Shahmurad Sugar Mills Limited (SHML) was incorporated in Pakistan on April 09, 1979. It is a public limited company operating under the Companies Act, 1913. The company is listed on the Pakistan Stock Exchange.
The principal activities of the company include production of sugar and ethanol, and its sale. The registered office of the company is situated in the provincial capital Karachi whereas manufacturing facilities are located in tehsil Jhok, 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 fibreboard manufacturing, where waste from sugarcane crushing is used as raw material.
The group first began trading activities in the late nineteenth century in Mauritius. In 1897, sugar production facilities on a very small scale were opened in Mauritius and thereafter offices in India, Sri Lanka and 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 merchandize. In 1960, Noori Sugar Factory was established with a cane research farm in Moro/Nawabshah District, and with a small sugar-manufacturing unit.
In 1980 Shahmurad Sugar Mills Limited was commissioned and listed on the then Karachi Stock Exchange. Four years later the group established Reliance Insurance Company Limited.
In 1987, the Al-Noor Medium Density Fiber (MDF) Board Industries (known as Lasani), 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 the Al-Noor Modaraba Management Company was established and subsequently Al-Noor Modaraba was floated on the then Karachi Stock Exchange. 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 financials, the sponsor family owns significant (more than 5 percent share) through associated undertakings and direct ownership by individuals; however, cumulatively it is a little under 30 percent. As a listed entity, majority shares are held by individuals whose details is not disclosed in the pattern of shareholding, reported at about 50 percent of total shares issued. However, industry sources indicate that sponsor family shareholding constitute majority of shareholding held through general public such that their cumulative voting right on the BoD exceeds 50 percent.
Business activities
Together with Al-Noor sugar, the group holds close to nine percent share in the white sugar market and is one of the largest manufacturers of white sugar in Sindh province; however, unlike its senior group entity, Shahmurad's revenue streams are not well-diversified and concentrated mostly in white sugar production with a small percentage of revenue coming from the ethanol division.
Sugar division performance
During the last marketing year, Shahmurad Sugar Mills operated for a total of 111 days, up from 88 days of sugarcane crushing during last year's operation. The crushing of sugarcane commenced on November and lasted for almost four months. During the period, the mill crushed 672,747 MT of sugarcane - increasing crushing volume by 36 percent on the back of bumper cane crop in northern part of Sindh. Based on number of days operated, crushing capacity stood at 1.2 million metric tons; however, capacity utilisation only stands at 55 percent.
This indicates slight improvement over capacity utilisation of 53 percent posted last year. Reportedly, group companies procured some sugarcane from Punjab as well to take advantage of bumper crop, in order to yield maximum utilisation of capacity possible.
The production of sugar also increased to 72,755 MT particularly due to higher volume of crushing, an improvement of 38 percent over previous year. The recovery declined to 9.90 percent as against 10.20 percent achieved last year. For the crushing period 2017-18, government of Sindh notified support cane price of Rs 182 per forty kg of cane, which was same as last crushing season's price. The industry continued to seek government support to decrease procurement rate, however, due to election year and farming vote's pressure, support price remained intact at 2016 level, despite a glut in local and international market.
Financial analysis
Note that as the country has been producing surplus sugar for past couple of years, as per PSMA sources the country had a carryover stock of 2.5 million metric tons as it entered crushing season in January 2017. Despite a glut of sugar in global commodity market, price of end product is left on the mercy of market forces whereas price of raw material is dictated by the government, and strongly favours the supplier (farmers) due to underlying political considerations.
However, despite total allowed export of 925,000 tons during MY17, Pakistan has an excess supply of close to 2 million metric tons of sugar. Due to excess supply, this has resulted in depressed domestic prices of end product, companies' revenue declined considerably by 15 percent. However, thanks to below optimal capacity utilisation coupled with efficient overhead management, cost of sales fell in line with top line, allowing the company to post marginal improvement in gross margin of 21bps. Sugarcane price set by the provincial government did not receive a revision since the previous marketing year, remaining at Rs 180 per maund.
With stagnant top line, the company struggled to maintain profitability, posting a year-on-year negative growth of 13 percent in gross profit. More than 100 percent increase in distribution costs further eroded margins, resulting in 62 percent reduction in operating profit, with more than 3pp decline in operating margin.
While the company recorded losses on before-tax basis, accounting adjustment in tax liability calculation allowed the company to post an accounting profit of Rs8 million in bottom line.
Outlook
Once again, the country is looking at a surplus of sugar and the federal government has recently allowed export of sugar up to 225,000 MT without any export subsidy, which was valid until 31st March 2018. Since global sugar prices have plummeted, review of quarterly accounts of major sugar players indicate that the industry is expected to perform poorly in the financial year ended September 30, 2018.
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Pattern of Shareholding (as on September 30, 2017)
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Categories of Shareholders %
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Directors and their spouse(s) and minor children 10.76%
Associated Companies 19.04%
NBP, NIT, ICP 1.11%
Public sector companies 5.47%
Banks, DFIs, NBFIs 1.10%
Mutual Funds 8.06%
Joint stock companies 4.77%
Individuals 49.69%
Total 100.00%
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Source: Company accounts
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Shahmurad Sugar Mills Limited
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Rs (mn) MY17 MY16 YoY
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Sales 5,056 5,910 -14.5%
Cost of Sales (4,472) (5,239) -14.7%
Gross Profit 584 670 -12.9%
Profit from trading 2 -
Administrative expenses (197) (183) 7.5%
Distribution Costs (280) (135) 107.0%
Other expenses (4) (19) -79.4%
Other income 23 10 118.6%
Profit from operations 129 344 -62.6%
Finance cost (203) (173) 17.3%
Profit before tax (74) 171 -143.4%
Taxation 82 (45)
Net profit for the period 8 126 -94.0%
Earnings per share (Rs) 0.34 5.93 -94.3%
GP margin 11.55% 11.34% 21bps
Operating margin 2.54% 5.81% -327bps
PBT margin -1.47% 2.89% -435bps
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