Following is the text of press release issued by
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The reaffirmation of rating takes into account satisfactory operating track record, extensive experience of sponsors in the sugar sector, diversified operations and some improvement in financial profile in MY19 and in the ongoing year. However, leverage indicators and cash flow coverages have room for improvement. While increase in sugar cane prices and lower recovery ratio is expected to impact profitability of sugar produced in the ongoing year, overall profitability for MY20 is expected to improve given the sizeable carryover stock from the preceding year, expected increase in profitability of the MDFB segment and sizeable revenues from sale of molasses and bagasse. Ratings will remain contingent on improving cash flow coverages and maintaining adequate leverage indicators.
Business risk profile of the sugar sector is considered high given the inherent cyclicality in crop levels and raw material prices. Moreover, distortion in pricing mechanism of raw material prices and refined sugar also creates challenges for sugar mills. Given the decline in area under cultivation in MY19 and the ongoing year and the resultant decline in sugar production, average sugar prices have increased by 19% in MY19 and 16% in the ongoing year.
However, increase in profitability is expected to be limited (barring those players that have sizeable carryover stock) due to significant jump in sugar cane prices and decline in recovery ratio (Tiddi Dal pest attack) in the ongoing year. While demand and supply dynamics are expected to result in an increase in sugar prices, significant politicization of sugar prices may cap increase in sugar prices.
Recent decline in international sugar prices (
For more information, contact:Director Compliance and Rating Analytics,VIS Credit Rating Company LimitedVIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,Phase VII, DHA,
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