After a gap of many years, the profit of country’s sugar sector is showing signs of strong growth.
The listed sugar sector’s earnings were up 23 percent YoY to a record high of Rs. 14 billion in 9MFY23 (October-2022 to June-2023). This increase is attributed to a rise in both sugar volumes and prices, according to a report by Topline Securities.
Ethanol, which is a by-product of sugar, also experienced improved performance in 9MFY23 due to favorable Ethanol selling prices in the international market along with the devaluation of the Rupee against the US dollar.
Net sales of the sector jumped 25 percent YoY to Rs. 235 billion in 9MFY23 due to the export of 216,000 tons and a 13 percent YoY increase in average domestic prices.
The average gross margins of the sector clocked in at 16.4 percent in 9MFY23 vs 15.9 percent in 9MFY22. The slight improvement in gross margins can be attributed to improved retention prices.
Selling and distribution expenses jumped by 46 percent YoY which is in line with the increase in volumetric sales along with the inflationary environment.
However, the finance cost has been limiting the earning growth, as it jumped by 82 percent YoY to Rs. 16.5 billion in 9MFY23 compared to Rs. 9.1 billion in 9MFY22. The significant rise is due to higher interest rates and higher borrowing for working capital.
To recall, in January 2023, Federal Government allowed the export of 250k tons of Sugar till June 2023, subject to the condition that proceeds in dollars would be recovered from sugar exporters within 60 days from when the letters of credit (LCs) are opened.
As a result of this decision, the sector exported 172,000 tons in 2QFY23 and 44,000 tons in 3QFY23 taking total export to 216,000 tons, as per the Pakistan Bureau of Statics (PBS).
Opening up of exports has built pressure on domestic prices, leading to a 40 percent increase in prices from Rs. 88 per kg in October 2022 to Rs. 123 per kg in June 2023. The prices have continued to rise and are currently at Rs. 140 per kg.
International Sugar prices have also up 31 percent from US$ 17.42 cts/Ib in October 2022 to US$ 22.89 cts/Ib in June 2023. The prices have continued to rise and are currently at US$ 24.37 cts/Ib.
Top 5 Companies
Al-Abbas Sugar Mills remained the best performer with profits of Rs. 2,608 million (19 percent of total sector profit) followed by Shahmurad Sugar Mills with a profit of Rs. 2,419 million (18 percent of total sector profit) and Thal Industries Corporation with a profit of Rs. 1,553 million (11 percent of total sector profit) in 9MFY23.
Interestingly, a few companies including, AL-Abbas Sugar Mills, Shahmurad Sugar Mills, Mehran Sugar Mills, Mirpurkhas Sugar Mills, Faran Sugar Mills, and Habib Sugar Mills recorded net profit margins in a range of 11-28 percent vs other peers companies’ average of 3 percent. This is mainly due to better performance by the Ethanol segment and one-off gains from their respective other businesses.
Source: Pro Pakistani