April 25, 2022 (MLN): VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of JDW Sugar Mills Limited (JDWS) from “A/A-2” (Single A/A-Two) to “A+/A-1” (Single- A Plus/A-One), the company’s PSX filing was released today.
The medium and long-term rating of ‘A+’ denotes good credit quality combined with adequate protection factors. In addition, the risk factors may vary depending on possible developments in the economy.
The short-term rating of ‘A-1’ denotes high certainty of timely payment and excellent liquidity factors, and is supported by good fundamental protection factors. The outlook on the assigned ratings is “stable”. The previous rating action was announced on July 27, 2021.
The assigned ratings incorporate JDWS’ market position as a major player in the country’s sugar industry, significant sponsor experience in the sugar and agricultural sector, and a professional management team.
The company has a long-standing relationship with growers and focuses on research activities in the development of sugarcane. The company’s business risk profile is based on the diversification of activities in the electricity sector.
In marketing year 22, the production of sugar cane in the country is estimated to be about 11% higher than in the previous period due to an increase in the cultivated area due to favorable weather conditions and higher economic returns. It is also estimated that sugar production will increase alongside higher cane production and recovery rates largely intact.
However, the ratings incorporate the inherent cyclicality of harvest levels and price vulnerability in the sugar sector, resulting in competitive challenges for the company.
The company’s revenue mix is dominated by sugar and related products, followed by the energy division and farms. The company’s sales grew primarily due to higher average sugar selling prices despite lower volumetric sales. Gross margins also improved primarily due to higher key product prices which offset higher cane supply costs.
The liquidity profile derives its strength from improved cash flow hedges relative to outstanding obligations. Leverage indicators improved in particular due to the increase in equity and the decrease in borrowings. Maintaining liquidity and capitalization profiles at comfortable levels would remain imperative for assigned ratings.
In addition, the near-term rating will continue to be dependent on maintaining the net cash cycle at current levels as well as achieving an expected increase in the current ratio.
In the meantime, VIS will continue to monitor the progress of sanctions imposed by the Competition Commission of Pakistan and any other matters. Any negative court rulings will be incorporated into the rating action accordingly.
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Published on: 2022-04-25T14:29:03+05:00