Mirpurkhas Sugar Mills Limited (MIRKS) is a public limited company established in 1964. The company operates under the umbrella of Ghulam Faruque group, one of the most prominent business groups in Pakistan. MIRKS instigated its commercial operations with an initial capacity of 1,500 tons per day capacity (TDC). However, over the years, the company went an extra mile to expand its capacity which now clocks in at 5000 TDC.
The company has attained a great deal of forward and backward integration and thus is also involved in the development of wide-ranging sugarcane varieties on its experimental farm. The company also aids farmers by providing them with fertilisers, agro-chemicals and up-to-the-minute farming techniques. Besides, the company also has an expertise of producing and testing latest forms of seeds and fertilisers.
Performance Highlights, 9MFY12
The nine-month period under consideration doesn't appear to be encouraging for the company whereby its top line tumbled by 41 percent from Rs 2.4 billion in the similar period last year. The sales drop comes on the heels of supply glut in the market coupled with a sharp decline in the sales price.
Delving into volumetric details, the company crushed 467,734 tons of sugar cane this year, which is down by eight percent from the crushing volume in 9MFY11. The company attributes this decline to the persistent downpour in Sindh which mired the commencement of crushing operations in the region. Consequently, the company could operate for only 96 days in 9MFY12 as against 144 days last season.
During 9MFY12, the company produced 47,566 tons of sugar as against 52,993 produced in 9MFY11. Last year, the company also produced 3,688 tons white sugar from white sugar. However, this milestone couldn't be achieved this year due to operational constraints.
The sales volume plunged by 29 percent YoY to tally 27,246 tons in 9MFY12. To the company's despair, the government took the farmer support price to Rs 154 per maund, up 21 percent from last year price. This took its toll on the company's margins which slipped from 16.12 percent in 9MFY11 to 13.08 percent in 9MFY12.
Besides, so many downbeat aspects which hampered company's performance over the period, a boon comes in the form of an extraordinary performance of its associate company Unicol Limited. The company accounted for one-third share in the profit of Unicol, which buttressed company's bottom line to a considerable extent. Moreover, other income also rebounded by 40 percent during the period.
However, the tangential buoyant aspects mentioned above couldn't supersede the soaring operational deficiencies experienced by the company during the period. Thus, company could garner an after tax profit of Rs 104.082 million which signifies a YoY drop of 52 percent.
Performance Trail (FY09-FY11) The company's top line rebounds in FY09 and FY10 however it illustrates a trivial three percent diminution in FY11. However, the bottom line doesn't follow the similar trail whereby it plunges FY10 and recovers in FY11. During FY10, there was a limited availability of sugarcane in Sindh due to reduction in the area under cultivation. Due to inadequate availability, there was a sharp increase in the price of sugarcane. Consequently, company's cost of production saw a YoY upsurge of 68 percent during the period.
Albeit, in FY10, company's net sales grew by 57 percent on account of upward adjustment in selling prices of sugar, however, the exorbitant cost of production took its toll on the gross margin which dropped from 18.39 percent in FY09 to 12.29 percent in FY10.
Another downbeat factor that thumped the bottom line in FY10 was a 20 percent surge in the finance cost due to high working capital requirement to procure expensive sugarcane. Moreover, during FY10, other income and associate profit share also slouched by 65 percent and 75 percent respectively. Taking into account all these factors, the company was able to tout an after tax profit of Rs 84.29 million which signifies a 33 percent slump when compared to last year's figure.
Talking about FY11, the industry saw intense competition and supply superfluity in the market which resulted in downhill revision in sugar prices during the period. During the period, company's top line dipped by three percent due to lower sales volume coupled with low prices. During FY11, company sold 43,244 tons of sugar, down 19 percent from the previous year.
During FY11, the government upgraded the support prices by 25 percent to Rs 147 per maund. However, the selling prices also improved which buttressed the financial results. During the period under consideration, company's other income and its share in the associate company Unicol Limited also recoiled enormously. Reckoning with these factors, the company achieved a profit after tax of Rs 137.7 million, up and about 63 percent YoY.
Liquidity
Over the years, the current ratio of Mirpurkhas Sugar Mills Limited bobbles the mark of one. However, the ratio clocks in at 0.96 according to the recent 9MFY12 results. This indicates the cash-strapped position of the company. Out of the total production of 47,566 tons of sugar during 9MFY12, company could sell only 27,246 tons, stocking the rest in the inventory.
If we compare the company's current ratio with the quick ratio, there is a huge difference between the two which illustrates that a huge amount of company's cash is stuck in inventory. However, this is not the fortune of Mirpurkhas alone. Given the surplus stock of country totalling 1.2 million tons, a plenteous production of five million tons sugar is expected this season. However the domestic demand is barely four million tons. Thus, the upcoming production is sure to prop up the industry surplus.
Out of the built-up surplus, TCP has planned to buy 30,000 tons of white powdered sugar for Tajikistan and allowed millers to export of 400,000 tons. However, the millers are asserting to increase the export limit, so as to improve their liquidity position thereby allowing them to make timely payments to the farmers.
Future Prospects On the face of inventory glut, a bumper production is expected this season. With prices of sugar dipping every week since the start of crushing operations, the industry's fate seems harsh with millers grappling against tight liquidity positions.
Millers fear that any inundated supply of the commodity in the local market will further reduce the prices, thereby accumulating huge losses for the manufactures. Reportedly, ECC is mulling over providing certain financial benefits for sugar mills in the shape of rebate on exports up to Rs 6 per kg on 0.5 million tons. The ECC also asked TCP to procure and maintain a strategic reserve of 500,000 tons of sugar by purchasing 330,000 tons of domestic sugar during the season of 2012-13. Thus, the industry now eyes the finalisation of ECC decison, which could be the only solution soothing the industry operations.
====================================================================================
Mirpurkhas Sugar Mills Limited
====================================================================================
9MFY12 FY11 FY10 FY09
====================================================================================
PROFITABILITY
Gross profit margin % 13.08% 13.30% 12.25% 18.39%
Operating profit Margin % 9.08% 9.88% 8.93% 14.88%
Net profit margin % 7.32% 5.03% 2.99% 6.96%
ROCE % 7.55% 10.89% 9.44% 15.91%
ROA % 2.96% 5.61% 5.67% 9.55%
ROE % 15.79% 27.78% 22.09% 39.14%
LIQUIDITY
D/E times 4.1 3.6 2.4 2.7
Net Working capital Rs In mm -75 78 -93 35
Current ratio times 0.96 1.07 0.84 1.07
Quick Ratio times 0.19 0.19 0.44 0.45
ACTIVITY
Total asset turnover times 0.40 1.12 1.90 1.37
Fixed asset turnover times 0.98 2.31 2.86 2.39
MARKET
EPS Rs 10.73 16.33 10 17.85
====================================================================================
Comments
Comments are closed.