Sugar & Allied Industries: FARAN SUGAR MILLS LIMITED - Year Ended September 30, 2005 (Audited)
Faran Sugar Mills Limited (Faran Sugar) is a public limited company incorporated in Pakistan on November 3, 1981under the Companies Act, 1913 (Now Companies Ordinance, 1984). Shares of the company are listed on Karachi and Lahore Stock Exchanges.
Principal activity of the company is manufacture and sale of white sugar. Faran Sugar has the following associated companies: (1) Reliance Insurance Company Limited; (2) B.F. Modaraba; and (3) Unicol Limited.
The authorised capital of the company is Rs 200 million, comprising 20 million shares of Rs 10 each. As on September 30, 2005 the paid up capital of the company is Rs 188.270 million, which is held by 1,906 shareholders, of which 1,873 individuals hold over 65.80% shares. Holding by the directors and their spouse and minor children is over 26% of the total.
National Bank of Pakistan (Trustee Department) holds 26.46% of total shares, while the rest of the shares are distributed among a small number of corporate entities including banks and DFIs. The company had 116 employees on September 30, 2005 (2004: 116 employees).
Faran Sugar Mills is located in the midst of vast cane growing area, which normally ensures ample supply of required quantity/quality of cane. The company claims that payments to cane growers and short-term loans to meet their in-put requirements, has built up very strong relationship which further ensures un-interrupted supply of sugarcane to the plant.
Faran Sugar was able to produce 53,515 MT of sugar (including 7,275 MT sugar produced from processing of 7,700 MT imported raw sugar) during 2004-2005 season compared to 74,338 MT sugar produced in the last season. Details about working days, sugarcane crushed and production of sugar are given below.
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Season Season
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Sugar Unit 2004-2005 2003-2004
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Capacity - Tons Crushing Per Day: 8,000 8,000
Days worked: 114 132
Cane crushed - TCD: 4,211 6,117
Total Cane Crushed (M. Tons): 480,072 807,412
Sugar produced (M. Tons): 46,240 74,338
Recovery %: 9.65% 9.19%
Processing of Raw Sugar (M. Tons): 7700 0
Sugar produced- process (M. Tons): 7,275 0
Total Sugar Produced (M. Tons): 53,515 74,338
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According to the Directors' Report, overall shortage of cane compared to previous year, in Sindh, by around 39% resulted in reduced production. Faran Sugar went by 40% reduction in crushing and 38% in production.
The Directors add that the short availability of sugarcane compared to installed crushing capacity of mills in Sindh, followed severe competition among sugar mills for procurement of sugarcane, unforeseen ever before which carried sugarcane price to a level never witnesses in the history of Sindh Sugar industry.
Natural outcome was highest ever cost of production as cane cost account for 80% of sugar production cost. To meet the shortfall in sugar production, the government allowed import of raw and refined sugar. The import of raw sugar was also ill timed as it arrived after close of season because the government sanction towards the end of the crushing season. The processing cost of raw sugar in off-season is four times higher than the processing cost during season. A timely decision on Raw Sugar would have beneficial effect on production and cane cost.
Total assets of the company as on September 30, 2005 at Rs 857 million were 7% higher than Rs 803 million on September 30, 2004.The deployment of financial resources was 60% in fixed assets (including long term investment) on September 30, 2005 (2004: 66%) and the rest were largely in current assets particularly the Stock-in Trade, Loans and Advances, Other Receivables.
The current ratio is above unity as on September 30, 2005 as well as on same date last year. Debt to equity ratio is relatively better at 22:78 as on September 30, 2005 (2004: 57:43).
Net sales for 2004-05 at Rs 1,165 million were 18% higher as against Rs 989 million for the previous year. Cost of Goods Sold for 2004-05 was 94% of net sales as compared to 93% of net sales for the previous year. This decreased the gross and operating margins for the year under review as compared to the previous year.
The notes to the financial statements provide that during the year, the company hired consultants to review the remaining useful life of its plant and machinery. It has accordingly revised the rate of depreciation from 10% to 5% per annum based on remaining life as determined by the Consultant. Had the rate of depreciation not been changed, profit for the year would have been lower.
The company made after tax profit at Rs 29.603 million for the year ending September 30, 2005 as against after tax profit of Rs 61.584 million for the previous year. Lower production of sugar, higher cost of sugarcane and higher financial cost are the main factors for this situation. Now that debt to equity has improved due to lowering of debt and increase in paid up capital through cash injection, it is expected that the company may have better profitability in the coming years provided other factors also remain favourable.
ROE for 2004-05 has been at 15% (2004: 60%). Cash dividends at 10% have been proposed this year after lapse of three consecutive years in the past. The company shares are being traded at 2.13 times of the book value as on September 30, 2005. Comparative performance statistics are given below.
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Performance Statistics -
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Balance Sheet (Audited) (Rs in 000)
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As on September 30, 2005 2004
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Share Capital-Paid-up: 188,270 125,513
Reserves & un-app. Profit: 5,953 -23,649
Total Equity: 194,223 101,864
Revaluation surplus, FA: 0 0
LT Debt: 54,000 136,670
Deferred tax & sales tax, etc: 291,048 298,108
Total - NC Liabilities: 345,048 434,778
Capitalization: 539,271 536,642
Current Liabilities: 317,338 265,953
Total Liabilities & Equity: 856,609 802,595
Operating Fixed Assets: 457,200 474,934
Stores and spares: 47,939 41,354
Stock-in-Trade: 117,597 116,468
Trade Debts: 558 494
Current Assets: 341,476 274,997
Total Assets: 856,609 802,595
Conting. & Commitments: Not Provided Not Provided
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Ratios:
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Current Ratio: 1.08 1.03
Debt-Equity Ratio: 22:78 57:43
Book Val./share - Rs: 10.32 8.12
Quoted Price-(29-6-06)- Rs: 22.00 -
Price/Book Value Ratio: 2.13 -
Contin. & commit./Equity-X: Not Provided Not Provided
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Income Statement 2005 2004
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Net Sales: 1,165,417 989,234
COGS: 1,096,978 919,060
Gross Profit: 68,439 70,174
Operating Profit: 47,001 48,788
Profit Before Taxation: 35,264 62,143
Profit After Taxation: 29,603 61,584
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Ratios:
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Gross Profit/Net Sales: 6% 7%
Operating Profit/Net Sales: 4% 5%
Profit After Tax/Net Sales: 3% 6%
Net Profit/Equity: 15% 60%
ROA: 3% 8%
ROCE: 5% 11%
Earnings/Share (Y. end capital)-Rs: 1.57 4.91
Cash Dividend: 10% 0%
Stock Dividend: 0% 0%
Inventory Turnover-X: 9.33 7.89
Receivable Turnover-X: 2089 2002
Price/Earning Ratio: 13.99 -
Asset Turnover-X: 1.36 1.23
Days Inventory: 39 46
Days Receivable: 0.2 0.2
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Cash flow Summary 2005 2004
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Net Cash flow, Operations: 42,854 18,822
Net Cash flow, Investing: -11,403 -57,395
Net Cash flow, Financing: -19,914 36,123
Change in net Liquidity: 11,537 -2,450
Net Liquidity at beginning: 4,174 6,624
Net Liquidity at end: 15,711 4,174
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COMPANY INFORMATION: Chairman & Managing Director: Mohammad Amin Ahmed Bawany; Director: Mohammad Omar Amin Bawany; Chief Financial Officer: A. Razzak Sorathia; Company Secretary: Iqbal A. Rehman; Auditors: Khalid Majid Rahman Sarfaraz Rahim Iqbal Rafiq, Chartered Accountants; Legal Advisor: A. Ghaffar Muhammad Gheewala; Registered Office: 3rd Floor, Bank House No 1, Habib Square, M.A. Jinnah Road, Karachi; Mills: Shaikh Bhirkio, Taluka Tando Mohd. Khan, District Hyderabad (Sindh); Web Address: www.faran.com.pk
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