Habib Sugar Mills Limited was incorporated as a public limited company in 1962 and is headquartered in Karachi. Its plant is located at Nawabshah, 300 kilometres north-east of Karachi.
Sugarcane, an important cash crop, is grown over a million hectares and provides the raw material for Pakistan's 78 sugar mills - which comprise the country's second largest agro industry. Habib Sugar Mills Limited engages in the manufacture and marketing of sugar, molasses, ethanol, and household textiles in Pakistan. Its products, include, white refined sugar and industrial alcohol, as well as terry towels and bathrobes. The company also provides bulk storage facilities for the storage of molasses, industrial alcohol, and edible oils at Karachi port for export/import purposes.
Habib Sugar is among the top five sugar mills of Pakistan in terms of sales revenue. The company comprises five divisions ie sugar, distillery, terminal, textile and trading.
RECENT RESULTS 2001 Q 2010
Crushing operations for the season 2009-10 commenced on November 11, 2009. The highlights of the sugar division for the quarter ending December 31, 2009 are as follows:
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1QFY10 1QFY09
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Sugar Produced (MTons) 23,570 26,780
Sugar Crushed (MTons) 251,549 302,937
Average Sucrose Recovery 9.37% 8.84%
Min. Sugarcane Support Price Rs 102 per Rs 81 per
fixed by the Government 40 kgs 40 kgs
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Net sales dropped to Rs 841.441 million in 1Q10 as compared to Rs 939.327 million in the corresponding quarter of last year. Even though the local sales increased by 32%, exports showed a decline of 66% from 404.127 million in 1Q09 to Rs 136.928 million in 1Q10. Main divisions affected by the declining exports included distillery and textile.
Cost of sales and gross profit decreased from Rs 829.337 and Rs 109.990 in 1QFY09 to Rs 736.632 and Rs 104.809 in 1QFY10 respectively. However, the company maintained the cost of sales as 88% of net sales and gross profit margin at 12%, the same level in the corresponding quarter of last year.
Operating profit showed a jump of 78% from Rs 35.616 million in 1QFY09 to Rs 63.378 million in 1QFY10. This increase is attributed to the reduction in distribution and marketing expenses. As a result, the company showed an increase in profit after taxation from 33.748 million in 1QFY09 to Rs 56.727 million in 1QFY10.
FINANCIAL PERFORMANCE SEPTEMBER 2005 - 2009
Crushing season 2008-09 commenced on November 18, 2008 and the plant operated up to March 17, 2009 for 120 days as against 171 days in the preceding season. The comparative statistics of operations are as under:
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2008-09 2007-08 2006-07 2005-06
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Crushing duration Days 120 171 137 123
Sugarcane crushed MTons 780,578 1,264,619 710,965 536,644
Average sucrose recovery % 9.87 9.73 9 9.75
Sugar production MTons 77,051 123,064 64,015 52,302
Raw sugar processed MTons - - 2,989 29,561
Average sucrose recovery % - - 95.7 95.41
Sugar production MTons - - 2,860 28,228
Total sugar production MTons 77,051 123,064 66,875 80,530
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Net sales for the year 2008-09 have increased by 10% to Rs 4,585 million as compared to Rs 4,176 million last year. The main reasons for the increase in sales were the increase in the sale price of sugar due to a realistic level of Rs 50 compared to Rs 38 of last year. This was demanded by the sugar producers, as internationally the price of sugar had increased. The price hike that occurred due to the excess demand of sugar had a major positive effect on the figures of the net sales revenue. Another factor contributing to increased sales was the increase in the sucrose recovery to 9.87% as compared to 9.73% of last year. Thus, more sugar could be produced from the same sugarcane.
The production of ethanol during the year 2008-09 was 21,739 M tons as compared with 35,607 M tons produced during the previous year. The reduced production was on account of lesser availability of molasses as compared with the previous year. There was a decrease in profit of this division on account of reduced volume of sale, low prices of ethanol in the international market and increase in the cost of raw material ie molasses. Also, the commercial production of liquid carbon dioxide (CO2) commenced successfully in mid March.
The textile division's profit decreased on account of continued depressed conditions prevailing in the textile sector globally. Overall, the increased demand and prices of sugar resulting in higher sales, decreased the negative effect of the lower sales in other divisions, thus increasing overall net sales revenue.
Due to the sugar crisis engulfing the country, the high sales revenue ensured higher gross profit and net profit margins for the company. The gross profit margin increased to 18.8% in FY09 compared to 17.6% in FY08. This was due to the increased prices and excessive demand in the market. The sugar produced this season was 77,051 M tons, which was less compared to 123,064 M tons of last year, as availability of sugarcane during the season was lower. This happened because there was a reduction in the area under cultivation and adverse climatic conditions including scarcity of water. Due to shortage of sugarcane, there was unhealthy price competition between the mills, thus raising the cost of production. Also, the support price was increased to Rs 81 per 40-kg as compared to Rs 63 per 40-kg of last year. Despite such adverse conditions, the company continued to have increased profit margins due to higher sales revenue. The profit margin of the company showed a positive trend of an increase to 10.7% as compared to 9.7% of last year.
The increase in net income also resulted in a higher return on assets and higher return on equity. Return on assets increased from 8.1% to 12.8% whereas return on equity from 12.21% in FY08 to 20.14% in FY09.
The liquidity of the company has slightly been improving over the years. Current ratio increased to 1.9 in FY09 compared to 1.6 in FY08. This was due to the remarkable increase in profit accrued on bank deposits from Rs 4.028 million in FY08 to Rs 9.223 million in FY09 and cash and bank balances from Rs 736.537 million in FY08 to Rs 1,595.667 million in FY09. Within the cash and bank balances, balances with banks on current accounts and treasury call accounts almost doubled as compared to last year.
The inventory turnover of the company has increased from 11.5 in FY08 to 8.3 in FY09. Consequently, the days inventory outstanding decreased from 44 to 32 days. Operating cycle became negative for HABSM this year to (13.8) compared to 8.8 days of last year due to increased days payable outstanding from 62 days in FY08 to 76 days in FY09. The increase in DPO was a result of increasing cost of sales.
In terms of debt management, the company has shown further improvement. Debt to asset ratio decreased from 39.50% in FY08 to 35.54% in FY09. The company issued additional 24,000,000 ordinary shares raising the shareholder's equity versus the liabilities of the company. Due to this increase, debt to equity ratio has also declined from 65% in FY08 to 55% in FY09.
Interest coverage ratio has also improved over the years showing that the company faces no debt issues. The finance cost in FY09 was covered by the profits on treasury call accounts, with the excess profits contributing to finance income.
The company declared a dividend of Rs 1.75 per share compared to Rs 1.25 of last year. The EPS this year increased to Rs 5.10 as opposed to Rs 4.21 of last year showing a 21% increase. This was mainly due to the increase in net profits of the company.
The book value per share of the company remained around the same level, Rs 28.5 in FY09 from Rs 28.2 in FY08. The P/E ratio of the company reduced this year as the EPS increased but the market price of the stock remained relatively the same as last year. The relatively constant market price of HABSM's stock was a result of poor performance of the stock market resulting in low demand for the stock.
The beta for HABSM is 0.86 showing a positive and a very high correlation with the KSE 100 index. Thus when the market rises by 1%, the stock rises by 0.86%.
FUTURE OUTLOOK
The future performance of the company wholly depends on continuous availability of raw materials for its sugar and distillery divisions at reasonable prices. Due to shortage of sugarcane availability and supply, the growers are demanding higher prices over and above the minimum support price of Rs 102 per 40-kg fixed by the government of Sindh. This has resulted in a serious price war amongst the mills to grab the maximum quantity in order to improve the level of capacity utilization.
During the current season, there is an expected shortage of around one million tons of sugar for which government has to immediately take necessary steps to overcome this huge shortage of the commodity in the local market. The international prices of sugar are at the highest and the importers are reluctant to purchase sugar at a higher price. This is a serious problem, which the company as well as the industry would face and the government must take some steps to overcome this shortage.
The rise in sugar prices would cause a substantial increase in the cost of production. However, this impact of increased cost of production is expected to be absorbed by increasing the sugar-selling price.
Moreover, the availability of molasses during 2009-10 is expected to be lower in view of the reduced sugarcane crop. Consequently, the prices of molasses will be higher as compared with the previous year. The prices of ethanol in international market have not increased in the same proportion as the increase in molasses prices and accordingly this may affect the profitability of the division.
Textile division, which depends largely on exports, is expected to be adversely affected in terms of sales volume due to the continued slump in the international market. However, efforts are being made to explore additional export markets to achieve sale volume and maintain profitability.
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2005 2006 2007 2008 2009
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PROFITABILITY
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Gross Profit Margin (%) 10.5 10.4 13 17.6 18.8
Net Profit Margin (%) 6.0 5.4 7.6 9.7 10.7
Return on Assets (%) 8.5 8.5 9.8 8.1 12.8
Return on Equity (%) 16.7 15.1 15.6 12.2 20.1
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LIQUIDITY RATIO
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Current Ratio 1.25 1.52 1.62 1.62 1.9
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ASSET MANAGEMENT
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Inventory Turnover 6.00 7.60 6.10 8.30 11.46
Days Inventory Outstanding 61 48 60 44 32
Operating Cycle 25 25 27 9 -14
Total Asset Turnover 1.40 1.68 0.97 1.24 1.20
Sales/Equity 2.33 2.60 1.43 2.06 1.87
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DEBT MANAGEMENT
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Debt/Asset (%) 40.3 34.8 32.6 39.5 35.5
Debt/Equity (%) 67.4 53.3 48.5 65.2 55.1
Times Interest Earned 6.52 5.26 6.43 9.31 12.52
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MARKET VALUE
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Earnings per share 3.76 3.74 3.75 4.21 5.10
Price earnings ratio 3.72 6.20 10.72 8.12 6.83
Dividend per share 2.67 2.67 2.25 1.25 1.75
Book Value 37.23 36.18 34.37 28.20 28.58
Market Price (Sept 30) 14 23.2 40.2 34.2 34.84
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