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Shahmurad Sugar Mills Limited (PSX: SHSML) was established in 1979 as a public limited company. The company operates sugar and ethanol manufacturing units that are located in District Sujawal in the Sindh province.

Shareholding pattern

As at September 30, 2021, close to 24 percent shares are held under associated companies, undertakings and related parties. Within this category, a major shareholder is Al-Noor Sugar Mills Limited holding 15.6 percent shares. Nearly 53 percent shares are with the general public, followed by 11.5 percent with the directors, CEO, their spouses and minor children. Within this category, nearly three percent shares are owned by each of the following: Chairman of the company, Noor Mohammad Zakaria and Mrs Shahnaz Sattar Zakaria. Another 6.5 percent shares are held in mutual funds while the remaining over 5 percent shares are with the rest of the shareholder categories.

Historical operational performance

Shahmurad Sugar Mills has mostly seen a rising topline since MY15 with the exception of MY15, MY17 and more recently in MY21. Profit margins, on the other hand, have been on a sharp decline since M19.

In MY18, the company witnessed the biggest increase in revenue at nearly 43 percent, to cross Rs 7 billion in value terms. Sugar production was also higher at 82,366 metric tons compared to 72,755 metric tons in MY17. Sugar recovery rate was also higher at 11.06 percent versus 10.82 percent in MY17. The increase in volumes is attributed to a good sugarcane crop. A sales breakdown reveals that exports doubled year on year making a larger contribution to revenue, unlike last year. But with a significant rise in production cost to nearly 97 percent of revenue, gross margin fell to 3.3 percent for the year compared to 11.5 percent in the previous year. Majority of the increase in costs was associated with the rise in cost of raw materials. However, with a substantial support to the bottomline from other income of Rs 900 million, net margin improved to 8.3 percent. Majority of the other income came from export subsidy.

In MY19, revenue witnessed another year of double-digit growth of 31.5 percent, with topline reaching Rs 9.5 billion. However, sugar production had been lower at 55,425 metric tons at a recovery rate of 11.08 percent. The latter was marginally higher compared to 11.06 percent seen last year. The decrease in production was due to the non-availability of raw material. Majority of the increase in revenue came from local sales within the sugar division that more than doubled year on year to reach nearly Rs 3 billion, whereas export sales nearly disappeared in comparison at Rs 432 million compared to Rs 2.4 billion generated last year. On the other hand, overall export sales of ethanol amounting to Rs 6.47 billion, was a major contributor to the revenue. Moreover, with a notable drop in production cost at nearly 79 percent of revenue, gross margin escalated to over 21 percent, that also trickled to the bottomline, with a net margin of 12.7 percent.

Revenue in MY20 grew by over 17 percent to reach an all-time high of Rs 11 billion. Local sales of sugar increased by 46 percent, while export sales of ethanol continued to dominate the total revenue pie. Sugar production was lower year on year at 48,786 metric tons at a recovery rate of 11 percent. The latter was due to low quality of sugarcane whereas the lower production volume was due to shortage of sugarcane in the country. However, production increased to almost 86 percent of revenue with majority of the increase coming from cost of raw material in the ethanol division. Thus, gross margin stood at 14.3 percent, while the reduction in other income reduced net margin to 6.8 percent for the year.

After growing consecutively for the last three years, topline in MY21 contracted by almost 11 percent. Local sales of sugar division reduced by 5.4 percent while export sales of ethanol fell by almost 15 percent. Sugar production was lower at 47,220 metric tons due to non-availability of raw material. With a further rise in the cost of raw material in the ethanol division, the overall production cost pushed upwards to consume over 92 percent of revenue. Thus, gross margin was recorded at a lower 7.67 percent. While operating margin was supported by other income that primarily came from liabilities written back, net margin was again lower at 1.37 percent due to a rise in finance and taxation expense.

Quarterly results and future outlook

Revenue in the first quarter of MY22 nearly doubled year on year. However, sugar production was lower at 5,910 metric tons compared to 10,410 metric tons produced last year. But the volumes in 1QMY22 are for the period between November 30, 2021 and December 31, 2021. The company states the numbers are incomparable as more crushing is expected to happen for the remainder of the season.

Ethanol division saw its production volumes more than double year on year that may have contributed to the substantial growth in revenue. But with a more than corresponding rise in production costs, profitability was lower in 1QMY22 at a net margin of 2.5 percent, versus 7 percent in 1QMY21. Further cane crushing is expected but it is dependent on availability of raw material that is also expected to improve.


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