Shakarganj Limited (PSX: SML) was incorporated in Pakistan as a publicly listed company in 1967. The company is in the business of transforming renewable crops such as cotton and sugarcane into value-added products such as textiles, refined sugar, biofuel, building materials, etc. SML also supplies bio-power generated from biogas to the national grid. The company has its head office located in Lahore with its two production facilities in the Jhang District. SML is also a holding company of Shakarganj Food Products Limited (SFPL), one of the leading producers of fruit and dairy products.
Pattern of Shareholding
As of December 2021, SML has an outstanding share capital of 125 million shares which are held by 1414 shareholders. Associated companies, undertakings, and related parties hold the largest chunk of 37.15 percent of SML’s shares. Other local companies with a shareholding of 34.17 percent grab the spot of the next biggest shareholder. The general public owns 18.73 percent of the company’s shares. This is followed by NIT and ICP with a stake of 4.81 percent in the company. Directors, CEO, their spouses, and minor children hold 5.06 percent of SML’s outstanding shares. The remaining shares are held by other shareholders such as insurance companies, foreign companies, banks, DFIs and NBFIs, Modarba and Mutual funds, etc.
Financial Performance (2019-2022)
With 2017 being the last year when SML posted a profit after tax, SML has been a loss-making entity for quite some time now. While the topline only plunged in 2020, the losses have been magnifying until 2021, only to boast some improvement in 2022.
The company started making losses in 2018 due to significant operating losses in its sugar segment because of the enormous disparity between the sugarcane support price and the overall sugar price set by the government. The sugar division operated at a lower capacity during 2018 and hence fixed overhead cost per unit magnified. The biofuel segment boasted good performance due to attractive margins and a two-fold increase in exports, but it couldn’t sustain the bottom line.
The company made the highest loss after tax amounting to Rs1436.75 million in 2021 despite an excellent 26 percent year-on-year growth in the top line. Export sales which remained depressed in 2020 owing to supply chain bottlenecks amidst COVID-19, rebounded in 2021. While the cane availability was low, SML’s crushing increased significantly as the company had to pay a value higher than the notified support price to procure sugarcane and ensure uninterrupted operations. The distillery division couldn’t operate at its optimum capacity due to high raw material prices. The prices of the final product also increased which improved the gross profit by over 200 percent in 2021 with the GP margin clocking in at 6.6 percent versus 2.6 percent in 2020.
However, high operational charges offset the handsome gross profit and trickled down into massive losses. It is to be noted that while the distribution expense dropped by 4 percent year-on-year in 2021, it stands at a value equivalent to 6 percent of sales and 96 percent of gross profit and is widely responsible for SML making operational losses. A breakup of the distribution cost shows that freight and forwarding charge is the main culprit which amplifies this head. Other expenses didn’t spare the bottom line either and increased year-on-year by 193 percent as the company made huge losses on the sale of property, plant, and equipment during the year. Other income also didn’t prove to be gracious and plunged by 73 percent year-on-year in 2021. Finance costs dropped owing to a drop in discount rate during the year, however, couldn’t rescue the bottom line from making immense losses.
2022 was a favorable year for SML in a way that the company was able to greatly reduce the magnitude of the losses it had been making for five years. The loss after tax posted by the company in 2022 is 90 percent less than what it made in 2021. In 2022, SML posted a reasonable topline growth of 12 percent year-on-year. While the high support price of sugarcane remained to be the source of concern for the company, improved prices buttressed the GP margin which clocked in at 9.37 percent, a level never seen for at least the past 5 years. For the first time since 2019, the company is also able to post an operating profit in 2022 as against the operating losses in the preceding years. This came on the back of a sharp slump in other expenses. Distribution expenses continued to enlarge, standing at a value equivalent to 7 percent of sales. The frail operating profit couldn’t hold its ground in the face of huge financial costs incurred by the company during 2022 owing to multiple hikes in the discount rate and ended up with a negative bottom line.
Future Outlook
With the ban on sugar exports lifted in December 2022, the company is pinning hopes on export sales to help shove its bottom line into the profit zone. Biofuel exports have also rebounded after seeing a dip in 2020 owing to COVID-19-related impediments on the movement of people and goods. Hence, collectively, both segments are expected to fetch hefty sales growth in the ongoing year. However, higher sugarcane support prices, high freight and forwarding charges on the back of high anticipated exports, and high finance costs will continue to nibble on the margins. Whether or not the company is able to combat the off-putting factors and start making a profit in 2023 is yet to be seen.
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