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JCR-VIS Reaffirms Ratings of Shahmurad Sugar Mills Limited

Karachi: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Shahmurad Sugar Mills Limited (SSML) at ‘BBB+/A-2’ (Triple B Plus/ A-Two). Outlook on the ratings is ‘Stable’.

Financial results of the sugar industry have generally continued to improve in FY11, emanating from higher sugar prices, despite increased supply both in domestic and international markets. Global surplus in sugar stocks has resulted in decline in international prices since beginning of CY11, however, domestic prices exhibited firmness with upward trend and have increased considerably during 3Q11 on the back of seasonal demand.

SSML being one of the few diversified sugar units – producing sugar as well as ethanol – has also benefited from improved price trends of ethanol, in addition to those in sugar. The financial profile of the company improved on account of wider margins and significant growth in sales. Improved margins of ethanol division are also spurred by value addition through production of fuel grade ethanol.

Though the company’s leverage remained high at the end of 3Q11, given the seasonal high demand for working capital, the self liquidating nature of inventory thus financed, provides comfort to ratings.

New sugar stocks are expected to start building up by end of November 2011; meanwhile the demand-supply situation is expected to remain manageable on the back of carryover stocks. The domestic price of sugar may therefore remain range bound in the short term.

Operating cash flows are expected to improve in view of better crop yield expected in upcoming season. JCR-VIS will continue to monitor trends in this respect.

For more information, contact:
Mr. Javed Callea
Advisor
JCR-VIS Credit Rating Company Limited
Tel: +9221 35311861 (10 lines) (Ext: 501)
Fax: +9221 35311872-3
E mail: javed.callea@jcrvis.com.pk

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