Issue (Sept 2014) http://www.jcrvis.com.pk/Images/criteria_instrument.pdf
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