Mehran Sugar is Pakistan's leading producer and marketeer of both white and brown sugar. The Company also has investments in an ethanol facility as well as in bluechip companies listed on the Karachi Stock Exchange. Mehran was founded in 1965 as a Public Limited Company and is quoted on the Karachi Stock Exchange. The Company has thrice been awarded the prestigious top 25 KSE company award.
PERFORMANCE SNAPSHOT
The sugar industry as a whole has been facing a difficult year. Mehran Sugar Mills Limited was affected badly this year due to a historic rainfall within its area as well as its neighbouring areas. Record rainfall in Tando Allahyar coerced the government to declare the district as calamity hit.
Due to rains and after effects of floods in other parts of the country, the start of crushing season was considerably postponed. Production was finally started in December which is considered as the latest start in the history of the Company. Company's 25 percent of the crops was damaged due to rainfall. This reduced the overall operational days to 104 as compared to 156 during the year 2010-11.
Fortunately, the rise in capacity, efficient milling owing to continuous BMRE during the last few years and improved sucrose recovery allowed the Company to offset this reduction to a considerable extent. Consequently, capacity utilisation also increased to 73 percent from the previous year's 58 percent.
However, overall crushing and production were down by 10.74 percent and 12.6 percent, respectively. MSML higher recovery and better capacity utilisation allowed it to survive in such an intensely tough year of the sugar industry. The Company witnessed a drastic decrease in its margins. The gross profit fell from 12.63 percent in FY11 to 8.56 percent in FY12. The net profit margin also declined from 7.01 percent in the previous year to 6.17 percent. These lower margins were due to higher raw material and inflationary cost effects coupled with low sugar prices which made it a difficult year for the Pakistan sugar industry.
During the period under review, the Company generated revenue of Rs 516.520 million through its exports, Rs 3,612.514 million through domestic sales and Rs 290.239 million through sales of Molasses and Bagasse. The Company was able to achieve a total turnover of Rs 4.4 billion, despite the decrease in sugar prices by 15.49 percent. The total sugar quantity sold during the year was 16.57 percent more as compared to that of last year. The contribution to the national exchequer in the shape of GST/FED Duty was 6.09 percent of turnover as compared to 5.4 percent during last year.
The factors which were responsible for the decline in the profitability of the Company were low selling prices of sugar as compared to the previous years', low production of sugar due to floods and the higher depreciation expense due to capitalisation of the last few years.
The most important factors that improved the profitability of the Company were the results at Unicol. Mehran's profit from the investment in Unicol amounted to Rs 171 million which was the highest ever and 322 percent higher than that of last year. During the year under review, the Company invested Rs 200 million for the procurement of two turbines from Japan. These turbines are expected to economise on fuel consumption. In addition, work on completion of new Labour Housing, Technical Block and Management House is expected to come to an end before commencement of new crushing campaign.
The liquidity position of the Company remained evident. With witnessing a long below 1 current ratio in the previous years, the current ratio improved and stood at 1.01 in FY12. Its acid test ratio has also been improved from 0.187 in FY11 to 0.384 in FY12.
FUTURE OUTLOOK Following the previous year's practice, the Government of Sindh has increased the support prices of sugar from Rs 154 per 40 kg last year to Rs 172 per 40 kg, recording an increase of 11.69 percent. This increase in minimum support price has motivated the farmers to bring more area under cultivation.
It is also expected that the production of sugar in the country would go beyond 5.5 million tons this year which could create a glut like situation in the sugar market. The government has allowed the domestic mills to export 500 million tons of sugar cane without any quota restriction in 2013. On the other hand, the international prices of sugar have decreased and are currently $515/ton, due to excess supply internationally. Pakistani millers are hesitant to export sugar because of these depressing prices. However, if surpluses are not exported, superfluity in the local markets will have a drastic impact in the local market. The prospects of export may enable an outlet for this excess sugar and help to ease the over-supply scenario. Though the year remains a tough one for the sugar industry the Company feels fully prepared because of its surplus production of crop and its ability to utilise its new capacity and take advantage of a higher production number.
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MEHRAN SUGAR MILLS LIMITED
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Rs in million 2012 2011 2010
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PROFITABILITY
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Gross profit margin % 8.56% 12.63% 11.79%
Net profit margin % 6.17% 7.01% 6.01%
ROCE % 15.2% 25.5% 24.6%
ROA % 7.7% 10.3% 13.9%
ROE % 26.3% 40.7% 46.3%
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LIQUIDITY
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D/E times 2.41 2.93 2.32
Net working capital times 17.361 (49.120) (44.354)
acid test ratio times 0.384 0.187 0.603
current ratio times 1.010 0.974 0.941
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ACTIVITY
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Inventory turnover ratio times 2.95 4.41 17.04
Total asset turnover ratio times 1.25 1.47 2.32
Fixed asset turnover times 3.18 4.22 4.75
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LEVERAGE
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Interest cover ratio times 4.04 4.11 5.35
Financial leverage times 3.41 3.93 3.32
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Source: company accounts
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