Sanghar Sugar Mills Limited

Sanghar Sugar Mills Limited (PSX: SANSM) was incorporated in Pakistan in 1986. The principal activity of the company is the manufacturing and sale of sugar and its by-products i.e. molasses and bagasse. Besides, the company has also setup a bagasse-fired transmission equipment in order to sell surplus electricity.

Pattern of Shareholding

As of September 30, 2024, SANSM has a total of 11.946 million shares outstanding which are held by 1218 shareholders. The local general public has a majority stake of 67.08 percent in the company followed by Directors, CEO, their spouses, and minor children holding 13.47 percent shares. Associated companies, undertakings, and related parties account for 9.73 percent shares of SANSM while NIT & ICP hold 8.74 percent shares. The remaining shares are held by other categories of shareholders.

Historical Performance (2020-24)

SANSM’s topline slid only once over the period under consideration i.e. in 2021. On the other hand, the company has been able to post a positive bottom line only twice during the entire period i.e. in 2022 and 2023. SANSM’s gross and operating margins significantly recovered in 2020. This was followed by a massive decline in gross margin in 2021, however, operating margin considerably improved during the year. In the next two years, SANSM’s margins significantly strengthened followed by a drastic fall in 2024. The detailed performance review of the period under consideration is given below.

In 2020, SANSM posted year-on-year topline growth of 6 percent. This was on account of a limited supply of sugarcane due to a decline in the area under cultivation. The company produced 39,804.25 tons of sugar and 16,802 tons of molasses in 2020, down 24.61 percent and 28.77 percent respectively. As a result, the company could make no export sales during 2020, unlike last year. An inadequate supply of sugarcane resulted in higher prices, however, with the uptick in sugar prices, the company was able to record an 18.5 percent year-on-year rise in its gross profit with GP margin jumping up from 4.76 percent in 2019 to 5.32 percent in 2020. Lower sales volume resulted in a 94.41 percent plunge in distribution expenses in 2020. Administrative expense ticked up by 9.32 percent in 2020 due to higher payroll expense which was the consequence of inflationary pressure coupled with the increase in workforce from 394 employees in 2019 to 422 employees in 2020. Other expenses posted a 5 percent uptick in 2020 due to CSR cost as well as provision booked on slow-moving and obsolete items. Other income registered 120.37 percent growth in 2020 mainly on account of liabilities written back during the year. SANSM’s other income greatly offset its other expenses in 2020. The company registered a 126.94 percent year-on-year improvement in its operating profit in 2020 with OP margin clocking in at 1.86 percent versus OP margin of 0.87 percent posted in the previous year. Finance costs dipped by 11.13 percent in 2020 on account of a significant drop in outstanding short-term borrowings. SANSM recorded a gearing ratio of 38.23 percent in 2020 versus a gearing ratio of 45.25 percent recorded in the previous year. Net loss surged by 20.13 percent to clock in at Rs.118.755 million in 2020. This translated into a loss per share of Rs.9.94 in 2020 versus a loss per share of Rs.8.28 recorded in 2019.

In 2021, SANSM’s net sales eroded by 2.66 percent. While sugar production increased by 13.65 percent to clock in at 45,239.50 tons and molasses production increased by 11.42 percent to clock in at 18,720 tons, the prices remained under pressure mainly due to the registration of cases against brokers/dealers regarding bulk storage and unlawful increase in prices. High sugarcane prices due to intense competition among the sugar manufacturers resulted in a 1.62 percent uptick in the cost of sales in 2021. Gross profit shrank by 78.92 percent in 2021 with GP margin falling down to 1.15 percent. Distribution expense ticked up by 7.89 percent in 2021 due to higher handling and stacking charges. Administrative expenses mounted by 14.66 percent in 2021 due to higher payroll expenses which was due to inflation as well as an increase in the workforce to 453 employees. 49.13 percent higher other expense incurred by SANSM in 2021 was due to sales tax default surcharge incurred during the year. Other expense was conveniently offset by 3324.97 percent higher other income recorded during the year predominantly due to liabilities written back in 2021. This pertained to the reversal of the provision recorded earlier regarding the high sugarcane purchase price set by the Government of Sind. The court gave the verdict in favor of the company and held the government responsible for paying Rs.12 per kg. Operating profit grew by 74 percent in 2021 with OP margin moving up to 3.32 percent. Finance costs slid by 27.57 percent in 2021 due to a lower discount rate. The gearing ratio increased to 47.83 percent in 2021. Net loss shrank by 74.88 percent to clock in at Rs.29.83 million with a loss per share of Rs.2.5.

SANSM recorded a stunning 35.39 percent year-on-year growth in its topline in 2022. During the year, the company produced 61,785 tons of sugar and 26,291.34 tons of molasses, up 36.57 percent and 40.45 percent respectively. During the year, the company also sold 281 percent higher quantity of bagasse. This was due to increased supply and better quality of crops in the area. Besides, selling prices of sugar also increased during the year, resulting in a 995.74 percent rise in gross profit in 2022 with GP margin climbing up to 9.31 percent. Distribution expense dropped by 9.14 percent in 2022 due to lower stacking & handling charges incurred during the year. Administrative expenses escalated by 16.12 percent in 2022 due to higher payroll expenses on account of inflationary pressure. SANSM streamlined its workforce to 337 employees in 2022. Other expenses mounted by a massive 402.80 percent in 2022 due to a considerable spike in sales tax default surcharge recorded during the year. Other income plummeted by 98 percent in 2022 as no liabilities were written back in 202,2, unlike the last year. SANSM recorded a 90.38 percent higher operating profit in 2022 with an OP margin of 4.67 percent. Finance costs dipped by 0.59 percent in 2022 despite monetary tightening taking place during the year. This was because of liabilities discharged during the year leading to a gearing ratio of 28.26 percent in 2022. SANSM recorded a net profit of Rs.1.609 million in 2022. This translated into EPS of Rs.0.13 and NP margin of 0.042 percent in 2022.

In 2023, SANSM’s net sales ticked up by 1.29 percent. During the year, sugar production dipped by 32.49 percent to clock in at 41,711.25 tons while molasses production shrank by 18.98 percent to clock in at 21,300 tons. This was the result of a shortage of crops in the area when compared to the last year. Crushing was also delayed in the Sind province by 10-15 days due to the low availability of cane. Topline growth during the year was the result ofa 19.23 percent rise in the gross selling price of sugar. The company also exported sugar through an export quota approved by the government during the year. Cost of sales dropped by 3.11 percent in 2023, resulting in 44.12 percent higher gross profit recorded in 2023. GP margin attained its optimum level of 13.25 percent in 2023. An exorbitant spike of 1502.44 percent in distribution expenses in 2023 was the result of export expenses incurred during the year. Administrative expense ticked up by 1.42 percent in 2023 due to the effect of inflation which drove up the payroll expense. Conversely, the company trimmed down its workforce to 319 employees in 2023. Other expenses surged by 84.65 percent in 2023 due to higher sales tax default surcharge recorded during the year. Other income tapered off by 41.18 percent in 2023 as the company didn’t record any government grant income. SANSM’s operating profit improved by 56.77 percent in 2023 with OP margin moving up to 7.23 percent. Finance cost escalated by 36.87 percent in 2023 due to monetary tightening while the company considerably reduced its outstanding borrowings. Massive decline in borrowings coupled with higher cash & bank balances and greater equity resulted in a gearing ratio of -0.9 percent. SANSM recorded a net profit of Rs.104.883 million in 2023, up 6418.52 percent year-on-year. This translated into EPS of Rs.8.78 and NP margin of 2.67 percent.

In 2024, SANSM’s topline grew by 38 percent. This was because of higher sales volume and also because of permission granted to the millers to export the surplus sugar as per the export quota set by the government. During the year, SANSM produced 52,293.5 tons of sugar, up 25.37 percent year-on-year. Molasses production also increased by 15.73 percent to clock in at 24,650 tons in 2024. However, because of surplus sugar production, sugar prices were very low. This coupled with a high minimum support price of Rs. 425 per 40 kg set by the government resulted in a 34.7 percent drop in gross profit in 2024. GP margin also slumped to 6.27 percent in 2024. Lesser export charges resulted in a 71.14 percent decline in distribution expenses in 2024. Administrative expenses multiplied by 18.91 percent in 2024 due to elevated payroll expenses. This was despite the fact that the company curtailed its workforce to 301 employees in 2024. Other expenses toppled by 44.12 percent in 2024 as sales tax default surcharge considerably shrank in 2024. Other income mounted by 2063.16 percent in 2024 due to liabilities written back during the year. SANSM recorded a 39.71 percent decline in its operating profit in 2024 with OP margin dropping to 3.16 percent. Finance cost increased by 66.23 percent in 2024 due to a higher discount rate due to increased borrowings which drove up the gearing ratio to 33.84 percent. After posting a net profit for two years, SANSM’s bottom line once again entered the negative zone in 2024. Net loss stood at Rs.139.66 million in 2024 with a loss per share of Rs.11.69.

Recent Performance (First quarter ended December 2024)

During the period under consideration, SANSM’s topline grew by 40.44 percent year-on-year. During the three-month period, the company produced 22,097.5 tons of sugar, down 32.34 percent year-on-year due to lower availability of sugarcane. However, the company had carry-forward stock of sugar which it sold in the local as well as export market. This resulted in higher sales volume. Cost of sales grew by 33.5 percent in 1QFY25, resulting in a 183.73 percent improvement in gross profit. GP margin also strengthened from 4.62 percent in 1QFY24 to 9.33 percent in 1QFY25. Distribution expense massively surged in 1QFY25 due to higher export sales as well as carrying & handling charges incurred during the period. The administrative expenses also remained intact at last year’s level. Other expenses dipped by 24.24 percent in 1QFY25 may be on account of lower sales tax default surcharge incurred during the period. Other income also dwindled by 13 percent during the period maybe on account of lesser liabilities written back during the period. Operating profit multiplied by 501.6 percent in 1QFY25 with OP margin recorded at 6.47 percent versus OP margin of 1.51 percent recorded during the same period last year. Finance cost magnified by 49.45 percent in 1QFY25 due to an increase in outstanding borrowings. Net profit picked up by 616.87 percent to clock in at Rs.87.93 million in 1QFY25. This translated into EPS of Rs.7.36 in 1QFY25 versus EPS of Rs.1.03 recorded during the same period last year. NP margin significantly grew from 0.74 percent in 1QFY24 to 3.75 percent in 1QFY25.

Future Outlook

The provincial governments have reportedly decided to deregulate the sugar industry. As a part of it, the government did not set the minimum support price of sugarcane for the recent harvest and let it be determined by the market forces. The price of sugar has already started surging before the peak using time in Ramadan, This will increase the gap between cane and sugar prices and improve the profitability and margin of the company.