Al-Abbas Sugar Mills Limited

Al-Abbas Sugar Mills Limited (PSX: AABS) was established as a public limited company in 1991 under the repealed Companies Ordinance, 1984 (now the Companies Act, 2017). The company has the following business segments: sugar, ethanol, chemical and alloys and power and tank terminal. Its manufacturing facilities are located at Mirpurkhas and Thatta.

Shareholding pattern

As at September 30, 2021, over 44 percent shares are held under the associated companies, undertakings and related parties. Within this a major shareholder is Haji Abdul Ghani. The directors, CEO, their spouses and minor children hold over 24 percent shares. Within this category, Mr. Asim Ghani, the CEO of the company is a major shareholder owning over 13 percent shares. Another 12.5 percent shares are held by the local general public, followed by almost 12 percent in other companies. The remaining roughly 8 percent shares are with the rest of the shareholder categories.

Historical operational performance

Al-Abbas Sugar Mills has seen a fluctuating topline over the years, however, the general trend is an increasing revenue with topline in MY08 at Rs 2.8 billion, the highest topline earned in MY20 at Rs 8.15 billion, and Rs 7.4 billion in MY21.

In MY18, the company experienced one of the highest growth rates in revenue seen since MY11, at nearly 41 percent. Topline reached Rs 7.5 billion with the company producing 74,388 metric tons of sugar at the highest recovery rate of 11.17 percent, compared to 70,484 metric tons in MY17 at a recovery rate of 10.7 percent. The higher revenue was due to the higher volumes, with majority of the revenue coming from export sales. Thus, gross margin was also significantly higher at 27.56 percent. Although selling and other expenses were notably higher year on year, it was offset by the increase in revenue. Thus, net margin peaked at 17.27 percent, and the highest bottomline of Rs 1.3 billion.

In MY19, revenue contracted by over 4 percent. The company produced and sold lower volumes of sugar. Sugar production stood at 50,892 metric tons at a recovery rate of 10.88 percent. The latter was attributed to water scarcity while the decrease in volumes was due to shortage of sugarcane availability. Unlike last year, majority of the revenue was earned through local sales in the sugar segment while export sales stood at Rs 275 million as prices in the domestic market were more lucrative. With the loss in revenue, gross margin reduced to 24.6 percent for the year that also trickled down to the bottomline with a net margin of 15.5 percent.

Revenue in MY20 grew by nearly 14 percent to reach an all time high of Rs 8 billion. The sugar segment in particular saw a rise in revenue of over 20 percent despite the lower sugar production at 42,959 metric tons. However, the decrease in sales volumes was not as pronounced at a marginal 3 percent. The increase in revenue was attributed to an increase in selling price which in turn was a result of a lower sugar production generally. Sugar production in Sindh was lower by 15.13 percent. The higher revenue allowed gross margin to reach a peak of 25.8 percent. However, net margin was marginally lower at 15.26 percent due to loss incurred from reportable segments of Rs 27 million, versus the various levels of profit earned for the six consecutive years.

The topline for the company was lower by 9.5 percent in MY21, while the revenue from the sugar segment in particular was lower by over 21 percent. The revenue from the segment only comprised of local sales. While sugar production stood at 38,440 metric tons, sugar sales volumes saw a reduction of 38 percent. The loss in revenue reflected in the significantly lower gross margin of 16 percent that also trickled to the bottomline with net margin recorded at 10.2 percent for the year. During the year, demand for sugar had increased as businesses began to gain momentum with a decrease in Covid-19 cases. But this was unmatched by the production. Thus, the government imported 350,000 tons of sugar.

Quarterly results and future outlook

Revenue in the first quarter of MY22 was over 51 percent higher year on year. Within this, the sugar division saw its sales more than doubling in value terms. However, due to a high cost of production as a share in revenue overall, at nearly 86 percent, compared to 73.6 percent in 1QMY21, profitability for the period was lower with a net margin of nearly 10 percent, versus 20 percent in 1QMY22. Majority of the increase in costs as a share in revenue was associated with the ethanol division.

The Sindh government has set the minimum sugarcane price at Rs 250 per 40kgs for the crushing season 2021-22 compared to Rs 202 per 40kgs seen in 2020-21. However, the company had to pay as high as Rs 338 per 40kgs due to the ensuing price war between mills and growers.