Islamabad, January 11, 2024 : Pakistan listed sugar sector’s earnings were up 78% YoY to record high of Rs22bn in FY23 (Oct-2022 to Sep-2023). This increase is attributed to rise in sugar prices that led to higher gross margins.
Ethanol, which is a by-product of sugar, also experienced improved performance in FY23 due to favorable Ethanol selling prices in the international market along with devaluation of the Rupee against the US dollar.
Net sales of the sector jumped 29% YoY to Rs304bn in FY23 due to the export of 249k tons and 28% increase in average domestic prices in FY23.
To recall, in Jan-2023, Federal Government allowed the export of 250k tons of sugar, 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, sector exported 249k tons in FY23 as per Pakistan Bureau of Statics (PBS).
Opening up of exports has built pressure on domestic prices, leading to a 90% increase in prices from Rs88/kg in Oct-2022 to Rs166/kg in Sep-2023. However, local prices have now declined and are currently at Rs147/kg as per PBS.
International sugar prices have also increased 45% from US$18.30 cts/Ib in Oct-2022 to US$26.60 cts/Ib in Sep-2023. However international prices have now declined and are currently at US$21.40 cts/Ib as per investing.com.
Average gross margins of the sector clocked in at 18% in FY23 vs 15% in FY22. The improvement in gross margins can be attributed to improved retention prices.
Selling and distribution expenses jumped by 38% which is inline with increase in volumetric sales along with inflationary environment.
Finance cost has been limiting the earning growth of sugar sector, as it jumped by 60% YoY to Rs18bn in FY23 compared to Rs11bn in FY22. The significant rise is due to higher interest rates and higher borrowing for working capital.
Shahmurad Sugar Mills remained the best performer with profits of Rs3,828mn (18% of total sector profit) followed by Al-Abbas Sugar Mills with profit of Rs3,686mn (17% of total sector profit) and Habib Sugar Mills with profit of Rs2,541mn (12% of total sector profit) in FY23.
Interestingly, few companies recorded higher net profit margins compared to peer companies mainly due to better performance by Ethanol segment. This was driven by better Ethanol selling prices in the international market and the devaluation of the Pak Rupee against dollar.
For our analysis, we have taken 20 listed Sugar companies that have announced their financial results out of 23 companies. Abdullah Shah Ghazi Sugar, Chashma Sugar Mills, and Premier Sugar Mills have not yet announced their results and we estimate that adding these 3 companies would not materially impact the profitability growth trend.
We have also excluded 5 companies on defaulter category namely Ansari Sugar Mills, Dewan Sugar Mills, Haseeb Waqas Sugar Mills, Sakrand Sugar Mills, and Shakaranj Limited.
