VIS upgrades entity ratings of JDW Sugar Mills to A+/A-1

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 filing on PSX showed today.

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-1’ denotes high certainty of timely payment, and excellent liquidity factors, and is supported by good fundamental protection factors. 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 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 along with a focus on research activities in sugarcane development. The business risk profile of the company draws support from diversification of operations into the power sector.

 In MY22, sugarcane production in the country is estimated to be ~11% higher than in the preceding period due to an increase in area under cultivation on account of favorable weather conditions and higher economic returns. Sugar production is also estimated to increase in line with higher cane production and largely intact recovery rates.

However, the ratings do incorporate inherent cyclicality in crop levels and price vulnerability in the sugar sector leading to competitive challenges for the company.

The revenue mix of the company is dominated by sugar and allied products, followed by the power division and corporate farms. The company’s topline recorded growth mainly on account of higher average selling prices for sugar despite the decrease in volumetric sales. Gross margins have also improved primarily on account of higher key product prices which have offset the increase in cane procurement costs.

The liquidity profile draws strength from improvement in cash flow coverages in relation to outstanding obligations. The leverage indicators have improved notably on account of augmentation in equity and lower borrowings. Maintaining liquidity and capitalization profiles at comfortable levels would remain imperative for the assigned ratings.

In addition, the short-term rating will remain dependent upon maintaining the net operating cycle at current levels along with achieving a projected increase in the current ratio.

Meanwhile, VIS will continue to monitor developments related to imposed penalties by the Competition Commission of Pakistan and any other matter. Any negative decision by the court of law will be incorporated in the rating action accordingly.

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