Sanghar Sugar Mills Limited

Sanghar Sugar Mills Limited (PSX: SANSM) was set up in 1986 and is a public limited company. The company manufactures and sells sugar and its by-products that include molasses and bagasse. Sanghar Sugar Mills has also installed a bagasse fired transmission equipment to sell surplus electric power.

Shareholding pattern

As at September 30, 2021, over 15 percent shares are held by the directors, CEO, their spouses and minor children. Within this category, major shareholders are the Chairman Mr. Ghulam Dastagir Rajar and Mr. Rahim Bux, a director of the company. Close to 38 percent shares are held under the category of “shareholders holding 5% or more” with Mr. Pir Buksh holding the largest number of shares in the category. Another 35 percent shares are held by the local general public, followed by almost 9 percent in NIT & ICP. The remaining roughly 3 percent shares are with the rest of the shareholder categories.

Historical operational performance

Over the years, the company has witnessed a fluctuating topline while profit margins in the last six years have been relatively stable after experiencing a dip in MY17.

Revenue in MY17 contracted for the third consecutive period, by nearly 9 percent. Sugar production was improved at 63,380 metric tons compared to 57,387.5 metric tons in MY16. This was due to a higher sugar cane crop. However, sucrose recovery was marginally lower at 10.12 percent, compared to 10.2 percent in the previous year. This was attributed to a break taken during the season for a few days. The company made no export sales, whereas gross local sales saw a decline of 6 percent. This was attributed to a decline in prices, which in turn was a result of higher sugar production of the country. However, sugar cane prices remained high due to mills indulging in a price war. Thus, the company incurred a gross loss of Rs 71 million that increased to an all-time high of net loss of Rs 287 million.

In MY18, revenue increased by almost 32 percent, to reach Rs 3.4 billion in value terms. Sugar production stood at 73,776 metric tons of sugar versus 63,380 metric tons in the previous year. Sucrose recovery was also better at 10.372 percent. This was despite the decrease in number of operating days. The improvement in production was attributed to an increase in crushing capacity. During the year, the company also made some export sales, but revenue was largely dominated by local sales. With the rise in revenue, the company was able to post a positive gross margin of close to 3 percent. However, operating margin was supported by the substantial increase in other income at Rs 185 million that led to a net profit of Rs 19 million. The rise in income came from export subsidy.

In MY19 revenue witnessed the biggest contraction in revenue seen since MY12, at nearly 19 percent, with topline reducing to Rs 2.8 billion. Sugar production fell by over 28 percent with 52,799.25 metric tons of sugar at a recovery rate of 10.75 percent. Moreover, the area under cultivation reduced causing a decrease in sugar production of the country. While there was some decrease in cost of production, at 95 percent of revenue, allowing for a positive gross margin of almost 5 percent, the company incurred a net loss of Rs 99 million in the absence of other income and a rise in finance expense owing to rising interest rates.

There was some improvement in MY20 as topline grew by 6 percent to reach Rs 2.9 billion. Owing to shortage of sugar cane crop, sugar production for the company fell by 24.6 percent, with 39,804.25 metric tons of sugar produced during the year, compared to 52,799.25 metric tons in MY19. Sucrose recovery also declined at 10.26 percent due to inconsistent supply of raw material. Cost of production reduced marginally to 94.7 percent of revenue, allowing an improvement in gross margin to 5.3 percent. But with further expense incurred and finance expense continuing to make a significant portion of revenue, at over 5 percent, the company incurred a net loss of Rs 119 million.

Revenue contracted once again in MY21, by almost 3 percent. However, sugar production was higher at 45,239.5 metric tons versus 29,804.25 metric tons in MY20. On the other hand, sucrose recovery was lower at 10.012 percent. In addition to inconsistent supply of sugar cane that resulted in lower recovery, the latter was also impacted due to intermittent supply due to extreme rain that led to water accumulation in cane fields. For the country overall, the area under cultivation had decreased but sugar production continued to increase due to increase in yield/hectare. However, sugar cane prices remained high as suggested by a higher cost of production that consumed nearly all of revenue. But with other income of Rs 185 million for the year coming from reversal of cane growers payable season 2014-15, the company was able to reduce its net loss to Rs 30 million.

Quarterly results and future outlook

Revenue in the first quarter of MY22 more than doubled year on year, with sugar production also higher by 10.4 percent at 23,772.5 metric tons. This was due to better crop and hence consistent supply that also positively impacted sucrose recovery at 10.1 percent. The higher revenue also reflected in profitability as the company posted a net margin of 5 percent for the period. Because of increase in cultivation area during the period, sugar production is expected to improve.