VIS Reaffirms Entity Ratings of Deharki Sugar Mills (Private) Limited

Karachi, July 27, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Deharki Sugar Mills Limited (DSML) at ‘A-/A-2’ (Single A Minus/Single A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely repayment, sound liquidity factors and good company’s fundamentals. Outlook on the assigned ratings is stable. Previous ratings action was announced on April 27, 2020.

The assigned ratings take into account its association with JDW Sugar Mills Limited (JDWS), the largest sugar manufacturer in the country, and longstanding relations with the sugarcane growers due to regular payments made through their bank accounts and sugarcane procurement on better prices vis-a-vis minimum support price. Being a wholly owned subsidiary of JDWS, the company draws various synergies from its parent including operational integration. The risk profile of sugar sector is considered high given inherent cyclicality in the crop levels and raw material prices. While increase in cane crop has positively impacted sugar production during MY21, the said impact has been diluted on account of lower recovery rates due to early start of the crushing season. While narrow demand and supply dynamics may lead to high sugar prices, government intervention to control prices is expected to remain intact.

During HY21, the company recorded recovery in revenues and profit after witnessing a decline in the previous year. Increase in revenues was mainly supported by increase in selling price of sugar and molasses largely in line with highest-ever sugarcane procurement price. Despite overall pressure on cash flows, the company’s capacity to meet its financial obligations remained adequate. Going forward, leverage indicators are expected to improve with the internal capital generation and offloading of sugar inventory by end-FY21. Ratings remain dependent on the cyclicality of sugarcane production and prices along with maintenance of threshold financial indicators. VIS will continue to monitor developments regarding inquiries being conducted against the parent company of DSML as an outcome of the ‘Inquiry Committee’ constituted by the Prime Minister of Pakistan and will incorporate the outcome in rating action accordingly.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873

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