Founded in 1990 as a private limited company in Rahim Yar Khan, Jehangir Tareen's JDW Sugar Mills Limited (PSX: JDWS) is by far the largest sugar producer in Pakistan. It single-handedly accounts for around 15-17 percent of Pakistan's sugar production. With a market capitalisation north of Rs 33.4 billion, JDW is the only sugar company in the KSE100 index.
From the original Rahim Yar Khan unit, the company expanded and went on to acquire two more units; JDW Unit 2 (formerly United Sugar Mills) came into being in 2005, while JDW Unit 3 (formerly Ghotki Sugar Mills) was incorporated in 2006. The three units put JDW's combined crushing capacity at 44,500 TCD (tonnes of cane per day).
The company has two subsidiaries as well - Daharki Sugar Mills (Pvt) Limited and Faruki Pulp Mills Limited. Together, these form the consolidated JDW Group, which claims annual sales of almost Rs 50 billion as of MY16 (Marketing Year).
While sugar manufacturing is the core business, JDW Sugar Mills entered two other segments; corporate farming and co-generation. In corporate farming, the company has established efficient and ecofriendly farms with higher yields, building the capacity of its farmers and giving an improved cane supply. For co-generation, the company has set up two bagasse-based, high-pressure co-generation power plants with a total capacity of approximately 53 MW, both of which were inaugurated in 2014.
JDW's marketing year starts in October and ends in September.
Pattern of shareholding
The single largest shareholder seems to be Mr Tareen, followed by ex-Governor Punjab Mukhdoom Syed Ahmed Mahmud, then Mrs. Tareen. All in all, over 52 percent of JDWS stock is thus in the hands of the owners. After that, the next largest chunk is with the general public, all of whom are local investors. Close to seven percent of the stock is with joint stock companies, foreign companies, investment companies, and others, which are yet 'to be specified.' Further information on these is not given in the annual accounts and the pattern of shareholding has been republished as is.
Historical Performance
With the price of sugarcane fixed by the provinces at exorbitantly high rates, the sugar industry has been suffering and a lot of sugar mills are in the red. However, it seems that JDW has never been one of them; the company has been the picture of growth, with an annual increase in both revenues and bottom-line like clockwork. The five-year sales CAGR stands at 10.39 percent, while the same for net profit is an astonishing 24.2 percent. This is particularly interesting because sugar accounts for around 82 percent of the company's sales.
One of the secrets to JDW's success could be its high recovery rates. One or the other of the company's units always delivers the highest recovery rate in Pakistan; well above the national average. The most recent year saw the highest recovery in Punjab from the units JDW 1 and JDW 2. Southern Punjab is more climatically conducive for sugarcane crop, where recovery is more than two percent compared to central and northern Punjab, an official of PSMA once told BR Research.
JDW's sugar production has maintained an uptrend as well (although it dropped in FY15 owing to unfavourable crop conditions caused by lack of rain and non-availability of irrigated water). The company's hold on the domestic market remains strong; exports form less than five percent of JDW's sales, and the rest is marketed locally. Where exports are concerned, however, the company has also suffered at the hands of the government, having to wait for the export subsidy to be disbursed, as per the company's books.
A cursory look at JDW's segments confirms that the company has been earning most of its money from sugar. However, the recent improvement in margins over the past couple of years could be due to the activity seen in the electricity segment, which saw two plants come online in 2014.
Recent Performance
For its year ended September 2016, JDW has achieved new heights. Both the top line (14%) and bottom-line (34%) witnessed double-digit growth year-on-year. Gross margins expanded nicely by 240 bps, while net margins were up 80 bps year-on-year.
During the year, aggregate sugarcane crushed was 7.68 percent higher year-on-year, while sugar production was up 6.93 percent. The sucrose recovery during the year went down by around 8.0 bps. However, growers have experienced a better yield per acre due to favourable weather and crop conditions, claims the Director's Report. Nevertheless, as mentioned previously, JDW units 1 and 2 achieved 10.99 percent sucrose recoveries - the highest achieved by any mill in the province of Punjab. Sucrose recoveries by the other two group sugar units in Sindh were also among top sugar mills of the province.
As per the Director's Report, the higher sales are attributable to better sugar prices, timely receipt of sugarcane and export subsidies, increase in sugar production, and smooth functioning of co-generation plants solely from internally produced bagasse. This has brought up the gross profit ratio. Moreover, cost savings came on account of oil and lubricants, chemicals, and packing material.
During the year, the company's units 1 and 2 exported 24,710 MT of sugar on which the centre allowed an export subsidy of Rs 13 per kg. The full amount of Rs 321 million was received within the year.
Outlook
Once again, the country is looking at a surplus of sugar and the federal government has recently allowed export of sugar up to 225,000MT without any export subsidy, valid until 31st March, 2017. Since global sugar prices have rebounded, the export subsidy is no longer needed, and this is good news.
However, due to unfavourable weather conditions, an early start to the crushing season 2016-17, massive logging of sugarcane, and sowing of unapproved varieties of sugarcane by growers, JDW is looking at a 100 to 125 bps reduction in the sucrose recoveries this year.
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