Company Profile Thal Industries Corporation Limited (PSX: TICL) is a listed public limited entity incorporated in 1953. TICL is a manufacturing concern which is principally engaged in production and sale of refined sugar and its byproducts.
TICL is one of the oldest sugar mills in the country and the first mill to be incorporated in the South Punjab region. Thal's first production unit was set up in district Layyah, due to which it was also known as Layyah sugar mills in popular parlance. The registered offices of the company are located in Multan city.
Timeline & production capacity
The capacity of the plant at its inception was 1,200 tons of sugarcane crushing per day. While the company was originally set up as a private limited concern, it was nationalized during the 1970s socialist regime. Under government control, the production capacity of the firm was enhanced twice: first from 1,300 tons per day to 2,000TCD in 1980s, followed by increased to 2,700TCD in 1991. The production process was also upgraded to Defecation Remelt Phosphation (DRP) which is still used by majority sugar mills of the country.
The company was privatized in 1998, with majority share acquired by a South Punjab based family. Drastic majors were taken at the time to revolutionize the company including set up of a new milling, turbines, powerhouse, and installation of a boiler. By the year 2001, production capacity of TICL had been enhanced to 3,500TCD.
Early 2000s marked the decade of continued expansion for the mills driven by increasing domestic incomes and consumption, and global commodity price boom. Crushing capacity was further enhanced in two phases to 4,000TCD and 6,700TCD by the end of 2003.
The company also introduced a condensing system and entered the exports market by improving refined sugar quality to international standards. At the same time, TICL began selling surplus electricity to national grid.
The group continued on its expansion trajectory by acquiring Safina Sugar Mills in Chiniot district. Acquisition of Safina Sugars brought additional production capacity of 4,500TCD by end of 2008.
The company also setup core-sampler and cane-core testing laboratories, maintaining its pioneer position in the industry. At the same time, total crushing capacity increased to 17,800TCD by 2012, with a further capacity increase to 19,500TCD in the following two years.
Thal Industries is known for catering to multi-national B2B clients due to its high-quality refined sugar. International standards and procedures are kept in view for juice purification and clarification at plants of TICL. Furthermore, state of the art sugar packing enables to ensure smooth and consistent filling, stitching and conveying of the packed sugar in the sugar warehouses.
At Layyah, the company has recently commissioned a new high-pressure boiler with a capacity of 135 tons per hour. This will produce additional 12MW electricity by minimizing efficiency losses through installation of efficient equipment. The company plans on further investment in the technologies related to energy conservation and efficiency maximization.
Business performance overview
The industry has been producing surplus sugar for past couple of years. Director's report for MY17 notes that cane crop acreage was especially higher in south Punjab district due to disbursement of interest-free credit to farmers as compensation for crops destroyed in 2015 floods. Per acre yield improved as a result of better application of fertilizer and favourable weather.
As a result, country witnessed an exceptionally high bumper crop coupled with carryover stock of 2.5 million metric tons as it entered crushing season in Jan 2017. Despite the expectation of surplus sugar production in the local and international markets, the sugarcane minimum price was maintained by the Punjab government at Rupees 180 per mound for the crushing season MY17 and the price notified by the Sindh government was at Rupees 182 per mound.
Thanks to the bumper crop, the company increased crushing by 56 percent over the same period last year, crushing a total of 2.87 million tons of sugarcane, resulting in an all time high refined sugar production of 279,307 metric tons, increasing at the same rate as cane crushing over the previous year. As cane crushing and sugar produced both increased at the same rate, there was no increase in recovery rate which remained stagnant at 9.7 percent, 20bps lower than the national average.
While the top-line expanded phenomenally on the back of 56 percent volumetric increase in production, net revenue increased at a slightly lower rate of 40 percent over the previous marketing year as refined sugar prices remained depressed as the country has an excess supply of close to 2 million metric tons, despite allowed export of nearly 1 million tons. Cost of sales grew in line with top-line as sugarcane price set by the provincial government did not saw much movement either, declining barely by Rupees 10 per kg after High Court's intervention through an interim order issued after millers from Sindh petitioned the court.
Given the glut of sugar in global commodity market, revenue contribution from exports remained marginal for the company, clocking in a little over USD 1 million during the period under review. Net contribution of exports to top-line was less than 1 percent of gross sales.
Overall, while top-line improved in absolute terms, gross margin receded by 22bps due to no change in cost of raw material and an overall increase in manufacturing overheads. Double digit growth in administrative and distribution costs with a decline in other income (which albeit contributes marginally to profitability) led to a further trimming of operating margin by 72bps over same period last year.
Overall, net income increased by 7 percent on YoY basis, crossing the Rupees 700 million marks. However, net margin declined by 144bps on the back of substantial financial charges due to past borrowings, and higher tax liability.
Outlook
Once again, the country is looking at a surplus of sugar and the federal government allowed additional export of sugar of up to 225,000MT without any export subsidy. Since global sugar prices have plummeted, sugar players are expected to perform poorly in the financial year ending September 30, 2018 based on interim disclosures by major players during ongoing marketing year.

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Thal Industries Corporation Limited
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Rs (mn)                      MY17      MY16       YoY
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Sales                      14,919    10,673       40%
Cost of Sales            (13,076)   (9,331)       40%
Gross Profit                1,843     1,342       37%
Administrative expenses     (373)     (293)       27%
Distribution Costs          (162)     (100)       62%
Other expenses               (68)      (45)       51%
Other income                   48        95      -49%
Profit from operations      1,288       999       29%
Finance income/(cost)       (347)     (332)        4%
Profit before tax             942       667       41%
Taxation                    (233)       (6)     3561%
Net profit for the period     708       660        7%
Earnings per share (Rs)     47.15     43.94        7%
GP margin                   12.4%     12.6%    -22bps
Operating margin             8.6%      9.4%    -72bps
NP margin                    4.7%      6.2%   -144bps
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