Noon Sugar Mills Limited

Noon Sugar Mills Limited (PSX: NONS) was established as a public limited company in 1964. The company manufactures and sells white sugar and spirit at its mill located in Sargodha.

Shareholding pattern

As at September 30, 2021, over 44 percent shares were held in associated companies, undertakings and related parties. While the full breakdown seems unavailable, one shareholder in this category is Noon Industries (Pvt.) Limited. Close to 21 percent shares are held by the directors, CEO, their spouses and minor children. Within this category, a major shareholder is Mr. Salman Hayat Noon, a non-executive director. About 15 percent shares are held in joint stock companies followed by over 11 percent in the local general public. The remaining about 9 percent shares is with the rest of the shareholder categories.

Historical operational performance

Over the years, Noon Sugar Mills has seen a fluctuating topline, with profit margins in the last six years specifically growing slightly between MY18 to MY20 before declining again in MY21.

The company witnessed the largest growth in revenue at almost 87 percent in MY17. Topline grew from Rs 2.6 billion in MY16 to Rs 4.8 billion in MY17. The company produced 113,308 metric tons of sugar compared to 39,015 metric tons in MY16. This could be attributed to an increase in sugarcane production due to an increase in area under cultivation. The higher revenue also translated into higher profitability as gross margin was recorded at 11.8 percent versus 9 percent in MY16. This also trickled to the bottomline with net margin increasing to almost 3 percent for the year.

Topline in MY18 grew by nearly 30 percent to cross Rs 6.3 billion, with total local sales registering a growth of 11.6 percent while export sales more than doubled year on year. Within the export sales, the distillery division export sales grew by nearly 35 percent, while the sugar export sales were nil in MY17. With a marginal increase in cost of production as a share in revenue at nearly 89 percent, gross margin remained close to 11 percent. However, net margin was slightly better at 3.36 percent due to decreases in administrative and distribution expenses as a share in revenue.

Revenue in MY19 contracted by 9.6 percent. A sales breakdown reveals that total local sales fell by nearly 17 percent, while total export sales registered a growth of 9.6 percent. Despite this, the company managed to post a better profitability for the year, on the back of reduced cost of production as a share in revenue at almost 85 percent. A decrease in cost incurred for raw material consumed for the sugar division is majorly responsible for the overall decline in production cost. So, while gross margin increased to over 15 percent, the increase in net margin was not as pronounced due to increase in finance expense that rose to 6 percent of revenue, due to higher interest rates. Thus, net margin was recorded at almost 4 percent for the year.

Topline grew again in MY20 by over 8 percent to reach Rs 6 billion. While local sales for sugar increased by 16 percent, there were zero export sales. On the other hand, the distillery division saw increases in local sales as well export sales. While local sales grew by 3.6 times, export sales registered an over 31 percent rise. The improvement in the distillery division was due to the increase in demand for Ethanol which is used in sanitizing products. With cost of production remaining more or less flat at close to 84 percent of revenue, gross margin also hovered around over 15 percent. This also reflected in the net margin that was posted marginally higher at 4.17 percent.

In MY21, revenue increased by almost 50 percent to reach at an all time high of Rs 9 billion. The increase was largely attributed to a growth in volumes as the company produced 82,710 metric tons of sugar compared to 52,788 metric tons in MY20. The company also managed to improve its sugarcane supply by providing technical support, fertilisers and pesticides and prompt payments to the growers. But with the increase in cost of production from both divisions primarily due to raw materials consumed, gross margin reduced to almost 11 percent. This also trickled to the bottomline, with net margin recorded at 2.8 percent.

Quarterly results and future outlook

Revenue in the first week of MY22 was higher by over 58 percent year on year. The company produced 29,115 metric tons of sugar compared to 26,440 metric tons in the same period last year. But with higher cost of production at 89 percent compared to 85 percent in 1QMY21, profitability was lower year on year with a net margin of 3.24 percent.

With currency devaluation combined with an increase in support price of sugarcane and increase in markup rates have put an upward pressure on cost of production. But the prevalent stability in the industry is expected to stay.