The Premier Sugar Mills

The Premier Sugar Mills (PSX: PMRS) was established as a public limited company in 1994. The company manufactures and sells white sugar and spirit. It is part of the larger Premier Group of companies.

Shareholding pattern

As at September 30, 2021, over 64 percent shares are owned by the directors, CEO, their spouses and minor children. Within this category, nearly 29 percent shares are held by Mr. Aziz Sarfaraz Khan, the Chairman of the company, and 25 percent by Mr. Abbas Sarfaraz Khan, the CEO of the company. Close to 24 percent shares are with the local general public, followed by over 10 percent in associated companies, undertakings and related parties that solely includes Arpak International Investments Limited. The latter is also a company within the Premier Group. The remaining over 1 percent shares is with the rest of the shareholder categories.

Historical operational performance

Over the years, Premier Sugar Mills has experienced a fluctuating topline with profit margins, in the last six years particularly, remaining stable between MY16 and MY18, before increasing until MY19 and sliding till MY21.

In MY17, topline contracted by close to 40 percent, with revenue reducing to Rs 892 million from over Rs 1 billion in the previous year. During the season, the mills produced 25,003 tons, higher by over 41 percent year on year. Despite the surplus sugar for the country of 2.5 million tons, the Ministry of Commerce did not allow export without subsidy during the prevalent high international prices. The resultant surplus in the domestic market therefore put downward pressure on selling prices, causing revenue to decline. On the other hand, costs were intact, leading the company to post a gross loss of Rs122 million that increased to a net loss of Rs 147 million as further costs were incurred.

Revenue in MY18 climbed by over 41 percent to reach nearly Rs 1.3 billion. The company produced 22,708 tons at an average recovery rate of 11.12 percent in the crushing season 2017-2018. Production volume was lower by 9 percent. The company claims that selling prices have remained subdued, while in the crushing season 2018-2019 it expects prices to stabilize after the closing of crushing season. On the other hand, costs continued to exceed revenue, causing the company to post a gross loss for the third consecutive year, of Rs 67 million. With a decrease in other income, the loss worsened to Rs 196 million in net loss which has been the highest loss incurred thus far.

In MY19, revenue reduced by 15 percent to remain above the Rs 1 billion mark. During the crushing season 2018-2019, the mill produced 16,768 tons of sugar, lower by over 26 percent, at an average recovery rate of 10.9 percent. The company claims that the lower crushing has been “due to procurement of sugar cane for tax-free commercial Gur manufacturing at high prices”. Moreover, cost of production reduced to below the topline, making some room for profitability. Gross margin was recorded at 13 percent. But with the rise in finance expense due to rising interest rates, the company barely managed to make a nominal net profit for the year at Rs 184,000.

Revenue contracted again in MY20 by 12.6 percent, to fall below Rs 1 billion. But the company made some export sales during the year of Rs 228 million, whereas local sales reduced by close to 32 percent. During the crushing season 2019-2020, the company produced significantly lower volume of 3,149 tons of sugar at an average recovery rate of 8.77 percent. This was attributed to “diversion of the entire sugarcane crop to tax free commercial Gur making”. Moreover, the company states that the presence of middlemen increased the price of raw material to Rs 300 that had a notable effect on cost of production. The latter once again exceeded revenue, causing the company to post a gross loss of Rs 4 million. Despite the higher support from other income year on year, the company posted a net loss of Rs 49 million for the year.

Recent results and future outlook

The company saw the biggest contraction in revenue in MY21 since MY16. Topline fell to Rs 549 million with local sales more than halving year on year and export sales increasing by over 38 percent to clock in at nearly Rs 316 million. During the crushing season 2020-2021, the company produced 1,817.5 tons of sugar at an average recovery rate of 8.32 percent. The mill also announced temporary closure till end of January 2022. Production cost exceeded revenue again with the company posting a gross loss of Rs 213 million. Despite the significant drop in finance expense, the net loss increased to an all-time high of Rs202 million.

For the crushing season 2020-2021, the company operated for 34 days and remained closed otherwise due to the no supply of sugar cane, while for the crushing season 2021-2022 the company expects prices to be lower due to the country’s estimated production of 7 million tons.