Shahmurad Sugar Mills Limited (PSX: SHML) was incorporated in Pakistan on April 09, 1979. It is a public limited company operating under the Companies Act, 2017. The company is listed on the Pakistan Stock Exchange. Principal activities of the company include production and sale of white sugar and its derivative food-grade ethanol. Registered office of the company is situated in the provincial capital Karachi whereas manufacturing facilities are located in tehsil Jhok of district Sujawal in Sindh province.
Timeline of the group Shahmurad Sugar Mills belongs to the Al-Noor group, which is primarily concentrated in the sugar milling business. The group is vertically integrated such that it also operates in the downstream business of fiberboard manufacturing, in which waste from sugarcane crushing is used as raw material.
The group first began trading activities in the late nineteenth century from the island of Mauritius. In 1897, sugar production facilities on a very small scale were opened on the island-nation and thereafter offices in British India, Sri Lanka (then Ceylon) and Myanmar (then Burma) were established to handle commodity trading of sugar, rice and jute.
After the partition of the sub-continent the group established Noori Trading Corporation (Pvt) Limited in Karachi to handle trading of general merchandise. In 1960, Noori Sugar Factory was established with a cane research farm in Moro region of Nawabshah district, with a small sugar manufacturing unit.
In 1980, Shahmurad Sugar Mills Limited was commissioned and listed on the then Karachi Stock Exchange (now PSX). Four years later the group established Reliance Insurance Company Limited.
In 1987, Al-Noor Medium Density Fiber (MDF) Board Industries (popularly known for its "Lasani" brand), was established as a unit of Al-Noor Sugar. The unit has since expanded in MDF laminates and continues to expand in various furniture and décor products. In 1991, Al-Noor Modaraba Management Company was established and subsequently Al-Noor Modaraba was floated on the then Karachi Stock Exchange (now PSX). In 1996, export of rice was started under the brand name of "Shalamar". The group's distillery business was established as a unit of Shahmurad Sugar Mills in 2004.
Pattern of shareholding As per details disclosed in last available annual financials, the sponsor family owns significant (more than 5 percent share) through associated undertakings and direct ownership by directors and their dependents, with a cumulative total of 36.2 percent.
As a listed entity, majority shares are held by individuals whose details is not disclosed in the pattern of shareholding, reported at about 45 percent of total shares outstanding. However, banking channels indicate that shares held with sponsor family constitute majority control of the board.
Business activities Together with Al-Noor sugar, the group holds close to 9 percent share in the white sugar output of Sindh province. Of the 38 units in the province, this places the group among top ten sugar milling groups in the region.
Due to exposure of commodity prices to bumper and slow crop years in farming, the group has well-diversified itself into allied businesses. While Al-Noor branched out into MDF manufacturing from cane waste, up to half of Shahmurad's revenue in recent years comes from manufacturing and export of food-grade ethanol, which is extracted from molasses, itself a byproduct of sugar manufacturing process.
Sugar division's performance During the ongoing year, Shahmurad has recorded its second-lowest production in the last decade, with white sugar output of a little over 55 thousand tons. This is in line with the overall performance of the sector in Sindh province, as mills in the region operated for an average of less than 100 days, with estimated capacity utilisation in the province of less than one-third of total.
Going by disclosures in the interim financials of listed mills in the province, it appears that most mills began crushing in the first or second week of December 2018, wounding down operations maximum by mid-March 2019.
This was a result of reportedly historic low yield of sugarcane in the province which industry sources suggest may clock in at as low as 55 tons per hectare for MY18-19 season. This was a result of water shortage in the province during sugarcane sowing kharif season, which resulted in poor crop output.
Nevertheless, it appears that the sucrose quality of sugarcane produced in the region during the year marked incremental improvement over previous years, due to which white sugar output declined at a lower rate compared to sugarcane availability.
Shahmurad's performance was in line with the regional industry, with crushing operations of just three months compared to 126 days in the previous MY18 season. As a result, capacity utilisation was also lowest in recent memory, at just thirty percent of installed rated capacity of 11,000 tons per day for average crushing period of 150 days.
Decline in output for Shahmurad was particularly worse, as water shortage was worst in the southern region of Sindh, where the mills are located. Mills located in the northern region reportedly performed better on average; however, their output was similarly lower when compared to the previous season.
Financial analysis Poor production it appears did not stop Shahmurad from recording its highest top-line. For the 9M-MY19 period under review, top-line grew by almost 40 percent, set to touch historic Rs9 billion for the full year ending September 2019.
The jump in top-line appears to have come from shortage of sugar in the ongoing year in the domestic market, which led to a substantial increase in retail price of sugar between March and June 2019. Management disclosures note that ex-factory price of sugar reached as high as Rs 59 per kg; however, this may be an understatement considering price in retail market have kissed as high as Rs85 per kg, before settling close to Rs75 per kg.
Mills with efficient processes have as a result been able to record a year of substantially improved profitability, even though there was no exportable surplus or subsidy allowed on exports by federal or provincial governments.
Meanwhile, cost of production remained stable as no change was recorded in notified price of sugarcane, which has remained stuck at Rs 182 per kilo in the province for at least three seasons now. In addition, mills in the province were able to offload inventory from previous years, when two years of bumper crop led to a build-up of two million tons' surplus white sugar in the domestic market.
Nevertheless, real boost to profitability was received from export of ethanol, which contributed up-to three-fourth of top-line net of inter-segment transfers/sale. Ethanol exports appears to have relished in the dollar bonanza, as gains on foreign exchange/other income appear to have contributed an additional Rs 152 million to segment sales.
Improved ethanol prices, lower molasses availability, and high white sugar export prices together acted to boost gross profitability, with gross margin increasing by at least 21 percentage points in the nine-month period, compared to same period last year.
The effect trickled down the profit and loss statement, with only setback received on account of interest expenses which almost doubled due to high debt servicing cost - an obvious outcome ongoing spate of monetary tightening and credit demand compression in the country. Sugar sector's dependence on short term borrowing for sugarcane procurement makes matter worse in this respect; however, as noted before, the effect has been mitigated more or less due to improved selling prices for company's products in both domestic and foreign markets.
Outlook In the near future, full year financials for the sector will record a variety of performances. On one hand, efficient mills with diversified operations whether in ethanol or bagasse-based power plants will be able to weather the winds of demand contraction and high debt servicing. On the other hand, smaller- and less efficient units that had been recording losses on gross levels even in years of low interest rates appear on the verge of bankruptcy, and the industry may witness a period of combing and consolidation as a result, especially in Sindh.
For the upcoming crushing year MY20, conflicting information appears to be stemming from market sources. On one hand, despite falling inventory, government sources anticipate that sugarcane cultivation area will further decline to under a million hectares on country-wide basis, which may further make sugarcane availability dearer.
However, improved water availability during the kharif season for ongoing calendar year could have an opposing effect, as yield may improve even in area under cultivation remains restricted. In addition, sources suggest that up to 8 units of Omni group may continue to remain inoperative, which may further improve sugarcane availability in the province.
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Pattern of Shareholding (as on September 30, 2018)
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Categories of Shareholders %
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Associate Undertakings
- Al-Noor Sugar Mils 15.6%
- Reliance Insurance Co. 0.1%
- Noori Trading Corp. 3.2%
- Zain Trading Corp. 4.3%
Directors 13.0%
NBP, NBP Trustee Dept., Employee 1.1%
Benevolent Fund, Employee Pension Fund
Trustee NIT Fund 7.0%
Banks, DFIs, NBFIs, Insurance Co., 0.0%
Mudarabas, & Pension Funds
Public Sector Corporations 5.5%
Joint Stock Companies 5.0%
Others 0.0%
Individuals 45.2%
Total 100.0%
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Source: Company accounts
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Shahmurad Sugar Mills Limited
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Rs (mn) 9M-MY19 9M-MY18 YoY % chg
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Sales 7,550 5,414 39%
Cost of Sales (5,303) (4,954) 7%
Gross profit 2,247 461 388%
Administrative expenses (186) (160) 16%
Distribution costs (683) (462) 48%
Profit/(Loss) from core operations 1,379 (161)
Other income 153 788 -81%
Other expenses (83) (37) 123%
Earnings before interest & taxes 1,449 590 146%
Finance cost (279) (153) 83%
Profit before tax 1,169 437 168%
Taxation (1) (80)
Net profit for the period 1,169 357 227%
Earnings per share (Rs) 55.33 16.90
GP margin 29.76% 8.51% + 21.26 pp
Operating margin 18.26% -2.97% + 21.23 pp
EBIT margin 19.18% 10.89% + 8.30 pp
PBT margin 15.49% 8.07% + 7.42 pp
PAT margin 15.48% 6.59% + 8.88 pp
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Source: Company accounts
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Pattern of Shareholding (as on September 30, 2018)
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Categories of Shareholders %
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Associate Undertakings
- Al-Noor Sugar Mils 15.6%
- Reliance Insurance Co. 0.1%
- Noori Trading Corp. 3.2%
- Zain Trading Corp. 4.3%
Directors 13.0%
NBP, NBP Trustee Dept., Employee 1.1%
Benevolent Fund, Employee Pension Fund
Trustee NIT Fund 7.0%
Banks, DFIs, NBFIs, Insurance Co., 0.0%
Mudarabas, & Pension Funds
Public Sector Corporations 5.5%
Joint Stock Companies 5.0%
Others 0.0%
Individuals 45.2%
Total 100.0%
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Source: Company accounts
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Shahmurad Sugar Mills Limited
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Rs (mn) 9M-MY19 9M-MY18 YoY % chg
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Sales 7,550 5,414 39%
Cost of Sales (5,303) (4,954) 7%
Gross profit 2,247 461 388%
Administrative expenses (186) (160) 16%
Distribution costs (683) (462) 48%
Profit/(Loss) from core operations 1,379 (161)
Other income 153 788 -81%
Other expenses (83) (37) 123%
Earnings before interest & taxes 1,449 590 146%
Finance cost (279) (153) 83%
Profit before tax 1,169 437 168%
Taxation (1) (80)
Net profit for the period 1,169 357 227%
Earnings per share (Rs) 55.33 16.90
GP margin 29.76% 8.51% + 21.26 pp
Operating margin 18.26% -2.97% + 21.23 pp
EBIT margin 19.18% 10.89% + 8.30 pp
PBT margin 15.49% 8.07% + 7.42 pp
PAT margin 15.48% 6.59% + 8.88 pp
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Source: Company accounts
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