With vested interests in a number of businesses including textile, food, dairy and sugar production Shakarganj Mills Limited is a public listed firm considered one of Pakistan's oldest and leading manufacturers of food products and industrial grade alcohol.
Having manufacturing facilities located out of District Jhang, Shakarganj Mills Ltd is primarily engaged in the cultivation, procurement and transformation of crops such as sugarcane and cotton and its value added conversion into consumer and industrial products such as refined sugars, textiles, industrial grade ethanol and building material such as particleboard.
FINANCIAL HIGHLIGHTS Faced with a particularly bad liquidity crunch, worsened by ever rising competition and stale economic conditions, Shakarganj Mills has been ailing and as of late severe concerns about the firm's ability to operate as a going concern have surfaced.
With the firm's current liabilities standing at Rs 9.7 billion, exceeding their current assets by a staggering Rs 4.8 billion, the equity continues to be eroded, standing negatively at a pessimistic Rs 818 million as of the period ended June 30, 2012. Overall, despite a cloud of bad omens hovering over the firm's last few financial years' performances, the report for the last nine months shows marginal improvements. For instance the profits from operation during this period stood at Rs 916 million, up from Rs 872 million posted during the same period last year, with the earnings per share for the period under review showing improvements- going up to Rs 4.27 as compared to Rs 3.53 recorded during the corresponding period last year.
However, the loss of Rs 174 million that is posted for the period added to continual losses from the past terms and has meant that the company is still unable to meet its numerous obligations against long-term loans, lease financings and other short-term borrowings- aggregating Rs 1.8 billion in due payment.
OPERATIONAL HIGHLIGHTS In order to improve its productivity and give some support to the liquidity situation in lieu of financing of operations and re-payment of borrowings, Shakarganj Mills took significant operational measures. Operational efficiencies in crushing and production in the sugar division improved as a result of starting the crushing season earlier than last year.
As a result, figures for crushing improved to Rs 1.957 million tons as compared to the 1.5 million tons of sugarcane crushed during the same period last year. The firm's performance in the ethanol division also improved during the last nine months as a result of higher capacity utilisation, which saw a production of 71.42 million liters as compared to 47 million liters produced during the corresponding period last year.
During this period the firm also had to sell certain assets in order to repay Rs 1.4 billion in payables which had been due for a while. As a consequence the firm's sugar units at Dargai Shah and the power Division at Dargai Shah were disposed off.
Added to that, sales of the firm's investment in Safeway Mutual Fund Limited and Asian Stock Fund Limited, and partial disposal of multiple parcels of agricultural land also took place. As a result, during current period the Company also settled its lease liability of Rs 21.47 million to different banks, leasing companies and Modarabas.
BTAINING BRIDGE FINANCING In February 2010, the firm had entered into agreements for a bridge finance facility of Rs 2.4 billion and short term running finance facility of Rs 2.9 billion from a consortium of its existing lenders. The plan had been to re-pay the bridge-finance borrowings through the sale of a number of the firm's identified assets.
However, a number of issues hindered the liquidation of the assets as per the timeline specified in the bridge loan agreement. Moreover, the firm could not obtain the no-objection certificate from NBP in a timely manner and as a consequence neither the bridge finance facility nor the consortium cash finance could be mobilised and stood expired on 30th June 2011.
Subsequently, Shakarganj Mills continued the process of negotiating with its lenders seeking short-term financing in an effort to re-profile its borrowings. As a result the firm received working capital lines Rs 1 billion from MCB Bank Limited, Rs 200 million from NIB Bank Limited, Rs 170 million from Standard Chartered Bank and Rs 540 million from United Bank Limited.
These loan facilities have been obtained against pledge of sugar/ethanol/molasses at a margin ranging from 15-25 percent, and consequently, the investment in plant maintenance that was made following these borrowings significantly improved operational results during the period ending June 30, 2012.
FUTURE OUTLOOK The performance of most of the company's business segments during the last nine months has improved. Higher sugarcane crushing with increased sugar production provided sufficient raw material to distilleries. Consequently, a significant improvement in the profitability level of the firm's ethanol business has contributed positively towards Shakarganj's financial stability. Although the next season's takings are still anybody's guess; the ongoing crises that have beset the firm's many operations as well as the crop position in the upcoming sugar season heavily dependent on weather conditions.
Looking at the company's financial reports, it is evident that the firm's textile and building material divisions have not been doing much to add to the bottom line in the recent past and the building material division in particular is likely set to face a difficult time in the coming quarter on account of rising raw material prices in the future. It would be safe to surmise therefore that struggling at so many levels Shakarganj Mills is unlikely to fare any better in the future if the stakeholder's do not make a timely decision to cut off its many bleeding appendages.
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Shakarganj Mills Ltd
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Rs('000) 2009 2010 2011
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Net sales 5,101,667 7,794,204 13,363,264
Gross profit 318,027 712,416 1,293,985
Profit from Operations -522,307 337,602 841,167
NPAT -1,957,821 -879,727 -81,523
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Profitability Ratios
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GP ratio 6.23 9.14 9.68
Net Profit margin -0.61 -11.29 -38.38
EBITDA margin to sales % 0.1 0.07 -0.02
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Liquidity Ratios
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Current ratio 0.28 0.51 0.3
Quick Ratio 0.16 0.49 0.14
Long term debt to Capitalisation 172.99 178.87 113.82
Total Debt:Total Assets 97 94 87
Total asset turnover 0.5 0.94 1.67
Fixed Asset Turnover 0.8 1.74 2.55
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Investment Ratios
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EPS -28.16 -12.66 -1.17
Price Earning Ratio -4.19 -0.33 -0.29
Market Value per share @ year end 4.9 4.13 8.12
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Operating Results
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Rs(mn) 3QFY11 3QFY12 %change
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Net sales 2,301 3,659 59.00%
Operating Income 215 8,269 3745.78%
NPAT -49,100 -174,186 254.76%
EPS -0.83 -2.51 202.41%
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Source: Company Records
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