Baba Farid Sugar Mills Limited is one of Punjab's smallest sugar milling unit, ranking 41st out of 43 (by output) operational mills in the province as of 2018. Incorporated in 1978, the mill is located in district Okara of Sahiwal division, in central eastern region of Punjab.
According to company website, the company has annual production capacity of 27,200 metric tons; however, its output has fallen to 18,262 tons as of last marketing year. In better times, its production has touched peak of 40,000 tons (MY14).
BFSML is one of two mills located in Okara division, the other being Abdullah Sugar Mills belonging to sugar group. Both mills have struggled to avoid bankruptcy due to depressed retail price of white sugar coupled with high floor price of sugarcane, the primary raw material.
In addition, Sahiwal division - mill's home region - has the second lowest sugarcane yield in the province (after Gujranwala), whereas sucrose recovery yielded from cane grown in the region has also remained lower than province and national average in the past eight years. This has further affected firm's profitability in recent years.
Ownership & Pattern of Shareholding
According to last published annual accounts, ownership of the company belonged to Importent group of Punjab, which is one of the older sugar players in the region. In fact, Pattoki Sugar Mills, a private limited concern, owned super majority holding in the company at 81.4 percent, with only other significant shareholding at 8 percent with Mr. Muhammad Aslam, key member of sponsor family.
However, as the original sponsors struggled to maintain firm's profitability, the company received an offer of acquisition in January this year. While the sponsors of the bid identified themselves as owners of Naubahar Bottling Company (Private) Limited, it is worthwhile to note that the same sponsor group also is the second largest sugar milling player in the province behind JDW.
Other sugar mills owned by the group Thal Industries and Al-Moiz, which together own four milling units in various regions of Punjab and KP, including Chiniot, Layyah, Mianwali, and Dera Ismail Khan.
As of MY18, the group produced 512,617 tons of white sugar cumulatively, which is close to 7.7 percent of total sugar produced in the country that year.
Naubahar Bottling Company (Private) Limited's share purchase offer was accepted as of June 13, 2019 according to a notice on PSX website. Reportedly, the group now owns 96.46 percent shareholding of BFSML. The shares were acquired at Rs52 per share, with total transaction ticket of Rs474 million. Total shares outstanding of the company stand at 9.45 million. It appears that the remainder unsold shares are owned by members of general public.
It is worthwhile to note that Naubahar Botlling Company (Private) Limited is one of the five PepsiCo franchises in Punjab and controls bottling operations for Gujranwala region.
Business& Financial Performance
Baba Farid Sugar Mills operations had come to a near halt during last marketing year, as it recorded lowest number of days (93) operated in at least past eight years, barely three months. Crushing season in the country usually starts in November; however, even in recent years when it has begun with a delay of nearly one month, due to growing scale of sugarcane crop at least last up to four to five months up to mid-April. Low number of operation days is primarily a function of firm's cash-strapped position, as the crop production in Okara district has been in excess of annual crushing by the two mills in the district for several years now. Crop production in the district exceeded crop crushing by 25 percent in MY17, suggesting sugarcane procurement cost may have remained on the lower side of government set indicative rate.
Difference between national and firm's sucrose recovery rate has been progressively expanding since MY14, touching ever highest of 1.25 percentage points as of last year. This means that for marginal cost of producing white sugar from sugarcane for the firm is higher than the other players' in the industry. This is because in order to produce every addition ton of sugar, the company has to producer a greater amount of sugarcane compared to other players in the company, requiring it to procure sugarcane in greater quantities, increasing its cost of production.
This has increasing reflected itself in company's bloating loss on gross level, which touched negative 12.5 percent as of MY18. This pushed the company to struggle to keep its roof overhead, considering that financial leverage alone stood at 13 percent of its revenue for the year.
While the previous owners had ploughed long term loans of Rs600 million to keep the company afloat, as accumulated losses finally touched 50 percent of balance sheet position of September 30, 2018. In addition, deferred mark-up to sponsors on long term loans drawn touched Rs 1.3 billion, taking effectively liability to owners to a total of Rs 1.9 billion, or 64 percent of total balance sheet value.
Note that as the company's property, plant and equipment had a total book value of Rs2.5 billion as of reporting date, firm book value net of dues to sponsors (principal and markup) comes out at Rs600 million. At Rs52 per share selling price, it appears that the assets have been sold at a discount to their breakup value; or this may be reflective of other long-term dues to suppliers and utilities.
Outlook
It will be interesting to note if the sucrose recovery level of BFSML and cost of production reflects rapid decline in coming period in the aftermath of the takeover. The sponsors have a reputed profile in the industry, and not only have managed operations of existing mills but also expanded to extraction of beet root sugar in KP province.
Furthermore, market intelligence suggest that the group may also have co-ownership interests in other bottling franchises of Punjab province, however this could not be confirmed despite best efforts.
In the interest of better disclosures of demand of sugar from beverage industry, it is hoped that the company will not be taken private.
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Pattern of Shareholding (as on September 30, 2018)
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Categories of Shareholders %
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Associate Undertaking-Pattoki Sugar Mills Ltd 81.4%
Directors and their dependants 10.4%
General Public-Local 8.1%
NIT and ICP 0.011%
Banks, DFIs, Insurance Co., Pension Funds 0.001%
Joint Stock companies 0.032%
Total 100.0%
As on June 13, 2019
Naubahar Bottling Company (Pvt.) Limited 96.5%
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Source: Company accounts, PSX notice
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Baba Farid Sugar Mills Limited
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Rs (mn) MY18 MY17 YoY
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Sales 1,311 1,932 -32%
Cost of Sales (1,475) (1,737) -15%
Gross Profit (164) 195 -184%
Administrative expenses (42) (38) 13%
Distribution Costs (2) (4) -46%
Profit from core operations (209) 153 -236%
Other income/(expenses) - (1) -100%
Earnings before interest & taxes (209) 152 -238%
Finance income/(cost) (170) (128) 33%
Profit before tax (378) 24 -1679%
Taxation Reversal/(liability) 4 6 -24%
Net profit for the period (374) 30 -1366%
EPS (Rs) (39.58) 3.13
GP margin -12.49% 10.08% -ve 22.57 pp
Operating margin -15.90% 7.91% -ve 23.81 pp
EBIT margin -15.90% 7.84% vve 23.74 pp
PBT margin -28.85% 1.24% -ve 30.09 pp
NPT margin -28.53% 1.53% -ve 30.06 pp
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Source: Company accounts
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