April 23, 2019 (MLN): VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/ A-Two) to Two Star Industries (Pvt.) Limited.
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 payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned ratings is ‘Stable’.
The assigned ratings incorporate sound financial profile and demonstrated track record of support of the major sponsor, Umer Group. Umer Group has business interests in textile, footwear, dairy, power generation and sugar.
Ratings also reflect projected improvement in financial risk profile with reduction in leverage indicators and improvement in cash flow coverage.
Business risk profile incorporates concentration of operations in a single sector which limits company’s ability to withstand the impact of cyclicality of sugar sector.
However, recent price increase given the lower sugar production bodes well from a profitability perspective. Ratings remain dependent on achieving projected improvement in financial profile and continued sponsor support.
Sugar sector has witnessed sizeable increase in ending inventory over the last two years. With significant decline expected in production, local demand supply dynamics are projected to depict some improvement in MY19.
However, overall surplus inventories are expected to persist (even after accounting for strategic reserves) for the sugar sector given significant ending inventory at end-MY18.
In line with the industry trend, TSIL has carried high inventory levels despite increase in export sales in MY18. Reducing inventory level in line with projections is considered important.
