JDW Sugar Mills Limited (PSX: JDWS) was set up as a private limited company in 1990 under the Companies Ordinance, 1984. A year later in 1991, it was converted into a public limited company. The company produces and sells crystalline sugar, electricity and manages corporate farms.
Shareholding pattern
As at September 30, 2021, close to 48 percent shares are held by the directors, CEO, their spouses and minor children. Within this, Mr. Mukhdoom Syed Ahmad Mahmud, the Chairman of the company, is a major shareholder. Another 44 percent shares are owned by the local general public, followed by 5 percent in foreign companies. The remaining 5 percent shares are with the rest of the shareholder categories.
Historical operational performance
The company has mostly seen a growing topline over the years, while profit margins since M18 have risen gradually.
In MY17, the company experienced one of the biggest increases in revenue, at nearly 22 percent, with topline crossing Rs 45 billion. Aggregate sales volume has increased to Rs 58 billion. But with cost of production increasing to nearly 90 percent of revenue, compared to 82.7 percent in the previous year, gross margin decreased to 10 percent. This also trickled to the bottomline with net margin also recorded at a lower 3.5 percent, despite the reduction in other expenses and improvement in other income.
Revenue contracted in MY18 by almost 18 percent for the first time since MY12, with topline reverting to over Rs 37 billion. This was attributed to a decrease in average selling prices of sugar and molasses as well as an 18.6 percent reduction in sales quantity of sugar. The reduction in prices was due to surplus availability of sugar in the country. As a result, gross margin fell to an all time low of 7.4 percent. This, coupled with an escalation in finance expense due to carryover of unsold stocks, increase in KIBOR, and non-receipts of export subsidies, the company incurred a loss for the first time of Rs 204 million for the year.
JDW Sugar Mills witnessed the highest growth in revenue in MY19 at nearly 32 percent, with topline crossing Rs 49 billion. This was attributed to an increase in average selling prices of sugar and molasses as well as the sale of carryover sugar stocks. Production cost reduced as a share in revenue, from nearly 93 percent in MY18 to over 89 percent in MY19. Therefore, gross margin improved to 10.6 percent. Finance expense continued to rise as a share in revenue, consuming over 7 percent. While net margin was recorded at a little over 1 percent, it was higher in comparison to the net loss incurred in the previous year.
Revenue growth in MY20 was contained at single digits, at 6.8 percent, with topline reaching Rs 52 billion. This was again attributed to better prices of sugar and molasses and sale of carryover stock. With production cost also going down to 85.5 percent of revenue, gross margin peaked at 14.5 percent. With little changes in other aspects as a share in revenue, except a significantly higher taxation expense, net margin was recorded at 2.7 percent for the year.
Recent results and future outlook
Revenue in MY21 grew by 8.3 percent, to reach an all time high in value terms at near Rs 57 billion. This was attributed to increase in sales volumes and favourable prices of sugar and molasses as compared to the previous year. Therefore, gross margin also peaked at 17.8 percent. This also trickled to the bottomline that was recorded at an all time high of Rs 4.9 billion, and a net margin of 8.6 percent. Other income and other expenses were significantly higher year on year due to increase in net fair value of sugarcane crop and a write off of Rs 3.3 billion on account of receivables from CPPA-G for power supplied to the national grid. The rise in other expenses caused operating margin to be nearly flat at close to 11 percent, but net margin was supported by a positive tax figure compared to Rs 1 billion expense seen in the previous year in addition to a lower finance expense.
On the other hand, while recovery of molasses has improved from 4.34 percent to 4.6 percent, sucrose recovery has followed a declining trend since the last two years. Sucrose recovery was 11.29 percent in 2018-19, 10.36 percent in 2019-20 and further dropped to 9.98 percent in the current year.
Crushing season for the current period began on November 15, 2021 in Punjab and November 21, 2021 in Sindh. Moreover, with the State Bank of Pakistan (SBP) increasing the mark up rates, the finance expense of the company is expected to increase. Additionally, the company expects the crop size for the current crushing season to be 10 percent, and also for an improved sucrose recovery that will result in higher sugar production.
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