Mirpurkhas Sugar Mills Limited (PSX: MIRKS) was incorporated in Pakistan on May 27, 1964 as a public limited company and its shares are quoted on Pakistan Stock Exchange. Principal activity of the company is manufacturing and selling of sugar. The registered office of the Company is situated at Sub Post Office Sugar Mill Jamrao, Umerkot Road, Sindh.
Timeline of the Company
Mirpurkhas Sugar Mills began operations in February 1966 with an initial production capacity of 1,500 tons cane per day (TCD) through double carbonation double suphitation process (DCDS). By the end of the same decade, company had increased its production capacity to 2,000TCD.
By marketing year 1989 (MY89), the company had already achieved highest sugarcane crushing level of 747,344 tons in the country, thanks to process optimization. The mushroom growth in number of sugar mills in the country during the following decade led to the company becoming a midsized player in the domestic industry, losing the mantle of industry leader. Plant capacity has since been improved a number of times through undertaking of BMR initiatives, and currently stands at 8,500TCD per day.
Early on, the company used to export molasses in its raw form; however, realizing the export potential of value-added products in this line, the company set up a distillery by the name of Unicol Limited with the help of two other sugar mill groups, Mehran and Faran Sugar Mills Limited.
Unicol Limited has been in operations for the last 10 years and produces ethanol from molasses obtained as a byproduct of sugarcane crushing process. Other investments include Uni Energy Limited and Uni Foods Industries, both of which are a joint venture with its partners Mehran and Faran Sugar mill groups. Uni Foods began commercial operations last year and has been setup as an FMCG, whereas Uni Energy is a wind power unit. Profit from Unicol (the molasses-based distillery) played a crucial role in years of financial distress to minimize losses from sugar milling process.
MIRKS began corporate farming during MY12 with a land area of 871 acres, which allowed the company to reach Rs3 billion in sales the following marketing year. Farming areas was subsequently increased to 1,500 acres in the next three years. Corporate farming also allowed the company to maximize yield, by increasing sucrose recovery level to highest ever 11.02 percent by MY15. Sucrose content ratio currently stands at almost 90bps higher than national average.
Pattern of shareholding
Mirpurkhas Sugar Mills is a Ghulam Farooq Group (GFG) company. Close to 46 percent of shares in the company are held by sponsors through associated undertakings, majority of which is held through Faruque (Pvt.) Limited, which functions as group's holding company. Other well-known group entities include Cherat Cemant Company. Directors and their dependents own less than one percent of shareholding.
Sugar division performance
Performance of sugar division recorded a significant decline during the year. This was on the back of highest ever production, which was achieved under the expectation of improvement in retail prices of sugar. Furthermore, as the company relies heavily on its own sugarcane plantation, it has to process all of the sugarcane produced on company-owned farms, regardless of demand of end product. As a result, capacity utilization increased by three percentage points during the year to 57.9 percent. This is in addition to 13.33 percent increase in capacity also achieved at the beginning of crushing period due to BMR activities. As a result, sugarcane crushed and white sugar produced both increased by more than 18 percent during the period under review.
However, as domestic demand of sugar did not record significant increase, the company was only able to sell 51,937 tons of sugar against production of 71,341 tons, a volumetric decline of 27 percent on year on year basis.
Moreover, due to a supply glut in global market, the company was also not able to achieve any exports of white sugar, leading to further buildup of inventory. As a result, ending inventory at the close of marketing year recorded a year-on-year increase of 77 percent.
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 Jan 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 favors 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.
Financial analysis
Due to excess supply which has resulted in depressed domestic prices of end product, companies' revenue declined considerably at 26 percent. The slump in top line cascaded downwards, resulting in a loss at a gross level, due to cost of sales exceeding net revenue in value for the year. Gross margin stood at negative 1.7 percent, which is a 10.4 percentage point decline over the previous year.
Profits from equity investments in Unicol allowed the company to minimize losses, however, both operating and PBT margins dropped down by whopping 13 and 16 percentage points, as fixed financial charges led to company recording one of the highest losses in the industry.
Outlook
Once again, the country is looking at a surplus of sugar and the federal government has recently allowed export of sugar up to 225,000MT 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.
Sources say if the support price is not revised down substantially during the year, millers could outright refuse purchase during the next marketing year.
=================================================================== Pattern of Shareholding (as on September 30, 2017) =================================================================== Categories of Shareholders % =================================================================== Directors and their spouse(s) and minor children 1.00% Associated Companies 45.90% Mutual Funds 9.40% Executives 0.10% Public Sector Corporations 6.20% Banks, NBFIs 1.10% Charitable Trusts, Welfare & Cooperative Societies 0.00% General Public 25.90% Others 10.50% Total 100% =================================================================== Source: Company accounts ===================================================================
================================================================= Mirpurkhas Sugar Mills Limited ================================================================= Rs (mn) MY17 MY16 YoY Sales 2,802 3,763 -26% Cost of Sales -2,849 -3,435 -17% Gross Profit -47 328 -114% Administrative expenses -120 -112 7% Distribution Costs -48 -9 430% Other expenses -3 -10 -70% Other income 45 57 -21% Profit from operations -174 254 -168% Finance cost -229 -133 72% Share in profit from investments 110 105 5% Profit before tax -293 226 -230% Taxation 23 -75 Net profit for the period -270 150 -280% EPS (Rs) -22.01 12.23 GP margin -1.68% 8.72% -10.4pp Operating margin -6.19% 6.74% -13pp PBT margin -10.45% 5.99% -16.4pp ================================================================= Source: Company accounts =================================================================