Incorporated in 1989, Sakrand Sugar Mills Limited is a Public Limited Company and is listed on the Karachi and Lahore Stock Exchanges. The Company is primarily involved in the manufacture and sale of sugar. Its mill is situated at Deh Tharo Unar, Sindh, Pakistan.
FINANCIAL ANALYSIS OF SAKRAND SUGAR MILLS LIMITED
Profitability FY08 was a very challenging year for SSML due to its transfer of management at the peak of the sugar cane crushing season and the threat if its shutdown as a result of poor management. Despite these conditions, the sales of the Company increased compared with sales in FY07, primarily due to improvement in sugar production. The Company managed to earn a gross profit of Rs 48 million. This, however, failed to cover up for the administration and financial costs resulting in a net loss of Rs 30 million at the end of FY08.
Due to the carried forward financial constraints the Company had to close its crushing season in FY09 before the optimal time affecting the Company's production and hence its revenue generation ability. Its net sales totalled Rs 920 million in FY09 compared with Rs 1,287 million in FY08.
At the same time, cost of sales showed a decline of 27.09 percent moving from Rs 1,239 million in FY08 to Rs 903 million in the following fiscal year. This was due to the reduction in the Company's sugar production. Consequently, the Company was able to make a gross profit for the year but its operational loss reached Rs 109 million.
The increase in production cost is linked to the soaring price of the prime input, sugar cane, which was set at Rs 81 per 40 kg in FY09 by Sindh Government, compared with Rs 63 per 40 kg during the previous season.
Net profit for the Company in FY09 amounted to Rs 394 million, as a result of the management's successful attempt to settle its outstanding liabilities. This was done by restructuring the Company's existing liabilities, incorporated in the calculation for the net profit value for the year.
Sugar cane prices continued to remain high in the FY10, adding to the cost of production and consequently rising market price of sugar. Fluctuations in the international sugar price affected the local market. Net sales of the company showed significant improvement, increasing by 246.90 percent in FY10 compared with the value in FY09. As a result, the Company was able to generate positive gross earnings of Rs 217 million, which was reduced to Rs 46 million of net profits.
Liquidity The Company has been facing liquidity problems over the years. The Company's management approached the financial institutions in FY09 to settle the financial liabilities on the Company. This situation improved in FY09 as a result of the restructuring of the liabilities, consequentially, the Company's long-term obligations were settled with the banks. Thus the company was able to obtain loans from the bank, favourably impacting the current ratio value for the year.
Debt Management The management of SSML was able to waive off the Company's outstanding loans from banks in FY09, resulting in a decline in its long-term loans by 6.64 percent compared with FY08. However, the borrowings continued to increase in FY10 for the procurement of sugar cane to allow for continued sugar production.
Finance cost of the Company increased in FY10 to Rs 85 million compared with Rs 33 million in FY09. This was a result of an increase in its borrowings to procure the main raw material for sugar, sugar cane, the price of which continued to increase due to supply shortage. Additionally, the Company had to pay the cost of borrowing done to pay off the outstanding liabilities of sugar cane growers from the previous year.
Operational Efficiency The Company has struggled in the recent past due to the transfer of management in incapable hands. The management at present is striving hard to overturn the Company's profitability and operational position. Input shortages and cash flow constraints affected the Company's operational performance in FY09 as compared to the performance in the previous year. In FY10, the management's strict policy to procure good quality sugar cane, better production facilities and loss minimisation led to an increase in the company's operational results.
There was an improvement in the utilisation of the fixed assets of the Company, as can be seen by the improvement in the fixed asset turnover ratio, which remained strong in FY08 (2.10) and FY10 (2.61), dipping slightly in FY09 to 0.74.
Market Value The earnings per share (EPS) of SSML have followed the same trend as has the Company's earnings. The EPS witnessed a significant increase, moving from a loss per share of Rs 1.38 in FY08 to a profit per share of Rs 17.70 in FY09. As the Company's profitability declined, the EPS came down to Rs 2.08 in FY10.
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