Noon Sugar Mills Limited

Part of the prolific Noon Group, Noon Sugar Mills Limited (PSX: NONS) was incorporated in 1964 in Punjab. The plant went into production in 1966 with a daily crushing capacity of 1,500 MT of sugarcane, which has since been raised to 9,000 MT. The company went on to add an alcohol distillery in 1986 which today has a current production capacity of 80,000 litres per day of industrial grade and fuel grade ethyl alcohol.
Noon Sugar Mills has its marketing year (MY) from October to September.
Pattern of Shareholding & Stock Performance
NONS shares have greatly underperformed the KSE100 index. For the first half of the calendar year, the stock was relatively mute but it shot up around the time the company announced its 9M financials. It was also around this time that there was a reshuffling of the management.
The pattern of shareholding reveals that the majority of the shares are within the company (44%). Associate company Noon Industries (Pvt) Limited holds a small share too (4.6%). The next largest chunk is with the local public (28%). Finally, a couple of foreign banks own over 22 percent of Noon Sugar shares. These are BHF Bank (Switzerland), and UK-based EFG Private Bank Limited.
Prior Performance
Like most sugar companies in Pakistan, Noon has been in trouble for some time. The company's top line has been on a constant decline, with the five-year CAGR at almost -11 percent. The bottom-line has been in the red for three of the past five years, with the recently concluded MY16 breaking a hat-trick of net losses. The company's troubles over the years, as per the yearly Director's Reports, can be summed up as follows: low sugar prices amid the government increasing sugarcane procurement price over the years, no sugar exports from the company over the years, lower sugar and alcohol production over the years, a plunge in ethanol prices circa 2014, and suspended natural gas supply to the distillery.
Of the two operating segments, sugar accounts for the bulk of Noon Sugar's revenues (82%), all of which is sold locally as the company has no sugar exports. The distillery segment is the more profitable business, earning higher gross margins. Around 63 percent of the distillery's sales are exports.
As per the Director's Reports, the distillery's margins have been maintained in spite of low international ethanol prices by reduced steam and power costs with reduced capacity utilization. However, the lower production has been accompanied by a reduction in the alcohol yield.
As far as Noon's sugar production goes, two trends are notable. Firstly, the company's recovery rates have been below the national average. Secondly, the company's operating period in days has also been on a decline. The reasons for these include increased competition from surrounding sugar mills for the procurement of sugarcane, disparity in cane pricing, and poor weather conditions.
Recent Performance
The recent year has been kind to Noon Sugar Mills. Although sales were down 14 percent over last year, the decline in costs was greater, yielding an improvement in gross profit and margins.
Net profit for the year ended was Rs 40 million, as against a net loss of Rs 116 million a year ago.
As per the Director's Report, the cane pricing disparity was resolved and sugar prices remained largely favourable throughout the year. Recovery was also higher as the company loaned out carefully selected variety sugarcane seed to the farmers.
As for the distillery, the management maintained the margins by effectively controlling the steam and power costs during the off-season, says the Director's Report.
Moreover, the decline in the company's other income - which came from the one-time gain on sale of investment last year - was offset by a reduction in finance cost. Last year, the company had disposed off its shares in its associate company, Noon Pakistan Limited.
Outlook
Going forward, Noon Sugar Mills has a lot to offer. As per the Director's Report, the sugarcane crop for the crushing season 2016-17 is expected to be 25 percent higher than last year. Improved sucrose recovery is expected from further propagation and cultivation of variety sugarcane in Noon's area. Moreover, higher cane procurement is expected, due to neighbouring competing mills being non-operational. The management's focus will thus be maximum capacity utilization of the mills.
Already, Noon has produced almost twice as much sugar from November to December compared to last year, at a recovery rate of 9.57 percent (up 30 bps year-on-year). Moreover, the firm's investment in captive power has begun to pay off from last year as well.
Finally, the distillery segment is poised to make a comeback due to improved international demand and price of ethanol. Foreseeing this potential, the management is ensuring uninterrupted supply of molasses and other inputs to more than double ethanol production over last year.

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Pattern of Shareholding Shareholders Category

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                                                   Percentage

                                                   of holding

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Directors, CEO, their spouses and minor children       44.37%

Associated Companies, Undertakings & Related Parties    4.63%

Noon Industries (Pvt) Limited                           4.63%

NIT and CIP                                             0.18%

Banks, DFIs, Non-banking Financial Institutions         0.01%

Insurance Companies                                     0.02%

Modarabas and Mutual Funds                              0.00%

General Public                                         28.13%

Local                                                  28.13%

Foreign                                                 0.00%

Others (to be specified)                               44.88%

Joint Stock Companies                                   0.37%

Investment Companies                                    0.01%

Foreign Companies                                      22.24%

a. BHF Bank (Switzerland) Ltd.                         13.54%

b. EFG Private Bank (Channel Islands) Ltd.              8.70%

Others                                                  0.02%

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Source: Company accounts

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Noon Sugar Mills Limited

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Rs (Million)                MY16    MY15         YoY

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Net Sales                  2,589   3,027        -14%

Cost of Sales              2,353   2,902        -19%

Gross Profit                 235     125         88%

GP Margin                     9%      4%  up 490 bps

Distribution & Marketing      26      54        -52%

Administrative Expenses      105     106         -1%

Other Income                  40      89        -55%

Other Expenses                 5       4         25%

Profit From Operations       138      50        176%

Finance Cost                  87     122        -29%

Share of Loss of Associate

Company - net of taxation      -     -16           -

Taxation                      12      28        -57%

Profit after tax              40    -116           -

NP Margin                     2%     -4%  up 540 bps

EPS                         2.43   -7.00           -

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