Tandlianwala Sugar Mills Limited

Tandlianwala Sugar Mills Limited (PSX: TSML) is the third largest sugar mill in Punjab province as well as the country, after JDW and Hamza sugar mills. The company was incorporated in 1988 as a public limited. The registered office of the company is located in provincial capital, Lahore. Two production units are located in Punjab: one in Kanjwani, Faisalabad; and another in Muzaffargarh. Third production unit is located in Dera Ismail Khan District of Khyber Pakhtunkhwa province.
According to disclosures in financial statements, TSML's principal activities include production and sale of white crystalline sugar, ethanol, and carbon dioxide. The three production units together have capacity of 32,000 TCD, of which largest unit is located in Muzaffargarh with 13,500 TCD. The other two units of DI Khan and Faisalabad have capacity of 12,000 TCD and 6,500 TCD, respectively (TCD stand for tons of cane per day).
Pattern of shareholding
Reportedly, Tandlianwala Sugar Mills is owned by family of late General Akhtar Abdur Rahman, a major business family of Punjab with interests in several industries. However, disclosures to this effect are not made in the company's financials; which may be due to the structuring of the group entities that may or may not qualify other entities as associated undertakings.
Business activities
Sponsor family owns more than three-fourths of the share in the company. Currently, for the past 26 years, the company has been engaged in the principal activity of manufacture and sale of white sugar and spirit.
Production record & industry dynamics
As the primary player in the central region, particularly southern Khyber Pakhtunkhwa and south Punjab, the company is not pressed by immediate competition. Therefore, the company has operated comfortably in the past several years at lower than industry efficiency levels, and yet has continued to do well for itself.
It is of note that during the past 6 marketing years, the sucrose recovery level of Tandlianwala Sugar has remained at an average variance of 75bps from the national average. Average variance of recovery rate from comparable large-sized units in Sindh and Punjab is up 150 bps, such as JDW Sugar.
During the period under review, TSML recorded highest ever crushing, resulting in production of 303,142 tons of white sugar, its highest ever despite recovery rate declining by 40bps compared to the previous year. This was owed to bumper sugarcane crop in the country, as total white sugar (sucrose) production in the country reached 7 million metric tons during the MY17 period.
Financial analysis
Note that as the country has been producing surplus sugar for past couple of years, as per PSMA sources the country had a carryover stock of 2.5 million metric tons as it entered crushing season in Jan 2017. Due to a glut of sugar in global commodity market, revenue from export declined by 7 percent on YoY basis as the company received zero export subsidy from the comfort. Revenue from export clocked in at Rs 4.3 billion.
However, despite total allowed export of 925,000 tons during MY17, Pakistan has an excess supply of close to 2 million metric tons of sugar, which resulted in depressed domestic prices, reflecting in stagnant top-line for the company. Sugarcane price set by the provincial government did not receive a revision since the previous marketing year, remaining at Rs 180 per maund.
Top-line declined by 26 percent during the period under review, and as procurement price of sugarcane fell in line, gross profit declined by 12 percent. Reduction in production costs allowed the company to improve gross margin by 241bps, since the previous year. This combined with increases in overhead costs, resulted in a 25 percent decline of operating income on YoY basis, however efficient production allowed operating margin to be maintained at 10bps over last year.
Overall, net income declined by 48 percent on YoY basis, to less than Rs 500 million, lowest since MY14. Net margin declined by 142 bps, primarily due to cascading effect from depressed selling price but also as fixed finance cost expense eroded the improvement in operating margin company was able to maintain due to lean operations.
Outlook
Once again, the country is looking at a surplus of sugar and the federal government has recently allowed export of sugar up to 225,000MT without any export subsidy, which was valid until 31st March 2018. Since global sugar prices have plummeted. Given these conditions and review of quarterly accounts of major players, sugar players are expected to perform poorly in the financial year ending September 30, 2018. As a large sized player with lower than national average recovery rate and few diversified sources of revenue (e.g. power generation through bagasse unlike most major players), financials of Tandlianwala Sugar Mills are expected to take a hit.

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Pattern of Shareholding (as on September 30, 2017)

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Categories of Shareholders                                %

Directors and their spouse(s) and minor children

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Akbar Khan                                           18.34%

Haroon Khan                                          19.66%

Ghazi Khan                                           19.51%

Rasheeda Begum                                       18.39%

Banks, DFIs, NBFIs, Insurance Co.s, Mudarbas, Funds   0.16%

General Public                                       23.94%

Total                                               100.00%

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Source: Company accounts

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Tandlianwala Sugar Mills Limited

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Rs (mn)                       MY17       MY16       YoY

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Sales                       13,904     18,675      -26%

Cost of Sales             (11,770)   (16,258)      -28%

Gross Profit                 2,134      2,417      -12%

Administrative expenses      (441)      (376)       17%

Distribution Costs           (351)      (306)       15%

Other expenses                (29)       (49)      -41%

Other income                    36        108      -67%

Profit from operations       1,349      1,794      -25%

Finance cost                 (888)      (861)        3%

Profit before tax              461        934      -51%

Taxation                        10       (36)

Net profit for the period      471        898      -48%

Earnings per share (Rs)       4.00       7.63      -48%

GP margin                    15.4%      12.9%   +241bps

Operating margin              9.7%       9.6%    +10bps

NP margin                     3.4%       4.8%   -142bps

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