VIS Reaffirms Entity Ratings of JDW Sugar Mills Limited

Karachi, July 27, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of JDW Sugar Mills Limited (JDWS) at ‘A/A-2’. 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 incorporate JDWS market position as the leading player in the country’s sugar industry, significant experience of sponsors in the sugar and agriculture sector and a professional management team. The company has longstanding relationships with growers due to regular payments made through their bank accounts and sugarcane procurement on higher prices than minimum support price along with focus on research activities in sugarcane development.

The business 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, lower recovery rates mainly due to early start of the crushing season has diluted the said impact to a certain extent. While narrow demand and supply dynamics may lead to high sugar prices, Government intervention to control prices is expected to continue.

Revenue mix of JDWS is dominated by sugar and allied products, followed by power division and corporate farms. The company has depicted increase in revenues mainly on account of higher average selling prices for sugar and molasses despite slightly lower volumetric sales. While gross margins continued to improve with favourable price offsetting the impact of highest-ever sugarcane procurement price in Pakistan, bottom-line of the company was impacted by write-off against fixed energy payment from CPPA-G during HY21. Going forward, profitability is expected to improve as the company offloads sizeable carryover inventory by end-FY21. Higher funds from operations (FFO) along with the re-profiling of long-term debt has led to improvement in coverages.

Going forward, the company’s debt servicing capacity is expected to remain adequate due to higher FFO generation and payments against receivables from CPPA-G despite projected repayments of all including deferred loans, Given higher internal capital generation, reduction in stock levels and projected repayments of deferred loans, leverage indicators are projected to decrease over the rating horizon. Ratings remain dependent on the cyclicality of sugar cane production and prices along with maintenance of threshold financial indicators. VIS will continue to monitor developments regarding inquiries being conducted 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
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/

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